Investment Climate in Ethiopia
Ethiopia has one of the fastest growing economies in the world. The IMF estimates Ethiopia will have an average GDP growth rate of 7.4% from 2017 to 2020. Ethiopia has seen the highest GDP per capita growth on the continent, with a CAGR of 10.93% expected between 2000 and 2020. Ethiopia has also maintained one of the lowest levels of income inequality, ranking third lowest in sub-Saharan Africa and 12th globally in terms of the World Bank Gini co-efficient estimates. Ethiopia’s second five-year Growth and Transformation Plan (GTP II) covers the years 2016 to 2020 and was approved by the Ethiopian Parliament in December 2015. GTP II’s overarching goals are to transform Ethiopia’s subsistence agriculture-based economy to a manufacturing-led economy and achieve middle income status by 2025. To achieve these goals, the government has focused on improving the quantity and quality of infrastructure, encouraging intensive investment in industrial parks, and ensuring macro-economic stability with a sustained GDP growth of at least 11% and on enhancing productivity in agriculture and manufacturing. Ethiopia however faced severe drought in 2015 that caused shortage of food and inflationary pressure. The fiscal policies have remained prudent and focused mainly on increasing spending on pro poor and growth-enhancing sectors of the economy and on boosting efforts in tax-revenue collection. The monetary policies have focused on ensuring a stable exchange rate and single digit inflation targets. The inflation has reached 10.1% in December 2015 and 7% in February 2016.
Why invest in Ethiopia?
- Stable economic environment
- Ethiopia is the oldest independent country in Africa, and is among the most stable countries in the region.
- Many sectors are open for investment
- Ethiopia has low crime rate and reliable police service
- Some degree of zero tolerance to corruption
- Strong market of over 90 million people and with easy access to other markets
Doing business in Ethiopia
The highlights of World Bank score of doing business in Ethiopia is summarised as follows;
|Topic||World Bank 2017 rank||World Bank 2016 rank||Change|
|Starting a business||179||181||2|
|Dealing with Construction Permits||176||177||1|
|Protecting Minority Investors||175||176||1|
|Trading across the boarders||167||168||1|
The country made some improvements in a number of areas although its global rank has remained 159 for both years.
According to the Central Statistics Agency the population of Ethiopia was at 90,074,000 as per census of 2007. Ethiopia population was estimated at 99.4 million in 2016. The population census is planned in 2017.
The CIA World Fact Book estimated about 19.5% of the total population to live in urban areas in 2015. The annual growth rate was estimated at 4.89% for the period from 2010 to 2015. The urbanisation rate was below Sub-Saharan Africa average of 37 percent. According to African Development Bank Group the urban population was expected to reach 42.3 million by 2037.
According to Human Rights Watch World Report 2017 there are some restrictions on civil society and independent media, and opposition.
Key development challenges
Ethiopia faces the following developmental challenges;
- Over 40% of the GDP depends on agriculture. The agriculture however depends on rainfall and therefore inadequate rainfall can easily lead to hunger;
- The country has high illiteracy rates;
- The country ranked 159 out of the 190 participants in the World Bank survey of Doing Business.
Ethiopia got an index of 34 and ranked number 108 least corrupt nation out of 176 countries according to the 2016 Corruption Perceptions Index reported by Transparency International. The country ranked number 103 in 2015.
Ethiopia is relative secure for investors and travellers except one has to be careful when travelling to the border areas with Somalia, Kenya, South Sudan and Eritrea.
Unemployment and skilled labour
Ethiopia has a young and trainable labour force produced by various universities and colleges operating within Ethiopia. According to World Bank World Development Indicators; International Monetary Fund World Economic Outlook Ethiopian urban unemployment rate was estimated at 17.5% in 2012. Over 80% of the total population is estimated to be employed in the agriculture sector.
Attitude toward Foreign Direct Investment
The Ethiopian Government has a positive attitude towards investors. The constitution and the investment code of Ethiopia guarantees the protection of private property. To assist investors Ethiopia has concluded Bilateral Investment Promotion and Protection Agreements (BITs) and Avoidance of Double Taxation Agreements with a number of countries. The Ethiopian Investment Commission (EIC) has also established a one-stop shop service to assist investors in acquiring investment and business licenses.
Restrictions on Foreign investment
There is no right of private ownership of land. All land is owned by the state and can be leased for up to 99 years. Therefore investors have the right to establish, acquire, own and dispose of most forms of business enterprises. The law allows government enacted to determine the value of land in transfers of leasehold rights. The Ethiopian Investment Code prohibits foreign investment in a number of areas including banking, insurance, financial services, telecommunications, security, power transmission and distribution, and postal services. Ethiopia’s Investment Code prohibits foreign investment in banking, insurance, and financial services. Telecommunications, power transmission and distribution, and postal services with the exception of courier services, are closed to both the foreign and domestic private sector. Manufacture of weapons and ammunition can only be undertaken only as joint ventures with the government. Other areas of investment reserved for Ethiopian nationals include: broadcasting; air transport services (below 50 seats capacity); travel agency services, forwarding and shipping agencies; retail trade and brokerage; wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by foreign investors of their locally-produced products); most import trade; export trade of raw coffee, khat, oilseeds, pulses; live sheep, goats, and cattle not raised or fattened by the investor; construction companies excluding those designated as grade 1; tanning of hides and skins up to crust level; hotels (excluding star-designated hotels); restaurants and bars (excluding international and specialized restaurants); trade auxiliary and ticket selling services; transport services; bakery products and pastries for the domestic market; grinding mills; hair salons; clothing workshops (except garment factories); building and vehicle maintenance; saw milling and timber production; custom clearance services; museums, theatres and cinema hall operations; and printing industries. Foreigners of Ethiopian origin can obtain a resident card from the Ministry of Foreign Affairs that allows them to invest in many sectors closed to other foreigners. Foreign firms cannot partner in a joint venture in these sectors but can supply goods and services to Ethiopian firms in the closed sectors.
As a way of managing foreign reserves all foreign currency transactions must be approved by the National Bank of Ethiopia (NBE). Ethiopia’s national currency is not freely convertible. Ethiopia’s Investment Proclamation allows all registered foreign investors to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt service or other international payments.
According to the Investment Proclamation, disputes that involve a foreign investor or the state may be settled by means agreeable to both parties. A dispute that cannot be settled amicably may be submitted to a competent Ethiopian court or to international arbitration within the framework of bilateral or multilateral agreements to which the government and the investor’s state of origin are contracting parties. Ethiopia is a member of the Multi-Lateral Investment Guarantee Agency (MIGA) and signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID)
Intellectual Property Rights
The Ethiopian Intellectual Property Office (EIPO) oversees IPR issues. The Ethiopian Intellectual Property Rights Office (EIPO) has been tasked primarily to protect Ethiopian copyrighted materials and pirated software. Generally, EIPO lacks capacity for law enforcement. A number of businesses operate freely using well-known trademarked names or symbols without permission. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is a signatory to the World Intellectual Property Organization (WIPO) and has not signed a number of major international intellectual property rights (IPR) treaties.
The country has adequate rainfall, rich soils and favourable temperature range for various agricultural activities. The unexploited mineral deposits include gold, tantalum, platinum, nickel, potash and soda ash. The country has the potential for hydropower, wind power and geothermal energy.
Investment Climate in Ethiopia has been summarized to include the following
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