I       Introduction

This guide has been prepared by PricewaterhouseCoopers on behalf of the United Nations Conference on Trade and Development (UNCTAD) and the International Chamber of Commerce (ICC). It comes with a companion volume which is a more informal publication, prepared under the auspices of the Ethiopian Investment Authority, and which provides a listing of specific investment opportunities.

The purpose of this booklet is to provide a basis from which potential investors to Ethiopia may gain:

  • a broad overview of the current investment opportunities and prevailing socio-economic and political conditions of Ethiopia; and
  • general guidance on the necessary legal and other issues related to undertaking investment in Ethiopia.

The guide focuses on Ethiopia’s emerging role as a location for investment and on the key issues likely to be faced by potential investors. It is intended only to give an initial flavour of the Ethiopian market and to encourage potential investors to take a closer look at investment opportunities in the country.

II       Ethiopia

With a population of 60 million, growing at a rate of 3% pa, Ethiopia is the second most populous country in sub-Saharan Africa (after Nigeria). Ethiopia is one of the oldest nations in the world and its people have an ancient culture and deep-rooted values. The country has one of the lowest crime rates in Africa.

Although the gross national product (GNP) per capita of $1101 per head is low, it is growing, and Ethiopia ranks as the fifth-largest US export market in sub-Saharan Africa, after South Africa, Nigeria, Angola and Ghana. In 1997, the total GNP at current market prices was about $6.5 billion.

1 In this text '$' stands for 'US$'.
"The main enemies of the people of Ethiopia are poverty and backwardness. The Government of the Federal Democratic Republic of Ethiopia has put in place a comprehensive programme of peace, democracy and development as cardinal elements of the development policy of the country aimed at eliminating these twin enemies. This is because we know, more than anything else, that from each and every peaceful day Ethiopia is a net beneficiary."

Melesse ZENAWI
Prime Minister of Ethiopia
May 1998

Economically, the agricultural sector, consisting mostly of small privately owned farms, accounts for about half of the country’s GDP, 80% of its exports, and 85% of total employment. Agri-processing, manufacturing and service industries are, however, all growing in importance.

Ethiopia also has potential as a base for exporters, with flows of goods both into the Middle East and into other parts of Africa increasing significantly in recent years.

Recent analysis by UNCTAD has shown that Africa as a whole has become a profitable region for foreign direct investment (FDI), delivering significantly higher returns on investment than other developing regions in the world for US corporations (see Table 1).

Table 1: Rates of Returna on US FDI in Africab and
Selected Regions 1994-1997 (%)

Region 1994 1995 1996 1997
Africa Total 24.6 35.3 34.2 25.3
- Primary 23.9 34.2 36.9 NA
- Manufacturing 30.0 42.8 21.3 NA
- Tertiary 21.7 21.6 23.1 NA
- Other 44.1 35.0 17.4 NA
Asia 18.4 20.2 19.3 16.2
Latin America 15.3 13.1 12.8 12.5
Source: UNCTAD, Foreign Direct Investment in Africa: Performance and Potential, 1999, table 3.
a The rate of return is calculated as the net income of US foreign affiliates in a given year divided by the average of beginning-of-year and end-of-year FDI stock.
b The Africa Total figures exclude South Africa. Figures for sectors include South Africa. For further information, see UNCTAD, Foreign Direct Investment in Africa: Performance and Potential, 1999.

The levels of return on investment by Japanese multinational corporations have also been substantial, outstripping those on investments in Europe, South-East Asia and North America (see Table 2).

Table 2: Profitabilitya of Foreign Affiliates of Japanese TNCs
by Selected Host Region 1995



Africa 5.7
South and South-East Asia 2.9
Europe 0.8
Latin America and the Caribbean 7.7
North America 1.1
Pacific 1.9
West Asia 12.6
World 1.9
Source: Based on UNCTAD, Foreign Direct Investment in Africa: Performance and Potential, 1999, Figure 6.
a Current income divided by sales.
"Our company has long-established business relations with Ethiopia, especially in providing the agricultural estates with quality inputs for their production. As private distribution is gaining in importance, we are assisting local private distributors in their efforts to bring the products closer to small-scale farmers. The first business results in private distribution are encourageing and new opportunities have been created."

Rudolf Guyer, Head of BI Africa, Novartis

Despite this track record, Ethiopia – as is the case with Africa generally – has secured only modest levels of FDI compared to developing countries elsewhere in the world. The recent policy reforms and the introduction of a liberal investment code have opened the way for Ethiopia to attract substantially more foreign investment in the future. The key factors relevant to inward investment in Ethiopia are described in Table 3 below:

Table 3: Ethiopia at a Glance : Key Factors for Foreign Investors

  • One-stop shop for new investment approvals
  • Domestic market of 60 million people
  • Liberalisation of the economy
  • Strong growth record in recent years
  • Fiscal stability and low inflation
  • Democratic national government
  • Tax incentives
  • High employer satisfaction with labour as compared to the rest of Africa
  • Membership of the Lomé Convention
  • State privatisation programmes
  • Infrastructure development, including telecommunications
  • Agriculture and related businesses
  • Mining and resource development
  • Manufacturing
  • Tourism
  • Access to other regional markets
  • Landlocked area with weak communications/infrastructure
  • High level of illiteracy
  • One of the lowest telephone densities in the world
  • Less than 4% of population currently supplied with electricity and only 25% with access to safe water
  • Low purchasing power of population
  • Continuing war with Eritrea
  • Increased competition from other nations in Africa
  • Slow take-up of privatisation opportunities
  • Failure to resolve some compensation claims arising from the period of the military government

Message from Mr Y Ishimaru, Corporate Vice-President, Director, Chief Executive for Europe and Africa, Marubeni Corporation, Japan Managing Director, Marubeni Europe plc:

"Ethiopia is a land of rich potential, not least of which is the high calibre of its human resources and its government’s determination for the economy to flourish. Having opened our Addis Ababa office over forty years ago, we have many years’ experience in Ethiopia and well understand the need for sustained effort and a realistic long-term perspective in doing business there. We remain firmly committed to the country and believe that, given continued determination, Ethiopia will realise its goal of "Agricultural development-led Industrialisation". We look forward to contributing to the nation’s bright future."

Government Commitment

There has been a major positive change over the past six or seven years in the government’s attitude towards private investment in general and foreign investment in particular. The government recognises the vital role foreign investment can play in the national economic development process, especially by bringing capital, technology and know-how into the country and by strengthening linkages and promoting regional development. The Ethiopian Investment Authority (EIA) has been established to provide a one-stop shop to facilitate entry of foreign investors. In order to encourage, promote and expand foreign investment, the Ethiopian Government has also undertaken a wide range of economic reform programmes with two main agendas – to shift from a command to a market economy and progressively to place the Ethiopian economy under the rigorous discipline of international competition.

Over the period 1992/93 to 1998/99 the EIA approved 163 foreign investment projects, of which 21 have become operational and 49 are under implementation. These have included the five-star Sheraton Addis Hotel, a major brewery investment by a French firm, British investments in shoe manufacturing and US investments in edible oils and bottling. The largest privatisation investment (some $172 million) to date, the Lega Dembi Gold Mine, was by a Saudi investor. The main business sectors in which Ethiopia is seeking foreign investment are:

  • manufacturing industries (including food, beverages, chemicals and pharmaceuticals, plastics, metallic and non-metallic products, paper products, leather and leather products, textiles and garments);
  • agriculture, including agri-business and processing for exports;
  • real estate development;
  • education and health services;
  • grade 1 construction contracting;
  • mining and quarrying of gold, marble and granite; and
  • engineering and management consultancy.

The government is keen to develop and broaden this foreign investment base and the rest of this guide provides an overview of investment opportunities, current economic conditions and the steps required to make an investment in Ethiopia.