ETHIOPIA COUNTRY AND BUSINESS GUIDE



COUNTRY PROFILE

THE ECONOMY

INFRASTRUCTURE

INVESTMENT POLICY

GUARANTEES TO INVESTORS

MAJOR INVESTMENT INCENTIVES

MARKET ACCESS

TAXATION

MAJOR INVESTMENT OPPORTUNITIES

INVESTMENT APPROVAL PROCEDURES

HOW TO SET UP BUSINESS ORGANIZATIONS IN ETHIOPIA

OTHER BUSINESS INFORMATION

ALLOCATION OF LAND FOR INVESTMENT

ANNEX

COUNTRY PROFILE

The Country

Ethiopia, five times the size of the United Kingdom, is strategically located in the Horn of Africa. Its proximity to the Middle East and Europe, together with its easy access to the major ports of the region, enhances its international trade. Covering an area of approximately 1.14 million square kilometers (444,000 square miles), Ethiopia is bordered by the Sudan on the west, Somalia and Djibouti on the east, Eritrea on the north and Kenya on the south.

The diverse topography of the country generally features rugged mountains, flat-topped plateaus, deep river canyons, rolling plains and low lands. The major river basins include: the Abay (Blue Nile), Awash, Baro, Omo, Tekezie and Wabe Shebele. The Ethiopian highlands are divided by the Great Rift valley as it traverses the country from north to south.

Although Ethiopia lies within 15 degrees north of the equator, owing to the moderating influence of high altitude, the central highlands, where the vast majority of Ethiopian peoples live, generally enjoy temperate and pleasant climate, with average temperatures rarely exceeding 20oC (68oF). The sparsely populated low lands, on the other hand, typically have sub-tropical and tropical climates. At approximately 850 mm (34 inches), the average annual rainfall for the whole country is considered to be moderate by global standards. In most of the highlands, rainfall occurs in two distinct seasons: the "small« rains during February and March and the "big« rains from June to September.

Alpine vegetation features the highlands, while the low lands are characterized by woodlands, bush lands, savannah and semi-arid shrubs. Although approximately two-thirds of Ethiopia's land mass is arable, only 15 percent of its area is presently under cultivation. Only about 3 percent of the 3.5 million hectares of potentially irrigable land is being irrigated.

The People


With a population of about 57 million, Ethiopia represents a melting pot of ancient Middle Eastern and African cultures evident in the religious, ethnic and language composition of its Semitic, Cushitic, Omotic and Nilotic peoples. The Ethiopian peoples comprise about seventy eight nationalities of which the Amhara and the Oromo constitute the majority, with about 60 percent of the total population.

Approximately 85 percent of the population lives in the rural areas. The annual population growth rate is about 3 percent, and the economically active segment, between ages 14 and 60, is about 50 percent of the total population.

Amharic, Oromiffa and Tigrigna are the major languages used by two third of the population. Amharic is the official language of the Federal Government. English is the medium of instruction in secondary schools, junior colleges, and universities, and is widely used in business transactions, particularly in banking and insurance. Arabic and Italian are also widely spoken.

Christianity and Islam are the main religions practised in Ethiopia. Other traditional religions are also practised by a small section of the population, particularly in the South. There is freedom of religious practice in Ethiopia.

The Government


Ethiopia adopted a new constitution that established the Federal Democratic Republic of Ethiopia (FDRE) in 1995. The Federal Government is responsible for national defense, foreign relations and general policy of common interest and benefits. The Federal State comprises nine autonomous states vested with powers for self administration. The FDRE is structured along the lines of bicameral parliament, with the Council of Peoples' Representatives being the highest authority of the Federal Government while the Federal Council represents the common interests of the nations, nationalities and peoples of the states. Members of both councils are democratically elected by universal suffrage for a five-year term.

The Federal State is headed by a constitutional president and the Federal Government by an executive prime minster who is accountable to the Council of Peoples' Representatives. Each autonomous state is headed by a state president elected by the state council.

The Judiciary is constitutionally independent.

Cities and Towns

Addis Ababa, the largest city, is the seat of the Federal Government of Ethiopia, and lies in the central plateau at an altitude of 2,400 meters, 9o north of the equator. Its average temperature is 16oc.

Young as cities go, Addis Ababa was founded in 1887, and has a population of about 3 million. It is host to the Organization of African Unity (OAU), and the United Nations Economic Commission for Africa (ECA). Several other international organizations have their headquarters and branch offices in the capital, which is also the center of commerce and industry. Manufacturing plants for steel fabrication, wool, tanneries, textiles, cement, tyres, leather goods and breweries are among the activities located in and around Addis Ababa.

Entertainment and sports facilities abound. Resort centers with hot springs and lakes: Sodere, Langano, Awassa, Wodo Genet, etc., as well as national parks, easily accessible by road, lie to the south of the city.

Ethiopia's other important centers of trade and industry are: Awassa, Dire Dawa, Gondar, Dessie, Nazareth, Jimma, Harar, Bahir Dar, Mekele, Debre Markos and Nekemte. All these towns are connected to Addis Ababa by asphalt and gravel roads, and most of them have good infrastructural facilities, such as first class hotels and airports.

THE ECONOMY

The Ethiopian economy is dominated by agriculture which accounts for about fifty percent of the Gross Domestic Product (GDP), 65 percent of total exports and 85 percent of employment. Coffee alone accounts for over 85 percent of total agricultural exports. Agriculture is supplemented by manufacturing, mining, trade tourism, construction, services, etc. which account for about 50 percent of GDP.

Several crops are grown seasonally in different parts of the country. The main crops are cereals (teff, barley, maize, wheat, sorghum, and millet), pulses (horse beans, vetch and lentils), and oil seeds (niger seeds, flax, rape seed, seasame, caster beans and soya beans). The main cash and industrial crops are coffee, oil seeds, pulses, cotton, sisal, tobacco, fruits and sugar cane.

The industrial sector, which contributes about 11 percent to GDP, supplies important consumer goods both to the domestic and international markets. The main manufacturing products are textiles, foodstuffs, tobacco, beverages, cement, leather and leather products, wood, metallic and non-metallic products, paper, plastic and tiles. The main manufacturing export products include leather and leather products, canned and frozen meat, sugar and molasses, oil cakes and petroleum products.

Eventhough the mining sector currently contributes less than one percent to GDP, there are proven reserves of industrial minerals and precious metals such as gold, platinum, tantalum, nickel, iron ore, coal, marble, potash, copper, silica, limestone, diatomite, bentonite, etc. and oil and natural which can economically be exploited.

Economic Liberalization

Since the launching of the New Market Oriented Economic Policy in 1992, a number of policy measures and reforms have been undertaken to change the structure of the economy and bring about rapid economic growth and development. The reforms include, among others, the following short-term economic stabilization and structural adjustment measures:

  • deregulation of domestic prices;
  • abolishing of all export taxes (except coffee) and subsidies;
  • reduction of inflation through budgetary and monetary controls;
  • liberalization of foreign trade;
  • devaluation of the national currency, the Birr, to reflect its market value;
  • privatization of public enterprises;
  • promulgation of a liberalized investment law for the promotion and encouragement of private investments, both foreign and local;
  • issuance of a new labour law;
  • liberalization of foreign exchange regime.

    Fruits of Economic Liberalization

    The overall economy in terms of GDP grew 12, 1.7, 4.7 and 7.7 percent in 1992/93,1993/94, 1994/95 and 1995/96 respectively.

    The inflation rate dropped from its level of 21 percnt in 1991/92 to below 2 percent in 1995/96 and is expected to be constant for the coming 3 years.

    Key Macro-Economic Indicators

    Year

    1991/92 1992/93 1993/94 1994/95 1995/96*
    1. Gross Domestic Product (GDP)
    at current prices (Billion Birr)
    20.3 26.0 27.9 33.3 36.5
    2. Annual Growth Rate of GDP
    (in percent)
    -3.2 12.0 1.7 4.9 7.7
    3. Gross Fixed Investment
    (percent of GDP)

    9.4

    12.7

    15.1

    15.6

    16.5
    4. Gross Domestic Saving
    (percent of GDP)

    3.0

    3.5

    4.7

    8.4

    6.3
    5. Balance of Trade (million Birr)
    - Exports
    - Imports
    - Balance

    318.9
    1810.9
    - 1492.0

    949.2
    3618.7
    -2669.5

    1619.7
    5011.6
    -3391.9

    3094.0
    6695.1
    -3601.1

    2723.8
    8429.0
    -5705.2
    6. Inflation rate 21.0 10.0 1.2 13.4 1.2
    Source:- Ministry of Economic Development and Cooperation

    * Preliminary estimate


  • The budget deficit which was 7.2 percent of GDP in 1992/93 dropped to 4 percent in 1994/95 and is expectd to be eliminated in 1996/97 and thereafter;

  • The export trade has registered a strong recovery (91 percent growth rate in 1994/95 as compared to that of the previous fiscal year) and hence the foreign currency reserve has steadily improved. However, the development effort, particularly after the economic liberalization, has increased imports at a rate faster than that of exports.

  • INFRASTRUCTURE

    Ethiopia is aware of the crucial importance of infrastructural facilities in attracting foreign investment to the country. Hence, the Government has embarked upon a comprehensive infrastructural development program in the transport, telecommunications and energy sectors.

    Transport

    The road transport system is the most important means of transport in Ethiopia, providing for over 90 percent of passenger and freight transport in the country. Both asphalt and gravel roads radiate from Addis Ababa to important cities, towns and centers of commercial, industrial and agricultural activity. International highways link Addis Ababa to neighboring countries: Djibouti, Eritrea and Kenya. As part of the extensive infrastructural development program, the Ethiopian Government has earmarked some US$ 4 billion for the road sector during the next ten years.

    Excellent passenger and cargo air transport services are operated by Ethiopian Airlines, which is one of the world's better known carriers. Its international flights links the country with 41 cities in three continents: 26 in Africa, 11 in Asia and 4 in Europe. Its extensive domestic network serves 43 airfields and an additional 21 landing strips. There are three international airports. Its modern fleet includes Boeing 767 and 757 jets for international flights, ATR-42 and Bowing 737 jets for domestic flights. Admas Air provides agrospray and domestic charter services.

    Ethiopia makes use of the ports of Assab and Massawa on the Red Sea Coast for its import-export trade. The port of Djibouti, which has a rail link to Addis Ababa, also serves the country for external trade contacts. The Ethiopian Shipping Lines provide import-export and coastal carrier services on its vessels.

    Cargo handling and harbor facilities and services are provided by maritime Transit and Services Corporation. Such services are also rendered by private transit companies.

    Telecommunications

    Ethiopia is in the process of improving its telecommunications facilities which are relatively efficient by Sub-Sahara African standards.

    Direct microwave links connect all regional cities, and a number of smaller towns have automatic telephone services. Excellent international communications links are maintained through two satellite earth stations, providing telephone, telex, fax and television services.

    Microwave links exist with Kenya, Djibouti and Eritrea. Recently, digital telephone exchanges have been installed. Together with the digitalization of the exchange, additional facsimile, telex and data transmission are widely used.

    Postal services, including sky-pack facilities, operate domestically and for international contacts.

    Power Supply

    Ethiopia has vast hydro-power and promising geothermal energy resources. Its hydro-power potential has been estimated at about 650 billion kwh/a. In view of the topographic features of the country, at least 20 to 25 percent of this potential can be economically developed.

    To date, the aggregate electricity generated is a mere 1.2 billion kwh/a, which is much less than one percent of the potential. The present regional distribution system of electric service is undertaken through the Inter-Connected System (ICS). The main industrial towns are all connected into this national grid. Almost the entire ICS capability is provided by the five hydro-electric power plants at Fincha, Koka, Awash II, Awash III and Melka Wakena. A sixth hydropower plant at Gilgel Gibe, with an installed capacity of 180 mw, is scheduled to become operational in 1998. Electric energy is supplied at 380/220 volts, 50 cycles AC; the transmission facilities are 230 kv, 132 kv, 66 kv, 45 kv, 15 kv, 5.5 kv and 3.2 kv lines

    Electricity in Ethiopia, being mostly hydro-power, is quite cheap and adequately available. It is supplied by the Ethiopian Electric Light and Power Authority (EELPA). No difficulties are anticipated in meeting electric power requirements for a greatly expanded program of industrial development.

    Education and Health

    Ethiopia's education system is capable of providing well trained skilled and semi-skilled technical and business personnel. The country's universities, colleges and technical institutions provide professional, semi-professional and technical skills necessary for the business sector. Thousands of primary and secondary schools serve to lay the foundation for human resources development in the country.

    There are a number of foreign community schools in Addis Ababa. Currently, English, American, French, German, Italian, Greek and Indian community schools are offering kindergarten, elementary, junior secondary and secondary education with acceptable international standards.

    Most urban centers have reasonable numbers of hospitals, health centers and clinics. As regional governments allocate an increasing share of their budgets for the health sector, additional health facilities are being built in rural areas.

    Banking and Insurance

    Efficient banking and other financial services are available in Ethiopia. While the National Bank of Ethiopia (NBE) serves as the Central Bank, commercial banking functions are performed by the Commercial Bank of Ethiopia (CBE) and by a number of newly emerging private commercial banks. The CBE has 164 branches including one in Djibouti. The CBE and private commercial banks offer savings and checking accounts, extend short term loans, deal with foreign exchange transactions, provide mail and cable money transfer services, participate in equity investments, provide guarantee services and perform all other commercial banking activities.

    The two specialized banks are the Development Bank of Ethiopia (DBE) and the Construction and Business Bank (CABB). DBE extends short, medium and long-term loans for viable development projects, including industrial and agricultural projects. It also provides other banking services, such as checking and saving accounts, to its clients. It has 13 main branches and 18 sub-branches in different parts of the country. The CABB provides long-term loans for construction, acquisition or maintenance of dwellings, community facilities and real estate development. In addition, it offers all other commercial banking services to businesses.

    In conformity with relevant laws of the country, foreign enterprises/ companies formally registered/established and operating in Ethiopia are entitled to access to domestic credit borrowing, on the same terms and conditions applicable to Ethiopian companies.

    In Ethiopia, all classes of insurance services are mainly provided by the Ethiopian Insurance Corporation (EIC), which also manages, administers, supervises and directs all insurance transactions. It has 21 main branches throughout the country.

    A growing number of private insurance companies are joining the insurance service business, thus creating a competitive environment in the business.

    INVESTMENT POLICY

    Ethiopia follows a market oriented economic development strategy. All forms of market based reforms have been introduced and more inducements to both domestic and foreign private investments have been provided. The private sector is encouraged to invest in most sectors of the economy except in the following areas which are reserved exclusively for the Government (Procl. No. 37/1996, Article 5)

  • defense industries;
  • production and supply of electrical energy with installed capacity of above 25 megawatts;
  • air transport services using aircraft with a seating capacity of more than 20 passengers or with a cargo capacity of more than 2,700 kg;
  • rail transport services;
  • telecommunication and postal services with the exception of courier services.

    A foreign investor may invest on his own or jointly with a domestic investor(s).

    Joint Ventures

    A foreign investor may team up with a domestic investor or company for a joint investment, usually in the form of a partnership, or private limited company or a share company. Nevertheless, under the Investment Proclamation No. 37/1996, a minimum equity capital of USD 300,000 is required from any foreign investor who intends to enter into a joint venture partnership with a domestic investor. The foreign partner is required to satisfy this minimum equity capital either in cash or in kind, in the form of capital goods such as machinery, equipment or other tangible assets, imported specially and exclusively to establish the enterprise or in both cash and in kind. The share of the domestic partner(s) cannot be less than 27% in a joint investment.

    Wholly Foreign Owned Investments

    A foreign investor, who intends to invest on his own except in engineering and other technical consultancy services, is required to invest not less than USD 500,000 in cash and/or in kind as an initial investment capital to start his business. The minimum capital required of a foreign investor investing in engineering or other technical consultancy services is USD 100,000 which may be in cash and/or in kind.

    A foreign investor investing in wholly foreign owned enterprises or joint ventures is not allowed to invest in areas reserved for Ethiopian nationals and domestic investors. (see the Annex)

    GUARANTEES TO INVESTORS

    Ethiopia provides the following guarantees to foreign investors.

    Repatriation of Capital and Profits

    Capital repatriation and remittance of dividends and interest is guaranteed to foreign investors under the Investment Proclamation. Any foreign investor has the right, in respect of an approved investment, to make the following remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange on the date of remittance:

  • profit and dividends accruing from an investment;
  • principal and interest payment on external loans;
  • payments related to technology transfer or management agreements;
  • proceeds from sale or liquidation of an enterprise;
  • proceeds from the sale or transfer of shares or assets;
  • compensation paid to a foreign investor.

    Guarantees Against Expropriation

    The constitution of the Federal Democratic Republic of Ethiopia gives protection to private property. The investment proclamation also provides investment guarantees against measures of expropriation and nationalization. Expropriation or nationalization may only occur either for public interest and in compliance with the requirement of the law. Where such expropriation are made, the government guarantees to provide adequate compensation corresponding to the prevailing market value of the property and such payment shall be effected promptly.

    Other Guarantees

    Ethiopia is a member of the World Bank - affiliated Multilateral Investment Guarantee Agency (MIGA) which issues guarantees against non-commercial risks to enterprises which invest in signatory countries. Ethiopia is at any time ready to conclude bilateral investment promotion and protection treaties with any country and is in fact currently concluding such agreements with a number of developed countries.

    Ethiopia has also signed the World Bank treaty "the convention on settlement of investment disputes between states and nationals of other states (ICSID)".

    LABOUR

    Ethiopia has an abundant, hard-working, inexpensive and disciplined work force. The minimum wage for unskilled labour is Birr 120 (less than USD 20) per month. Private investors can easily find and recruit young and energetic work force at about the same rate. Hence, the cost of labour in the country is very low by any standards.

    Ethiopia has also sufficient skilled and well-trained work force. Its technical and vocational training schools, engineering colleges and universities annually produce trained personnel in business, management, law engineering, economics, accounting, technical training in fairly large numbers. Furthermore, since the medium of instruction in schools of higher learning is English, members of the skilled labour force in Ethiopia speak and write English. The market price of skilled personnel in Ethiopia is also very attractive. The salaries of fresh university graduates normally ranges between Birr 500 (less than USD 90) to Birr 800 (less than USD 140) per month depending on the level of education. Generally, the level of salary paid for skilled labour is determined by contract between the employer and the employee.

    The new labour law of Ethiopia, which has been prepared in conformity with recognised international labour norms and standards, provides adequate provisions for the beginning and termination of employment without infringing the rights of investors.

    MAJOR INVESTMENT INCENTIVES

    In order to encourage private investment and to promote the inflow of foreign capital and technology into Ethiopia, the following incentives are granted to investors (both domestic and foreign), engaged in new enterprises and expansions in areas qualified for investment incentives.

    Customs Import Duty

  • One hundred percent exemption from the payment of import customs duties and other taxes levied on imports is granted to all investment capital goods, such as plant, machinery, equipment, etc. as well as spare parts worth up to 15% of the value of the imported investment capital goods, provided that the imported capital goods are not produced and are not available locally in comparable quantity, quality and price.

  • Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.

  • Exemptions from customs duties or other taxes levied on imports shall be granted for raw materials necessary for the production of the goods for export market. Taxes and duties paid on raw materials are drawn back at the time of export of finished products. The duty drawback scheme applies to all taxes at the time of importation, and those paid on local purchases.

    Exemptions From Payment of Export Customs Duties

    Ethiopian products (except coffee) and services destined for export, are exempted from the payment of any export tax and other taxes levied on exports.

    Income Tax Holiday

  • Any income tax derived from an approved new investment made pursuant to Proclamation No. 37/1996 shall be exempted from the payment of income tax for periods ranging from 1 to 5 years, depending upon the priority area of investment activity and the location in which the investment is undertaken. Profit tax holiday is granted subject to Council of Ministers Regulation No. ___ as follows:

    Ser. No.

    Location

    Type of Investment Activity Tax Holiday (in years)
    1 Addis Ababa, Nazareth and in localities within 15 kms of the main highway connecting the two cities - Pioneer

    - Promoted

    3


    1

    2 Relatively under developed locations: Beneshangul & Gumuz, Gambella, South Omo, certain Zones in Afar, Somali and other regions which will be determined by the Investment Board.
    - Pioneer

    - Promoted

    5


    3

    3 All other locations - Pioneer

    - Promoted

    4


    2




  • Income derived from an expansion whose invested capital is in accordance with the Council of Ministers Regulations, No. ____, Article 6(2), is exempted from the payment of income tax for a period of 2 years for pioneer activities and 1 year for promoted activities.

    R & D Incentives
    An investor is entitled to have deduction of his expenses incurred for research, improvement studies or training from his taxable income.

    Exemption from the Payment of Taxes on Remittance of Capital

    Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares of assets upon liquidation or winding up of an enterprise is exempted from the payment of any tax.

    Loss Carried Forward

    Business enterprises that suffer losses during the tax holiday period can carry forward such losses following the expiry of the exemption period under the following conditions:

  • for investments undertaken in Addis Ababa or Nazareth, or in a locality within 15 kms of the main highway connecting the two cities and where such investments fall under pioneer or promoted activities, the loss carried forward is 3 years.

  • for investments undertaken in relatively underdeveloped regions such as Gambella, Benishangul and Gumz, South Omo, certain zones in Afar, Somali and other regions which will be determined by the Board and where such investments fall under pioneer and promoted activities, the loss carried forward is 5 years and 4 years respectively.

  • for investments undertaken in the regions other than those mentioned above, the loss carried forward for pioneer and promoted activities are 5 years and 3 years respectively.

    Depreciation

    Depending upon the choice of the investor either a straight line or an accelerated method is employed for depreciation of assets based on book value.

    MARKET ACCESS

    Domestic Market

    Ethiopia, with a population of About 57 million, provides a steady and growing domestic market, which is one of the largest in Africa.

    Regional Market

    Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA) agreement embracing 23 countries in Eastern and Southern Africa with a population of approximately 300 million. Exports and imports with member countries enjoy preferential tariff rates.

    ACP/Lome Convention

    Export products from Ethiopia to the European Union market are entitled to duty reductions or exemptions and freedom from all quota restrictions under the terms of the Lome Convention. Trade preferences include duty free entry of all industrial products and a wide range of agricultural products including fruits, vegetables, pulses, oil seeds, etc.

    Generalized System of Preference (GSP)

    Under the Generalized system of Preference (GSP), a wide range of Ethiopia's manufactured products are entitled to preferential duty treatment in the United States of America, Canada, Switzerland, Norway, Sweden, Finland, Austria, Japan, as well as most European Union countries. Besides, no quantitative restrictions are applicable to Ethiopian exports on any of the 3,000 -plus items currently eligible for GSP treatment.

    Ethiopia's Export Performance and Future Prospects

    Exports from Ethiopia have continued to be narrow with about 89 percent of total exports valued at Birr 1.62 billion in 1993/94 being shared among six products: coffee (56.8%), hides and skins (12.6%), gold (11.1%), petroleum products (4.5%), oil seeds (2.7%) and pulses (1.7%). The strategy is, therefore, to enlarge and diversify, these products through increased production of non-traditional exportable items such as manufactures and processed goods, horticultural products, fruits, mineral products and other exportable goods and services.

    Ethiopia has continued to export its products to the European union (32.8%), Japan (13.3%), Saudi Arabia (7.7%) and the United States of America (6.8%) whereas the bulk of its imports totaling Birr 4.74 billion in 1993/94 were from the European Union (32.8%), Saudi Arabia (13.3%), the United States of America (10.2%) and Japan (5.7%). In 1993/94, Ethiopia's export to and import from COMESA countries were 12.4% and 8.3% respectively. The objective is, therefore, to expand existing market shares and to diversify into new markets, particularly to COMESA and Middle Eastern countries.

    TAXATION

    The principal types of taxes are profit tax on business (both incorporated and un-incorporated), sales tax, excise tax, customs duties, income tax from employment. There are also other types of taxes such as income tax from dividend, royalties and stamp duties.

    Corporate Income Tax

    The corporate income tax in Ethiopia is 35 percent.

    Sales and Excise Taxes

    Sales and excise tax Proclamation No. 68/1993 sets a legal basis for imposition of sales and excise taxes on

  • goods produced locally;
  • goods imported from abroad; and
  • services rendered locally.

    Sales Tax Rates

    The rate of sales tax is 4 percent for selected list of agricultural and essential goods such as live animals and products vegetables and fruits and unprocessed cereals food, pharmaceuticals, books and printed materials, hides and skins, and cotton when either produced locally or imported while it is 12 percent for all other products. Sales tax is paid by the producer, importer or the person rendering services as the case may be.

    Excise tax

    Excise tax is levied on selected items when produced locally or imported from abroad. The tax rate ranges from 10 in the case of textile and television broadcasting receiver to 200 percent in case of all types of alcohol. Excise tax is payable on:

    a) goods produced locally by the producer within a period of 3 days from the date of production;

    b) goods imported from abroad by the importer at the time of clearing the goods from the customs area.

    Customs Duties

    Customs duties are payable on imports by all persons and entities which have no duty free privileges. The main regulation on customs duty is proclamation No. 38/1993 which introduced a harmonized system of classification of goods and the rate of customs duty ranges from 0 - 50%.

    Income Tax from Employment

    Personal income tax is payable as per Proc. No. 107/1994. According to the said law, the first one hundred twenty Birr /120 Birr/ monthly personal income is exempted from payment of income tax.
    For monthly income of Birr 121 and above the marginal tax rates range from 10 percent to 50 percent with 6 income brackets as shown hereunder.



  • Taxable monthly income in Birr

    Rate of tax on additional income (%)
    Up to 120

    Nil

    121 - 600

    10

    601 - 1200

    15

    1201 - 2000

    20

    2001 - 3000

    30

    3001 or above

    40



    Export Taxes

    There are no taxes on export products and services from Ethiopia except on coffee.

    Dividend Income

    Dividends distributed to share holders are taxable at the rate of 10 percent withholding tax.

    Tax Treaties

    Ethiopia has concluded tax treaties with a number of countries and is also ready to conclude similar treaties with other developed and developing countries for the purpose of avoidance of double taxation.

    MAJOR INVESTMENT OPPORTUNITIES

    AGRICULTURE

    Agriculture is the backbone of the economy, providing employment to 85 percent of the population. The sector contributes about half of the GDP and three-fourths of total exports, with coffee alone accounting for up to 65 percent of total exports. Furthermore, agriculture plays a crucial role in providing raw material inputs for industry.

    Ethiopia is endowed with wide-ranging agro-ecological zones and diversified resources. Nearly all types of cereals, fiber crops, oil seeds, coffee, tea, fruits and vegetables are grown. The potential for irrigated agriculture is estimated at 3.5 million ha.

    Ethiopia has the largest livestock resources in Africa. Fishery and forestry resources are also significant.

    Considerable opportunities exist for new private investment in the production and processing of the above agricultural crops and resources.

    Food Crops

    The major food crops grown include teff, wheat, barley, sorghum, maize, beans, peas, lentils, soybeans, chickpeas, etc.. In 1993 Ethiopia managed to produce only 7.8 million tons of these food crops on about 5.2 million hectares of land. This is far short of the country's needs for these crops, and great opportunities exist for commercial production and processing of food crops. Some pulses can also be produced or processed for the export market.

    Oil crops such as rape seed, linseed, groundnuts, sunflower, niger seed and cotton seed serve as raw material inputs for the edible oil industry. Some oilseeds, including sesame, are important export crops. Favorable agro-climatic conditions also exist in the south western parts of the country for introducing coconut for the production and processing of palm oil and ghee.

    Beverage Crops

    Coffee remains the single most important export cash crop, with over 400 thousand hectares under cultivation. The volume of coffee export has steadily increased from 58 thousand tons in 1990/91 to just over 100 thousand tons in 1995/96. The potential for private production and processing of coffee is significant.

    Diversification into tea production and processing, which began with 3 tons in 1974, had reached 3,657 tons in 1993. The favorable agro-climatic conditions existing in the south western parts of the country offer excellent opportunities for the production and processing of tea, especially for export.

    Cotton and Sugar

    These crops hold significant opportunities for export. Existing textile industries demand approximately 50,000 tons of lint cotton annually. However, only a portion of this demand is met from domestic production, with the remaining need being met through import. In addition, there are good prospects for exporting lint. Therefore, opportunities for production and processing of cotton in Ethiopia are significant.

    Considerable opportunities also exist for the production of sugar for the domestic as well as the export market, especially in view of acute domestic shortages.

    Horticulture

    Ethiopia is endowed with agro-climatic conditions that are suitable for the production of a broad range of fruits and vegetables, including temperate, tropical and sub-tropical crops. Horticultural crops currently being produced include citrus, banana, mango, papaya, avocado, guava, grapes, pineapple, passion fruit, apples, potatoes, cabbages, cauliflower, okra, egg plant, tomato, celery, cucumbers, pepper, onion, asparagus, water melon, sweet melon, carrots, green beans and cut flowers. The largest citrus plantation in East Africa is found in Ethiopia. Cut flower production is a fast growing export business with about 26 thousand tons of flowers and vegetables exported in the 1993/94 production year. The agro-processing of fruits and vegetables can be vertically integrated with production. There are already some integrated agro-industrial processing plants run by a state enterprise. The horticulture sub-sector in general holds great potential for private investment.

    Livestock

    Despite the large livestock resources of the country, which include 32 million cattle and 42 million sheep and goats, the contribution of the sector to the national economy leaves much to be desired. In view of the traditional methods of animal husbandry, the current output per unit of domestic breed of livestock is low. Therefore, investment opportunities are potentially attractive in the areas of modern commercial livestock breeding, production and processing of meat, milk and eggs.

    New investment areas of potential significance are also available in ostritch, civet cat and crocodile farming.

    Fishery

    Opportunities exist for fresh water fish production and processing using artificial ponds. In addition, the country's fresh water bodies have an estimated annual fish production potential of 53 thousand tons, of which less than ten percent is presently being exploited.

    Forestry and Apiculture

    An estimated 3.5 million hectares of natural forest presently remains in 58 areas designated as National Forest Priority Areas (NFPA). Of these, 13 are managed under integrated forest management systems, with about 80,000 hectares of industrial forest having been established for limited sustainable exploitation. Investors are welcome to invest in integrated commercial production of structural timber, pulpwood, match wood or even fuel wood. Production of rubber and natural gum also offers exciting opportunities for private investment.

    Possessing some seven million bee colonies, Ethiopia happens to be the leading honey and bee wax producing and exporting nation in Africa, and provides excellent prospects for private investment in apiculture.

    Agricultural Services

    Considerable scope exists for investment in the provision of agricultural support services such as pest and disease control, technical consultancy, agricultural machinery, cold storage, transport and marketing services.

    Manufacturing

    The manufacturing sector is at an early stage of development, currently accounting for about 11 percent of GDP and 9.5 percent of employment. There are about 130 state-owned and 7,000 private manufacturing industries of all sizes, mainly engaged in the production of food, beverages, tobacco, textile, leather and foot wear, paper, metallic and non-metallic mineral products, cement and chemicals.

    Ethiopia's industrial policy is based on Agricultural Development Led Industrialization (ADLI) strategy, whose main objective is the gradual structural transformation of the economy from agricultural to industrial development using the country's human and natural resources.

    Major manufacturing opportunities offering attractive potential benefits to prospective investors are hereby outlined in the food and beverage, leather and textile, chemical and paper, electrical and electronic, building materials, and non-metallic mineral and metallic industrial sub-sectors. Nearly all of these investment opportunities are based upon the needs and/or resources of the country.

    Food and Beverages : Processing and preserving of meat products; integrated production, processing and preserving of fish and fish products; processing and preserving of fruits and vegetables; integrated production and processing of dairy products; manufacture of starch and starch products; processing of animal feed; manufacture of sugar; manufacture of brewery, mineral water, winery, soft drinks, etc.

    Tannery and Leather Goods and Articles: Integrated tanning up to finishing; manufacture of luggages, handbags, saddler, harness, footwear and garment.

    Textile: preparation and spinning of textile fibers, weaving of textile fabrics, and made-up textile articles.

    Glass and Ceramics: table ware and sanitary ware, sheet glass, and manufacturing of containers based on raw materials.

    Chemicals and Chemical Products: manufacture of basic chemicals based on local raw materials, including PVC granules from ethyl alcohol, formal dehyde from methanol, manufacture of caustic soda and chlorine based chemicals, carbon black; activated carbon; precipitated calcium carbonate; textile dyes; ball-point ink; and tallow for soap.

    Drugs and Pharmaceuticals: Manufacture of pharmaceutical, medicinal, chemical and botanical products in the form of tablets, capsules, syrups and injectables.

    Paper and Paper Products: pulp from indigenous raw materials, paper and paper products.

    Plastic Products: high pressure pipes, pipe fittings, shower hoods, wash basins, insulating fittings, lighting fittings, office and school supplies and fittings for furniture.

    Building Materials: manufacture of cement, lime, gypsum, marble, granite, limestone, ceramics, roofing tiles, corrugated sheets, tubes, pipes and fittings.

    Electrical and Electronic Products: Manufacture of office, accounting and computing machinery; manufacture of electric motors, generators, transformers, capacitors, resistors, switch gears, electrical fittings and integrated circuit boards; manufacture of radio, television, VCRs, printers, floppy disc drives, communication and other equipment and apparatus for the domestic and export market.

    Metallurgy: manufacture of basic iron and steel; operation of blast furnaces, steel converters, rolling and finishing mills.

    Structural Metal Products: manufacture of metal structures, fabricated steel structures, bridges, towers and recycling of metal and non-metal waste and scrap.

    Machinery and Equipment: assembly and manufacture of agricultural machinery and equipment, industrial, transport and mining machinery and parts, construction machinery, machine tools and accessories, miscellaneous light engineering products, components and parts.

    Mining

    Ethiopia offers very good prospects for mineral prospecting and development. According to the Ministry of Mines and Energy, "Ethiopia's green stone belts offer one of the finest prospects for gold mineralization anywhere in the world", and already more than 500 metric tons of gold deposits have been identified by Government exploration efforts. Additional gold reserves are expected to be identified in at least seven regions of the country. In addition to gold, Ethiopia is blessed with good prospects for tantalum, platinum, nickel, potash and soda ash. Included in the construction and industrial minerals are marble, granite, limestone, clay, gypsum, gemstone, iron ore, coal, copper, silica, diatomite, bentonite, etc. With regard to fossil energy resources, there are significant opportunities for oil and natural gas in the four major sedimentary basins of the country, namely the Ogaden, the Gambella, the Blue Nile and Southern Rift Valley.

    The details of the mineral resources of the country have been published by the Ministry of Mines and Energy in a two volume prospectus. (Fax: 251-1-614574 / 251-1-515788)

    Tourism

    Given its unique cultural heritage, magnificent scenery, pleasant climate, rich flora and fauna, important archaeological sites and friendly and hospitable people, Ethiopia has the potential to be one of the leading tourist destinations in Africa.

    The highlands of Ethiopia have an attractive landscape, scenery and wildlife. In the African Rift valley system, a wide variety of wild life and numerous bird species, both endemic and common, are found and a substantial volume of traffic is directed to this area. The magnificent Tis Issat falls on the Abay River, the endemic wild life in Semien mountains, the Sof Omar grottos in the South-East are some of the interesting sites in the country.

    The rock-hewn churches at Lalibela, the ancient buildings of Yeha, the ancient obelisks at Axum, the medieval palaces at Gondar and the monasteries of Lake Tana, Debre Damo and Debre Libanos are important tourist attractions.

    Despite the enormous potential, the tourism industry has not developed sufficiently to make significant contributions to the economy. Nevertheless, the more enabling environment of recent years has resulted in a steady increase in tourist arrivals that reached 120 thousand in 1995/96.

    The available tourism infrastructure is, however, inadequate to cope with the growing tourist traffic. Hence, great opportunities exist for private investment in hotels, lodges and international restaurants.

    Service

    Opportunities exist for private investment in the following services:

  • orting the country's various products by way of undertaking market promotion, quality improvement or packaging;
  • struction, comprising first grade contracting and rental of construction machinery as well as real estate development;
  • locial services, such as health, and education and sports facilities;
  • other projects in these sectors to be identified by potential investors.

    Privatization Program

    The Government has embarked upon an extensive program of divestiture of state enterprises with a view to curtailing government's role in the production of goods and services. Since early 1995, a total of 125 public enterprises (including retail businesses, hotels, restaurants and factories) have been privatized under the mode of 100% sales of ownership of the businesses or factories to the private sector. Many additional state enterprises have been listed for privatization. These include cotton farms and ginneries, yarn mills, textile fabric factories, fiber mills, tanneries, leather goods factories, horticultural farms and fruit and vegetable processing factories, hotels, food factories and others. Therefore, interested private investors, both domestic and foreign, may contact the Ethiopian Privatization Agency, Fax.: 251-1-513955.

    INVESTMENT APPROVAL PROCEDURES

    Under the Investment Proclamation No. 37/1996, Article 12, all investors intending to invest in Ethiopia, except domestic investors not investing in areas qualified for investment incentives, are required to obtain investment permits. Investments to be made by foreign investors, foreign nationals taken for domestic investors, domestic and foreign investors jointly and investments to be made (in areas eligible for incentives) by domestic investors who are required to obtain trade and operating licenses from concerned federal organs have to be approved by the Ethiopian Investment Authority.

    To qualify for investment permit, an investor is required to submit the following documents:

  • a completed application form obtained from the EIA;

  • a project profile;

  • list of the type and quantity of machinery and equipment intended to be exempted from import duties;

  • a draft memorandum and articles of association in the case of a business organization;

  • in case of expansion or upgrading a brief description of the same and its implementation programme;

  • in case of planned employment of expatriate staff a statement on the time and schedule for their replacement by Ethiopians and the training programme designed for such replacement; and

  • a power of attorney in the case of submission of an application through an agent.

    A foreign investor who intends to conclude a technology transfer Agreement related to the investment will be required to submit a draft agreement to the Authority for approval and registration together with the application to investment permit.

    The EIA approves and gives an investment permit in 10 days if the above documents are received in full (and in good order). The Ethiopian Investment Authority renders a one-stop-shop service which includes investment approval and issuance of investment permit, issuance of trade and operating licenses, approval of expatriate posts and issuance of work permits and other pre-approval services.

    HOW TO SET UP BUSINESS ORGANIZATIONS IN ETHIOPIA

    One-Stop-Shop

    The EIA is a truly one-stop-shop for all foreign investment matters in Ethiopia. The EIA provides necessary information required by investors; receives investment applications; approves and issues investment permits to foreign investors; provides registration services to newly incorporated business organizations; approves expatriate posts in an approved investment and issues work permits to foreign employees; issues trade and operating license to approved foreign investment; facilitates the acquisition of land by foreign investors in accordance with the relevant laws of the federal and regional governments; etc.

    As a result of the appropriate measures taken by the Federal Government to organize EIA as a one-stop-shop for investors, cumbersome bureaucratic procedures faced by investors have been eliminated.

    Companies incorporating in Ethiopia may operate through a subsidiary (i.e. incorporated under the Laws of Ethiopia) or through a branch (i.e. incorporated under the laws of a foreign country).

    Ethiopian company law recognizes the commercial company in various forms. The most important types of business organizations are:-

    a) sole proprietorships;
    b) branch offices of companies registered outside Ethiopia;
    c) share companies;
    d) private limited companies (PLC);
    e) partnerships; and
    f) co-operatives.

    The most widely used forms of companies are limited liability companies or PLC's which are formed in conformity with the requirements of the Commercial Code of Ethiopia of 1960.

    Company Registration

    All foreign investors are required to register their enterprise in accordance with the Commercial Code of Ethiopia. The initial steps in forming a company are to register the name of the proposed company with the Ethiopian Investment Authority. Prospective investors are required to submit a draft memorandum and articles of association. After the above documents are examined by the Authority, the founders are required to appear in person or by proxy before the notary public at the high court and finalize the signing of the statutes of the company. Following the signing of the above documents, the Authority will announce the formation of the company through the official Gazette in less than 5 days. The Ethiopian Investment authority will subsequently issue a certificate of incorporation evidencing the registration of the company.

    Opening of a Branch Office of an Overseas Company

    An overseas company wishing to invest through a branch office is required to submit the following documents to the Ethiopian Investment Authority.

  • a certified and notarized copy of the statutes or memorandum of association of the company;

  • a resolution passed by the owners of the mother company authorizing the establishment of a branch office in Ethiopia. The authorized capital of the branch, the names of the share holders, the chief executives, and the branch manager vested with the authority to become the legal representative in Ethiopia should be indicated in the resolution;

  • a certified and notarized 3 (three) specimen signature of the legal representative.

    The Ethiopian Investment Authority shall, upon receipt of the above documents, authorize the publication through a Gazette of extracts from the statutes of the company announcing the incorporation of the branch in Ethiopia. Once the publication is made, the Authority will subsequently issue a certificae of incorporation evidencing the registration of a branch of an overseas company.

    Foreign companies wishing to open liason office must submit their application to the Ministry of Trade and Industry.

    OTHER BUSINESS INFORMATION

    Currency(1992)
    The currency of Ethiopia is based on the decimal system. The units of currency are the Ethiopian Birr (Birr) and cents. The Birr is divided into 100 cents. The average exchange rate is:
    6.30Birr =USD 1.00

    Time
    Ethiopia is in the GMT + 3 time zone. It follows the Julian calender , which consist of twelve month of 30 days each and a thirtenth month of five or six days.

    Business Hours
    The government offices have 39 working hours a week. The office hours are 8:30 a.m. to 12:30p.m. and 1:30 p.m. to 5.30 p.m from Monday through Thursday. Working hours on Friday are 8:30 a.m to 11:30 a.m and 1:30 p.m to 5:30 p.m. Private businesses also work on Saturdays.

    Custom
    Personal effects, unexposed film, cameras and accessories may be imported free of duty. Duty free items include 250 grams of tobacco or 200 cigaretts or 50 cigars, one litre of alcohol and half litre of perfume.
    Vistors may export Sovenirs with a value not exceeding Birr 500.

    Visa Requirements
    Visas are required for all foreign visotrs to Ethiopia with the exception of nationals of Kenya, Eriteria and Dijbouti and are readily avalable in Ethiopian diplomatic missions abroad.

    Residence Permit
    A resident permit will be issued to a foreign investor upon submission of an Investment Permit issued in his name by the Ethiopian Investment Authority to the Security Immigration and Refugee Affairs Authority .

    Airport Service Charge
    An embarkation fee of USD 10 per person is payable when leaving Ethiopia. The embarkation fee can be payed either at the Exit Airport or any Ticket Agent Office.

    ALLOCATION OF LAND FOR INVESTMENT

    In Ethiopia, land is public property. Both rural and urban lands are made available to investors on a lease-hold basis. Lease-holders have a right of use over urban land for periods ranging from 50 to 99 years. With respect to rural land, the rental value and the lease period are fixed by land use regulations of each Federal State. Lease right over land can be transferred together with on-built facilities.

    Each Regional Government delivers, based on the Federal law and its own laws, the required land to an investor within 60 days after receiving an application for allocation of land for an approved investment.

    The Ethiopian Investment Authority, in cooperation with the concerned Regional Government entities, facilitates and follow up the allocation of land for approved foreign

    ANNEX

    Areas of Investment Reserved for Domestic Investors

    Banking and insurance business (exclusively reserved for Ethiopian nationals);

    Production and supply of electrical energy with installed capacity of up to 25 mega watts (exclusively reserved for Ethiopian nationals);

    Air transport services using aircraft with a seating capacity of up to 20 passengers or with a cargo capacity of up to 2,700 kg. (exclusively reserved for Ethiopian nationals).

    Radio and television broadcasting services;

    Retail trade and brokerage;

    Wholesale trade (excluding the sale by foreign investors of their products produced locally)

    Import trade;

    Export trade of raw coffee, oilseeds, pulses, hides and skins and live sheep, goats and cattle not raised or fattened on own farm;

    Construction companies excluding grade 1 contractors;

    Tanning hides and skins up to crust level;

    Hotels other than star designated, motels, pensions, tearooms, coffee shops, bars, night clubs and restaurants excluding international and specialized restaurants;
    Tour operation, travel agency, commission agency and ticket offices;

    Car hire and taxi-cab transport;

    Commercial road transport and inland water transport services;

    Bakery products and pastries exclusively for the domestic market;

    Grinding mills for grains;

    Barber shops, beauty saloons, goldsmith shops and tailoring excluding garment factories;

    Building maintenance services, repair and maintenance of vehicles;

    Saw milling, slicing, pealing and chopping of logs, and manufacture of wood products exclusively for the domestic market;

    Customs clearance service;

    Museums, theaters and cinema halls operations;

    Printing industry.