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.
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.
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.
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:
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
1. Gross Domestic Product (GDP)
at current prices (Billion Birr)
2. Annual Growth Rate of GDP
3. Gross Fixed Investment
(percent of GDP)
4. Gross Domestic Saving
(percent of GDP)
5. Balance of Trade (million Birr)
|6. Inflation rate||21.0||10.0||1.2||13.4||1.2|
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.
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.
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.
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)
|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||
|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.||
|3||All other locations||
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:
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.
Ethiopia, with a population of About 57 million, provides a steady and growing domestic market, which is one of the largest in Africa.
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.
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.
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 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 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||
|121 - 600||
|601 - 1200||
|1201 - 2000||
|2001 - 3000||
|3001 or above||
MAJOR INVESTMENT OPPORTUNITIES
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:
HOW TO SET UP BUSINESS ORGANIZATIONS
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
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.
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.
OTHER BUSINESS INFORMATION
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
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.
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.
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.
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
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)
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;