More Investment Opportunities Open for Foreign Investors

Ethiopia is rich in natural resources, diversified climate and fertile land suitable for agriculture. It owns abundant rivers that can be utilized for irrigation and hydropower generation. The country has also the largest livestock resource in Africa.

Ethiopia has a huge potential for producing and processing of agricultural products such as food and beverage crops, cotton, etc. The country also offers excellent opportunities for investment in mining, tourism and infrastructure development.

Ethiopia is also now becoming more and more investment friendly country. The govern¬ment is creating favorable conditions that would highly encourage the private sector to be engaged in almost all areas of the economy.

The country with a population of some 67 million offers significant domestic market for locally produced goods and services. The country is also a member of the Common Market for Eastern and Southern Africa (COMESA) offering huge benefits of exporting commodities in preferential tariff rates to a wider regional market of 20 countries with 353 million people. The country being a beneficiary of free market opportunities offered by such as the AGOA of the U.S. and" Everything but Arms" by the European Union provides an easy access to the larger world market free of quota and duty.

The Ethiopian Investment Authority (EIA), which was established in 1992, is a government institution organized to encourage, promote and coordinate all foreign investments in the country. The Authority is delegated to specifically render services to foreign investors; foreign nationals considered as domestic investors, foreign nationals holding a permanent residence permit in Ethiopia as well as joint investments between foreign and domestic investors and of course to domestic investors entitled to specific investment incentives.

These services include approval and issuance of investment permits, registration of newly incorporated foreign business organizations, approval of expatriate posts and work permits and issuance of trade operating permits.

The major task of the EIA is attracting and facilitating foreign investment. The authority is responsible to initiate policy and implementation measures needed to create a conducive investment climate to both domestic and foreign investments. That way, the country's investment code has been revised three times during the last ten years in an effort to make it more and more transparent, attractive and competitive.

The recently amended investment code and regulation have introduced major positive changes, regarding foreign investments.
"One of the set-backs for foreign investments in the past was the entry capital requirement. The capital required for the entry of a wholly foreign owned single project was US$ 500,000 while for the entry of a joint investment with a domestic investor was US$ 300,000. The capital requirements have now been drastically reduced to US$ 100,000 for a wholly foreign owned project and US$ 60,000 for a joint investment with domestic investor," says Abi Woldemeskel, Director General of the Ethiopian Investment Authority.

He further stated that the investment code has even given free entry to those foreign investors who would be engaged in export oriented investment activities and who would export 75% of their outputs.

According to the Ethiopian Investment Authority, foreign investors can invest in almost all sectors except in few petty businesses reserved for domestic investors and Ethiopian nationals. With regard to business areas that await the foreign investors, the Director General of EIA says that the country offers them ample opportunities. He says that foreigners can invest in manufacturing, agriculture, agro-industry, construction, education, health, hotel and tourism etc.

According to the Director General, some areas of investment that were previously reserved for the government, such as air cargo transport, railway transport and hydroelectric power generation have been made open for foreign investors. On the other hand, foreign investors are also now entitled to jointly invest in telecommunication services as strategic partners of the government.
The authority facilitates and provides various incentives for investors. While investment areas eligible for incentives are identified under the Council of Ministers Regulation No. 84/ 2003, the incentives 'include exemption from income tax and payment of custom duty.

An investor who is engaged in manufacturing or agro-industrial activities or in the production of agricultural products as determined by the directives of the Investment Board will be granted an income tax exemption for a period of five years, provided the investor exports at least 50% of his or her products or supplies at least 75% of his or her products to an exporter. Under special circumstances, however, the Board may grant such an investor with an income tax exemption for a period not longer than seven years or upon the decision of the Council of Ministers, the investor may be granted an income tax exemption for a period longer than seven years.

Daylight Sara Bulb Factory (Photo by EIA)

On the other hand, such an investor with the exporting capacity of less than 50% of his products or with the supply of his or her products only to the domestic market is granted an income tax exemption for a period of two years. Under special circumstances, however, the Board may grant the investor with an income tax exemption for a period not longer than five years.

In addition to that, investments made in the manufacturing or agro-industrial sector or in the production of agricultural products as determined by the directives of the Board have a further advantage of additional incentives, provided that the investments are carried out in some selected areas of the country. These areas are relatively less developed regions such as Benshangul - Gumuz, South Omo, Afar, Somali and other Regions determined by the Board. Investments made in these areas are granted an additional income tax exemption for one year. Moreover, an investor who exports at least 50% of his or her products and increases, in value, his production, through the expansion or upgrading of his or her existing enterprise by 25% will be granted an income tax exemption for a period of two years. However, an investor who exports hides and skins after processing up to crust level will not be granted an income tax exemption.

Furthermore, based on incentives regulation of the Council of Ministers, some areas of investment are eligible for custom duty exemption. Investors who made business in those specific areas are allowed duty free of import capital goods, including spare parts with a value not greater than 15% of the total value of the capital goods to be imported and construction materials necessary for the investment. However, the Board, by its directives may bar the duty-free importation of the capital goods and construction materials, if it finds that the materials are found in the local market with competitive price, quality and quantity.

If an investor incurs a loss within the period of income tax exemption, according to the EIA he or she will also be allowed to carry forward his or her loss after the expiry of the income tax exemption period, for half of the income tax exemption period.

The other thing worth mentioning is the various guarantees offered by the country against expropriation. Tile constitution of the Federal Democratic Republic of Ethiopia has strictly underlined the protection of private property against expropriation and nationalization. The investment code adheres to this constitutional principles and international norms and conventions regarding private property rights. Furthermore, Ethiopia is a member of Multilateral Investment Guarantee Agency (MIGA), a World Bank Group that issues guarantees against non-commercial risks to foreign enterprises, which invest in signatory countries. Ethiopia has also concluded bilateral investment protection and promotion treaties with several countries to give more guarantees and protection to foreign direct investment (FDI). Besides, Ethiopia is a signatory of the "International Convention on the Settlement of Investment Disputes (ICSID)", which arbitrates disputes related to invest¬ments. Ethiopia upholds all these international conventions and treaties regarding private property protection.

According to the head of the Ethiopian Investment Authority, the number of investment projects licensed by the Federal Investment Authority and regional investment bureaux between July 1992 and June 2003 is 8301. The projects have an aggregate capital of estimated Birr 90.23 Billion. These projects are expected to generate job opportunities to about 963,927 citizens. Out of the total approved projects, 3328 are in industry, 1620 in agriculture, 526 in construction, 522 in real estate, 420 in hotel and tourism, 400 in education, 246 in health and 1239 in other sectors. Regarding foreign investment, from July, 1992 up to July, 2002, a total 307 of projects have taken licenses. Of those projects, 67 are operational while 103 are in implementation stage.

The Director General of the Ethiopian Investment Authority says that what has been achieved so far is little though more promising future is ahead. "An institution as young as the EIA cannot count on success stories rather than the right and proper direction. We are fresh entrants to the most competitive international arena of FDI. This is a fierce ground to fight in and win," said Abi. He further noted that the image attached to Ethiopia as a country of drought, famine, poverty and conflict had remained to be a great challenge in terms of attracting foreign investors. So, the country requires financial resources and skilled manpower to change the negative image of the country. It presupposes a well-tailored and aggressive promotion strategy, added the Director General of the EIA. "Despite all limitations and challenges, the EIA has been succeeded to attract over 397 foreign investors in to the country since its establishment in 1992" said Abi.

As any developing nation, Ethiopia's poor infrastructure facilities such as roads, telecommunication and electricity were great challenges to the efforts of promoting and attracting FDI. Nevertheless, the Ethiopian government is now making all-rounded effort for the development of these vital infrastructure services. Great emphasis and practical steps being taken in all directions have also registered encouraging results in creating competitive environment for investment in the country.

(Ethiopia Today – September 2003)
Please, look at the comprehensive study regarding investment opportunities and conditions in Ethiopia in entitled ‘An Investment Guide to Ethiopia’ by the UNCTAD-ICC.