V       Organizing a Private Business Investment

Foreign participation in investments may be carried out either through the establishment of branches or through locally incorporated enterprises. All foreign investors intending to invest in Ethiopia are required to obtain investment permits. Foreign investments are governed by a number of codes, proclamations and regulations. The Ethiopian investment regime identifies three types of investors:

  • domestic investors;
  • foreign investors (wholly owned); and
  • investors in joint ventures.

The legal regime makes a distinction among the different classes with regard to areas of investment and capital requirements during licensing. In all other respects, the law treats all classes of investors in the same manner during and after licensing.

The EIA is a focal point for promoting, coordinating and facilitating foreign investments in the country. Organised as a "one-stop shop", the EIA:

  • provides all the necessary information required by foreign investors;
  • approves foreign investment applications and issues investment permits;
  • provides registration services to newly incorporated business organisations;
  • approves expatriate posts in approved investments and issues work permits to foreign employees;
  • issues trade and operating licences for foreign investments;
  • approves and registers technology transfer agreements between local companies and foreign technology suppliers; and
  • facilitates the acquisition of land by foreign investors in accordance with the relevant federal and regional government laws and regulations.

In all cases of proposed foreign investments, the following documents will have to be submitted in order to secure an investment permit and other certificates and licenses:

  • a completed application form;
  • a project profile;
  • a draft memorandum and articles of association, if the investment participation is through a locally incorporated enterprise;
  • a list of machinery and equipment intended to be exempted from duty;
  • in the case of planned employment of expatriates, a schedule for their replacement by Ethiopians and details of the training programme leading to the replacement; and
  • technology transfer agreements, if any.

If the applicant is a company, the following documents are also required:

  • certificate of incorporation of the parent company;
  • statute or memorandum of association of the company;
  • annual report and financial statement of the company;
  • a resolution passed by the owners or the board of the company authorizing the establishment of a branch office in Ethiopia and indicating the capital of the branch, its activities and the name of the manager; and
  • a power of attorney for the person authorized to sign on behalf of the company.

All these documents need to authenticated by the Ethiopian embassy of the investor’s home nation, where such an embassy exists.

Approval Procedures

Once the documents listed above are submitted, the EIA will process applications for investment permits and investment incentives, as well as for registration of branches or locally incorporated enterprises.

The necessary documents are then sent to the Legal Documents Registration and Depository Office to be officially signed by the applicants. A public notice appears in an official gazette announcing the formation of the branch/enterprise. Subsequently, an investment permit, certificate of incorporation and other licences are issued to the applicants by the EIA.

Approval Time

The aim is to issue investment licenses within ten working days of submission of the complete set of documents. In practice, however, more than ten days might be required. A recent review by the EIA of a sample of 15 applications indicated a mean processing time of 16.7 working days.

Fees and Expenses

The EIA charges a fee of $30-100 for processing applications, depending on the amount of investment capital. A further expense of $300-400 may be incurred for stamp duties and the publication of an official notice.

Building and Construction Permits

Permits are required for all construction. Local municipalities normally issue such permits after examining architectural, structural and sanitary designs. The power supply authority will also have to be satisfied with electrical drawings before approving a connection to the national grid.

Areas Reserved for Domestic investors

Certain business activities are reserved for domestic investors (see Annex 2). These are mostly small-scale manufacturing and trading activities, such as the retail trade, wholesale trade (except trade in petroleum products), the import trade and the export of traditional commodities.

All other areas are open to foreign investors except defence industries and telecom services, where they may invest only jointly with the government. Foreign investors may acquire existing firms in sectors open for foreign investment.

Operational Characteristics

There is no local content requirement, although investors are encouraged to use domestic resources in their manufacturing processes as much as possible. A technology transfer agreement may be entered into between the parent company and a local company or subsidiary. Such agreements have to be submitted for approval to the EIA together with the initial application.

Ethiopia does not as yet have a comprehensive set of environmental legislation and regulations. Investors are expected to adopt environment-friendly practices, and may be requested to sign an undertaking to that effect. The Ethiopian Environmental Protection Agency may scrutinize projects that are judged to have a significant environmental impact.

Once a business is up and running, it may have to deal with various ministries, authorities and agencies. The most important are the Ministry of Trade and Industry, the Inland Revenue Authority, the Customs Authority, the National Bank of Ethiopia and the Environmental Protection Agency (see Annex 3).

Competition and price policies are not rigorously developed. There are no anti-trust laws or laws against unfair competition. All price controls have been dismantled except those on petroleum products.

Exit

Foreign investors may exit their investments through disposal of their shares, assets or entire businesses. Asset disposal by liquidating enterprises requires the prior consent of the Inland Revenue Authority. In accordance with Proclamation No. 37/1996, proceeds from the sale or liquidation of an enterprise are exempt from capital gains tax and may be remitted abroad in hard currency. As Ethiopia does not have a stock exchange, investors wishing to exit their investments will have to find and negotiate with a private buyer.

Ownership

Foreign investors may own any businesses other than those falling in sectors specifically reserved to Ethiopian nationals, the government and domestic investors.

In the case of joint investment, the Investment Proclamation requires that the domestic partners acquire a minimum of 27% equity ownership interest. Foreign investors may acquire property required for their investment activities. Land is public property and may be acquired only on a leasehold basis.

Intellectual Property

Ethiopia does not have comprehensive legislation providing for the protection of intellectual property. There are, however, legal provisions governing some aspects of intellectual property. A section in the Civil Code of Ethiopia deals with "Literary and Artistic Ownership" regulating mainly issues of copyright. There is also another piece of legislation, Proclamation No. 123/1995, which governs inventions, minor inventions and industrial designs, focusing mainly on patents. Trade names and trademarks are governed by the provisions of the Commercial Code and Proclamation No. 67/1997. Technology licensing is governed by Regulation No. 121/1993. Ethiopia is a contracting party to the Convention establishing the World Intellectual Property Organization (WIPO), which has been ratified by the state.

Investment Protection

The constitution protects private property. Investment Proclamation No. 15/1992 and the revised Investment Proclamation No. 37/1996 also provide investment guarantees against measures of expropriation and nationalization, except when required by the public interest. Where such measures are taken, the government guarantees to provide adequate and prompt compensation based on the current market value.

Investment permits may be suspended or revoked for good reasons specified in the Investment Proclamation. Disputes arising between a foreign investor and the government may be settled amicably or failing that by the competent court in Ethiopia or through international arbitration. Since 1995, there has been no instance of expropriation, nationalization, revocation or suspension of any investment.

Exchanging and Remitting Funds

The exchange rate is determined at weekly foreign exchange auctions, where banks and large investors (participation requires over $500,000) participate. Foreign exchange may be acquired from banks at the prevailing exchange rate. Trade-related payments are normally transferred through letters of credit.

Foreign investors are entitled to make the following remittances:

  • profits and dividends;
  • principal and interest payments on external loans;
  • payments related to a technology agreement;
  • proceeds from the sale or liquidation of an enterprise; and
  • proceeds from partial sales of shares to domestic investors.

Expatriate employees may remit salaries and other payments accruing from their employment in hard currency.

The Future

Overall, the Ethiopian government is working progressively to improve the business climate and regulatory framework for foreign investment and the EIA offers a streamlined service to encourage and facilitate investment in the country. The Ethiopian government is committed to the development of a free market economy and foreign investment has an important role to play in the continuing liberalisation and development of the country. For further details please contact the EIA:

Ethiopian Investment Authority
PO Box 2313, Addis Ababa, Ethiopia
Tel: 251-1-510033/153432, Fax: 251-1-514396
e-mail:
ethiopian.invest@telecom.net.et