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ETHIOPIA In Focus Message
from the Ambassador
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Spotlight The Legal Framework for Private Investment in Ethiopia The main issues discussed under the topic of the legal framework for private investment are historical development of the investment policy since May 1992, entry and ownership requirements, investment incentives, labor laws, immigration rules, settlement of disputes, guarantee, protection, investment administration as well as access to land. Historical Development of the Investment Policy Since 1992 In May 1992, the Transitional Government of Ethiopia (TGE) issued Investment Proclamation No. 15/1992 with a view to encourage, expand and coordinate investment in the country. Under this Code, areas eligible for investment incentives were restricted to broad sectional categories such as agricultural development and agro-processing; manufacturing; large scale capital-intensive road and building construction; the development, protection and preservation of natural resources; rural transportation; as well as support machinery and services. The incentives provided were 100% duty exemption for imported capital goods and equipment including spare-parts worth up to 15% of the value of the capital goods imported and exemption from the payment of income tax for periods ranging from 3-8 years depending on the type and location of investment. Proclamation No. 15/1992 was in force for duration of four years (July 1992-June 1996). Later, it was found necessary to issue a new proclamation to overcome the shortcomings identified in the course of the four years. As a result, Investment Proclamation No. 37/1996 was issued in June 1996. The main changes introduced include:
Further, Proclamation No. 37/1996 was amended in June 1998 by Proclamation No. 116/1998 in order mainly to redefine domestic investors so as to include foreign nationals who were Ethiopian by birth, to allow private investors to invest jointly with the Government in defense industries and telecommunication services as well as with the approval of the council of Ministers, to enable the Federal Investment Board grant additional incentives other than what is provided under the Investment Incentive Regulations. In connection with this Proclamation, Regulation No. 7/1996 was also amended by the Regulation No. 36/1998 in June 1998 in order to grant additional incentives to selected activities in the education and health sectors and to investments in telecommunication services, defense industries and industrial estates. Entry and Ownership Laws The Ethiopian government has realized the importance of foreign investment for the development of the national economy. Foreign investors are, therefore, welcome to invest in most sectors of the economy except in the following areas which are reserved for domestic investors (the Government, of Ethiopians, foreign nationals who are Ethiopian by birth and wish to be treated as domestic investors as well as foreign nationals permanently residing in Ethiopia):
Foreign investors wishing to invest in defense industries and telecommunication services can do so only in joint-venture with the Government. Foreign investors may also acquire existing local firms in sectors open for foreign investment. A foreign investor can invest in a project on his own, holding a 100 percent equity capital ownership or jointly with local partner(s). A foreign investor intending to invest on his own is required to allocate a minimum capital of US$500,000 for a single investment project. However, the capital required of a foreign investor investing in engineering, architectural or other technical consultancy services; in accounting and audit services; in project studies or business and management consultancy services is only US$100,000 per project. In case a foreign investor intends to invest jointly with local partner(s), the minimum capital required of him is US$300,000 per project. However, the equity share capital of the domestic partner(s) in a joint-venture investment should by no means be less than 27%. There is no local content requirement, although investors are encouraged to use domestic resources in their manufacturing processes as much as possible. Moreover, investors are not obliged to sell their products in the domestic market. Investment Incentives In order to encourage and promote private investment and the inflow of capital and technology to the country, the Investment Code provides the following packages of fiscal incentives for both foreign and domestic investors engaged in new enterprises and expansions:
Any investor, foreign or local, is entitled to have deduction of expenses incurred for research, improvement studies or training from his taxable income; Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares or assets upon liquidation or winding up of an enterprise is exempted from the payment of any tax. Labor Laws Ethiopia's labour regulations have been considerably modernized and brought into line with international practice in recent years, including the right of employers to hire and fire. Normal working hours is limited to 8 hours a day or 48 hours a week. A worker is entitled to 14 working days of annual leave for the first year of service plus one working day for every additional year of service. A weekly rest period of 24 hours is required by law. All public holidays (13 altogether) are paid holidays. There are no restrictions under the Ethiopian law regarding the employment of women workers. Male and female workers are subject to the same working hours. It is prohibited; however, to employ women in jobs that are arduous or harmful to their health. A pregnant woman cannot be assigned to night work. Maternity leave, which has to be paid, is for a total of 90 days. According to the Investment Code, employment of expatriates is permitted without any restriction for key management posts of an investment project, including those of general manager, finance controller, technical manager and marketing manager. Expatriates may also be employed for non-management positions. However, before employing the expatriates, the employer must ascertain, by way of making a proper announcement, that Ethiopians with comparable qualifications are not available. In case of planned employment of expatriates, a statement on the time schedule for their replacement by Ethiopians and the training program designed for such replacement should be submitted to the EIA for approval. Immigration Rules and Work Permits Any foreign national, with the exception of nationals of Kenya and Djibouti, who comes to Ethiopia to establish private business or industries or to engage in other independent enterprises within Ethiopia or to be employed by private business enterprise is required to have an entry visa issued by diplomatic and consular missions of Ethiopia abroad or by the Ministry of Foreign Affairs. Any foreigner who enters Ethiopia under an entry visa is required to be registered by the immigration and Nationality Affairs Main Department within 30 days of the date of his arrival. A foreign national who has completed his registration will be issued with a residence permit valid for a period of one year form the date of his registration. The residence permit is renewable provided that the foreigner presents the required documents such as renewed investment license work permit, etc. Dependents of a foreign national who has already secured a residence permit can also be issued with entry visas and are entitled to residence permits. A multiple business visa is issued on request by the immigration and Nationality Affairs Main Department for a foreign national residing in Ethiopia for duration not exceeding the validity periods of his residence permits. The diplomatic and consular missions of Ethiopia abroad also issue a multiple business visa for a foreign national who wishes to enter Ethiopia for a duration to be determined by the purpose of entry. The EIA is delegated, under the one-stop shop arrangement, by the Ministry of Labor and Social Affairs to provide work permits for all types of expatriates to be employed by a private investor. A work permit for a foreign employee is issued for a maximum period of three years. However, this can be extended for a period of another three years provided that the Ethiopian national assigned to replace the foreign employee is not yet capable of doing the job or the foreign employee is believed to be indispensable to the job he is doing and that the job is found to be continuous. A work permit is renewable annually upon presentation of a written justification to the EIA. If the justification submitted by a foreign employee is found to be inadequate, the EIA can reject his application for renewal. The process of acquiring work permit from the EIA and its renewal is fairly simple and unbureaucratic and the time it takes is less than 5 days if al the required documents are submitted. Settlement of Disputes According to Investment Proclamation No. 37/1996, when an investment dispute arises between a foreign investor and the Government, all the necessary efforts will be made to reach an amicable settlement through mutual discussions. A dispute which can not be settled amicably may be submitted to the competent court of the country or to international arbitration within the framework of any bilateral or multilateral agreement to which the Government and the country of which the foreign investor is a national are contracting parties. To facilitate the settlement of any dispute that may arise between the
Government and foreign investors, Ethiopia has signed Bilateral Investment
Promotion and Protection Agreements with Italy, Kuwait, Switzerland, the
Netherlands, China, Malaysia, Russia, Sudan, Turkey and Yemen. Ethiopia
has also signed the Convention on Settlement of Investment Disputes between
States and Nationals of other States (ICSID). The Investment Code provides adequate guarantee and protection for foreign investors. Accordingly, no private investment may be nationalized or expropriated except when required by public interest and only in strict compliance with the requirements of the law. In case of expropriation or nationalization of an investment for public interest, adequate compensation, corresponding to the prevailing market value, will be paid without any delay. A foreign investor has also the right to remit compensation paid to him, out of Ethiopia in convertible foreign currency. The constitution also provides adequate protection for foreign investment. As discussed above, Ethiopia has also signed bilateral investment promotion and protection agreements with several countries. Above all, Ethiopia is a signatory of the Multilateral Investment Guarantee Agency (MIGA); a World Bank affiliated organization, which provides guarantee for non-commercial risks such as expropriation, convertibility of local currency, etc. Capital repatriation and remittance of dividends and interest is guaranteed to foreign investors under the investment Code. Any foreign investor has the right, in respect of an approved investment, to make the following remittances out of Ethiopia in convertible currency at the prevailing rate of exchange on the date of remittance:
Investment Administration For the administration of private investment in the country, investment Proclamation No. 37/1996 has established the Federal Investment Board, the Ethiopian Investment Authority(EIA) and the Regional Investment Offices(RIOs). The Federal Investment Board consists of 8 members with the Prime Minister being its chairman. The General Manager of the EIA is a member of the Board along with 6 other members designated by the Prime Minister. The Board has its own secretariat. The function of the Federal Investment Board is mainly supervisory and decision making on key policy issues related to private investment. The EIA is the principal government organ responsible for promoting, coordinating and facilitating foreign investment in Ethiopia. The EIA is accountable to the Federal Investment Board. The EIA, as a one-stop-shop for foreign investment in Ethiopia, provides all required information to foreign investors; processes investment applications and issues investment permits to foreign investors; provides registration services to newly incorporated business organizations; approves expatriate posts in approved investments and issues work permits to foreign employees; issues trade and operating licenses to approved foreign investment; provides match making services for joint-venture investment; etc. Besides, the EIA is also entrusted by the council of Ministers Regulation NO. 6/1996 with the responsibility to approve duty exemption of capital goods necessary for development projects undertaken by governmental and non-governmental organizations. On the other hand, the RIOs are responsible for the promotion, expansion and facilitation of domestic investments in their respective regions. There is a strong linkage between the EIA and RIOs with respect to the exchange of information and the facilitation of investment activities. Access to Land In Ethiopia, land is public property. Both rural and urban lands are made available to investors on a lease hold basis. Leaseholders have the 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 lease regulations of each regional state. Lease right over land can be transferred with on-built facilities. On the other hand, according to Urban Land Lease Holding Proclamation NO. 80/1993, the Government may grant freely or without public tendering urban land which is to be utilized for investment that the government encourages. The EIA, in cooperation with the concerned regional government organs, facilitates and follows up the allocation of land for approved foreign investment.
July 2002 Vol.4 No.2 |
