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Ethiopia

Executive Summary

Over the last year, Ethiopia has undertaken unprecedented economic and political reforms.  The new Ethiopian government, led by Prime Minister (PM) Abiy Ahmed, who was sworn in on April 2, 2018, announced at the outset its plan to democratize the country, reform the economy, and increase private sector participation.  Early in his tenure, PM Abiy addressed some of the public’s numerous longstanding grievances, including: ending the State of Emergency imposed by the government prior to his ascension; closing a notorious detention center; releasing thousands of detained individuals; restoring mobile internet throughout the country; retiring members of the political “old guard,” who were perceived as in the way of reform; and, reframing the government’s posture towards opposition parties.

On the economic front, the new administration is working to partially or wholly privatize major state-owned enterprises (SOEs) in the telecom, aviation, power, sugar, railway, and industrial parks sectors.  In addition, the Government of Ethiopia (GOE) lifted a restriction on the logistics sector and enacted a law that allows Public Private Partnerships (PPP) to gradually open up some sectors of the economy to foreign investors.  Ethiopia’s rapprochement with Eritrea could possibly open up alternative ports for trade. Furthermore, the country recently ratified the African Continental Free Trade Area Agreement and eased visa requirements for African Union member countries with the goal of enhancing regional trade and tourism and attracting foreign direct investment (FDI).  The GOE announced its commitment to modernize the financial sector, improve the ease of doing business, and enhance macroeconomic and fiscal management.

Ethiopia’s economy is currently in transition.  Coming off a decade of double-digit growth, fueled primarily by public infrastructure projects funded through debt, the GOE has tightened its belt, reducing inefficient government expenditures, putting a moratorium on most new government mega-projects, and attempting to get its accounts in order at bloated state-owned enterprises (SOEs).  The IMF put the growth of the Ethiopian economy at 7.7 percent for FY2017/18 and is projecting an 8.5 percent annual growth rate for the medium term. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 100 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with 105 passenger connections, and growing consumer markets are key elements attracting foreign investment.

Ethiopia’s imports in the last year have experienced a slight decline in large part due to a reduction in public investment programs and a dire foreign exchange shortage.  Distressingly, export performance remains weak, declining due to falling primary commodity prices and an overvalued exchange rate. The acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) and the absence of capital markets are choking private sector growth.  Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major intellectual property rights treaties.

All land in Ethiopia belongs to “the people” and is administered by the government.  Private ownership does not exist, but “land-use rights” have been registered in most populated areas.  The GOE retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farms, industrial zones, and infrastructure development.  Successful investors in Ethiopia conduct thorough due diligence on land titles at both the state and federal levels, and undertake consultations with local communities regarding the proposed use of the land.  The largest volume of foreign direct investment (FDI) in Ethiopia comes from China, followed by Saudi Arabia and Turkey. Political instability associated with various ethnic conflicts could negatively impact the investment climate and lower future FDI inflow.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 114 of 180 https://www.transparency.org/country/ETH
World Bank’s Doing Business Report “Ease of Doing Business” 2019 159 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 N/A https://www.globalinnovationindex.org/gii-2018-report#
U.S. FDI in partner country (M USD, stock positions) 2018 $600 http://www.investethiopia.gov.et/
World Bank GNI per capita 2017 $740 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

In November 2018, the GOE created a new one page government priority dashboard entitled “Ethiopia: A New Horizon of Hope.”  The dashboard, which predominantly focuses on the economy, pinpoints “Key Facts and Challenges” in areas such as “Financial Sector,” “Macro-Economic Management,” and “Export and Revenue Mobilization.”  The dashboard proposes push-to-grow manufacturing and emphasizes agriculture, information communication and technology, and tourism as pillars of a productive economy. The plan also sets concrete targets to raise credit available to the private sector by 20 percent per year and encourages increased private sector participation in several sectors, including power generation and logistics.  The government is currently undertaking changes in legislation and institutions to implement the economic reforms laid out in the dashboard. In addition, Ethiopia has started implementing a Public Private Partnership (PPP) proclamation, equivalent to a law, which would permit foreign investment and ownership of public infrastructure, with an initial focus on power generation and road construction.

Given the scale of investment required to achieve the goal of becoming a middle income economy by 2025 and the announcement of new economic reforms, the country needs significant inflows of FDI.  Tax incentives for investment in the high-priority sectors, such as manufacturing, agribusiness, textiles, sugar, chemicals, pharmaceuticals, minerals, and metal processing, underscore the government’s focus on FDI.

In June 2018, the GOE announced plans to partially privatize Ethiopian Airlines, EthioTelecom, Ethiopian Electric Power, and Ethiopian Shipping and Logistics Service Enterprise, and fully privatize railways, sugar projects, industrial parks and government-owned hotels.  The GOE has taken concrete measures to open up closed sectors, including drafting a bill to open the aviation sector, drafting legislation to create a new telecommunications regulator and allow foreign investment in that sector, allow minority stakes in joint-ventures by foreign logistics companies, allowing Ethiopian diaspora to hold shares in private Ethiopian banks, and commissioning a study to advise on how best to open up the financial sector.

While laws and regulations may change relatively quickly under the current dynamic reform period, under the existing code, foreign investment is prohibited in wholesale trade (excluding supply of petroleum and its by-products as well as wholesale trade by foreign investors of their locally-produced products), most import trade, export trade of raw coffee, khat, oilseeds, pulses, the export of 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, museums, theaters and cinema hall operations, and printing industries.  As part of its ongoing economic reform efforts, the government is in the process of revising the investment code. 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. While foreign firms cannot engage in joint ventures in closed sectors, they are allowed to supply goods and services to Ethiopian firms in these sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate investments in Ethiopia and its services including: 1) to promote the country’s investment opportunities; 2) to issue investment permits, business licenses, and construction permits; 3) to issue commercial registration certificates and renewals; 4) to negotiate and sign bilateral investment agreements; and, 5) to issue work permits.  In addition, the EIC has the mandate to advise the government on policies to improve the investment climate. At the local level, regional investment agencies facilitate regional investment. Ethiopia’s rank on the 2019 World Bank Ease of Doing Business Index improved from 2018, moving from 161 to 159 out of 190 countries. Progress was primarily in the area of reducing barriers to starting a new business by removing competence certificate for certain businesses; reducing the time it takes to obtain planning consent for construction permits; and, establishing specialized benches to resolve commercial cases addressing contract enforcement.  The World Bank also identified areas where Ethiopia’s Ease of Doing Business worsened from 2018 relative to other ranked countries, including getting electricity, registering property, and resolving insolvency. In order to improve the investment climate, attract more FDI, and tackle unemployment challenges, a committee has been formed by the Prime Minister’s Office to systematically examine each indicator on the Doing Business Index, identify factors that inhibit businesses, and envision placing Ethiopia among the top 100 doing business ranking countries.

The American Chamber of Commerce (AmCham) works on voicing the concerns of the U.S. businesses in Ethiopia.  AmCham has provided a mechanism to compete with investors from India, China, the U.K, and the Netherlands, who meet regularly with government officials through their respective associations to discuss issues that hinder their operation in Ethiopia.  The Addis Ababa Chamber of Commerce also organizes a monthly business forum, which enables the business community to discuss issues related to the investment climate with government officials by sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish, acquire, own, and dispose of most forms of business enterprises.  However, there are sectors (mentioned above) that are closed to foreign investors. There is no private ownership of land. All land is owned by the state, but can be leased for up to 99 years.  Small-scale rural landholders have indefinite use rights, but cannot lease out holdings for extended periods, except in the Amhara Region. The 2011 Urban Land Lease Proclamation allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors.

A foreign investor intending to buy an existing private enterprise or buy shares in an existing enterprise needs to obtain prior approval from the EIC.  While foreign investors have complained about inconsistent interpretation of the regulations governing investment registration (particularly relating to accounting for in-kind investments), they generally do not face undue screening of FDI, unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.

Other Investment Policy Reviews

Over the past four years, the EIC has undertaken an independent review of its investor services in an effort to streamline the investment process.  According to the EIC, the Commission has already implemented at least 28 services pertaining to licensing and registration, and duty-free importation of capital goods for investment in manufacturing.  The EIC has three Deputy Commissioners, with responsibilities for the following divisions: Investment Operations; Industrial Parks Regulation; and, Policy and Investment Climate Improvement.

Business Facilitation

The EIC has established a one-stop shop service to cut the time and cost of acquiring investment and business licenses.  If all requirements are met, it is now possible to obtain a business license in a single day, although this remains the exception rather than the rule.  According to the 2019 World Bank’s Ease of Doing Business Report, on average, it takes 32 days to start a business in Ethiopia. Meanwhile, the EIC has adopted a Customer or Account Manager system to build lasting relationships and provide post-investment assistance to investors.  U.S. investors report that the EIC often fails to meet its own stringent deadlines. The EIC readily admits that many bureaucratic barriers to investment remain, but hopes to eliminate many of these in the future.

Currently, more than 95 percent of Ethiopia’s trade passes through the Port of Djibouti, with residual trade passing through the Somaliland port of Berbera or Port Sudan.  In March 2018, Ethiopia concluded an agreement with the Somaliland Ports Authority and DP World to acquire a 19 percent stake in the joint venture developing the Port of Berbera.  The agreement will help Ethiopia secure an additional logistical gateway for its increasing import and export trade. Following the July 2018 rapprochement with Eritrea, the Ethiopian government has investigated the opportunity of accessing an alternative port at either Massawa or Asseb.

The Government of Ethiopia is working to improve business facilitation services by making the licensing and registration process easier and faster, by registering foreign Chambers and business associations in Ethiopia to advocate for their respective country businesses.  U.S. companies can obtain detailed information for the registration of their business in Ethiopia from an online investment guide to Ethiopia (https://www.theiguides.org/public-docs/guides/ethiopia  ).  Though the government is taking positive steps to socially empower women (half of the new cabinet are women), there is no special treatment provided to those who wish to engage in business.

Online business registration is not yet available, but the Ministry of Trade and Industry claims to have plans to migrate the paper-based registration process to a digital system at some unnamed time in the future.  In 2016, the government revised its commercial registration and business licensing legislation, which eliminated some cumbersome and duplicative requirements, such as the yearly renewal of business registrations and the 15,000 ETB (approximately USD 680) minimum capital requirements to set up limited liability companies.  In 2018 the government removed the need to obtain a certificate of competence for certain types of businesses, made the process of obtaining construction permits faster by reducing the time to obtain planning consent, and made enforcing contracts easier by establishing specialized benches to resolve commercial cases.

The full Doing Business Report is available here: http://www.doingbusiness.org/data/exploreeconomies/ethiopia  
http://www.doingbusiness.org/en/data/exploreeconomies/ethiopia#DB_sb  

Outward Investment

There is no outward investment by domestic investors from Ethiopia as citizens/local investors are not allowed to hold foreign accounts.

2. Bilateral Investment Agreements and Taxation Treaties

Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA) and it has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen.  Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Brazil, Equatorial Guinea, India, Morocco, Nigeria, South Africa, Spain, the United Kingdom, and the United Arab Emirates. Ethiopia signed a protection of investment and property acquisition agreement with Djibouti. A Treaty of Amity and Economic Relations, which entered into force in 1953, governs economic and consular relations with the United States.

Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries.  The body has introduced a 10 percent tariff reduction on goods imported from member states. However, Ethiopia has not yet joined the COMESA free trade area.

In 2019 Ethiopia ratified the African Continental Free Trade Area (AfCFTA) Agreement, which aims to create a single continental market for goods and services, with free movement of business persons and investments, to pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.  Ethiopia is the 21st country to sign the agreement, with just one more country needing to ratify to make AfCFTA operational.

There is no double taxation treaty between the United States and Ethiopia.  Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan, and the United Kingdom.

3. Legal Regime

Transparency of the Regulatory System

Ethiopia’s regulatory system is generally considered fair, though there are instances in which burdensome regulatory or licensing requirements have prevented the local sale of U.S. exports, particularly health-related products.  Investment decisions can involve multiple government ministries lengthening the registration and investment process.

The Constitution is the highest law of the country.  The Parliament enacts proclamations, which are followed by regulations that are passed by the Council of Ministers, and implementing directives that are passed by ministries or agencies.  The government engages the public for feedback before passage of draft legislation through public meetings, and regulatory agencies request comments on proposed regulations from stakeholders.  Ministries or regulatory agencies do neither impact assessment for proposed regulations nor ex-post reviews. Parties that are affected by an adopted regulation can request reconsideration or appeal to the relevant administrative agency or court.  But there is no requirement to periodically review regulations to see whether they are still needed or should be revised.

All proclamations and regulations in Ethiopia are published in official gazettes and most of them are available online http://www.hopr.gov.et/web/guest/122   and https://chilot.me/federal-laws/2/  

Legal matters related to the federal government are entertained by Federal Courts while state matters go to state courts.  To ensure consistency of legal interpretation and promote predictability of courts, the Federal Supreme Court Cassation Division is empowered to give binding legal interpretation on all federal and state matters.  Though there are no publicly listed companies in Ethiopia, all banks and insurance companies are obliged to adhere to International Financial Reporting Standards (IFRS).

Regulations related to human health and environmental pollution are often enforced.  In January 2019, the Federal and Oromia State Environment, Forest and Climate Changes Commissions shut down three tanneries in Oromia state for what was said to be repeated environmental pollution offenses.  The government also suspended the business license of MIDROC Gold Mine in May 2018 following weeks of protests by local communities who accused the company of causing health and environmental hazard in the Oromia regional state.  In February 2019, the Ethiopian parliament passed a bill entitled ‘Food and Medicine Administration Proclamation,’ which bans smoking in all indoor workplaces, public spaces, and means of public transport and prohibits alcohol promotion on broadcasting media.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures  .  Foreign and national investors can find detailed information from the investment commission website http://www.investethiopia.gov.et/investment-process   and https://www.theiguides.org/public-docs/guides/ethiopia   on administrative procedures applicable to investment and income generating operations including the number of steps, name, and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.

The government released its five year public finance administration strategic plan (2018-2022) in March 2018, mapping out reforms in government revenue and expenditure forecasting, government accounts management, internal audit, public procurement administration, public debt management, and public financial transparency and accountability.  In support of this initiative, the Ministry of Finance (MOF) issued a directive on Public Financial Transparency and Accountability in October 2018. The directive mandates that all public institutions report their budgetary performance and financial accounts in platforms that are accessible to the wider public in a timely manner. It also makes the MOF responsible for disseminating a regular and detailed physical and financial performance evaluation of large publically-funded projects.  The directive further outlines a clear timeline for the publication of each major piece of budgetary information, such as the pre-budget macroeconomic and fiscal framework, the enacted budget, quarterly execution reports, annual execution reports, and the annual audit report.

International Regulatory Considerations

Ethiopia ratified the AfCFTA on March 21, 2019.  ACFTA aims to create a single, continental market for goods and services, with free movement of business persons and investments.  Ethiopia is also a member of Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries and has introduced a 10 percent tariff reduction on goods imported from member states.  However, Ethiopia has not yet joined the COMESA free trade area. Ethiopia resumed the WTO accession process in 2018, which began in 2003, with the goal of acceding in 2020.

Ethiopian standards, however, have a national scope and applicability and some of them, particularly those related to human health and environmental protection, are mandatory.  The Ethiopian Standards Agency is the national standards body of Ethiopia.

Legal System and Judicial Independence

Ethiopia has codified criminal and civil laws, including commercial and contractual law.  According to the contractual law, a contract agreement is binding between contracting parties.  Disputes between the parties can be taken to the court. There are, however, no specialized courts for commercial law cases, although there are specialized benches both at the federal and state courts.

While there have been allegations of executive branch interference in judiciary cases with political implications, there is no evidence of interference in purely commercial disputes.  The country has a procedural code for civil and criminal court but the practice is minimal. Enforcement actions are appealable and there are at least three appeal processes from the lower courts to the Supreme Court.  The Criminal Procedure Code follows the inquisitorial system of adjudication.

Companies that operate businesses in Ethiopia assert that courts lack adequate experience and staffing, particularly with respect to commercial disputes.  While property and contractual rights are recognized, judges often lack understanding of commercial matters, including bankruptcy and contractual disputes.  In addition, cases often face extended scheduling delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.

Ethiopia is in the process of reforming the Commercial Code to bring it in line with international best practices.  The draft legislation appears to address many concerns raised by the business community, including the creation of a commercial court under the regular court system to improve the expertise of judges as well as increase the speed with which commercial disputes can be resolved.

Laws and Regulations on Foreign Direct Investment

The Investment Proclamation and Regulation of 2012 (later amended in 2014), is Ethiopia’s main legal regime related to foreign direct investment (FDI).  These laws instituted the opening of economic sectors to FDI, the requirements for FDI registration, and the investment incentives that are available to investors.

The following industrial sectors have been designated investment priorities: textiles and garments, leather and leather products, sugar and sugar-related products, cement, metals and engineering, chemicals, pharmaceuticals, renewable energy, and agro-processing.  Investments in those areas receive tax and duty incentives as established in Proclamation 769/2012  .

The 2014 amendment to the Investment Proclamation authorizes the EIC to adjudicate appeals submitted by foreign and domestic investors.  The EIC Investment Board is empowered to authorize the granting of new or additional incentives other than those outlined under the regulations and to authorize foreign investment in areas otherwise exclusively reserved for domestic investors, if the exception is in the national interest.  The EIC’s website  (http://www.investethiopia.gov.et/  ) outlines the government’s policy and priorities, registration processes, and provides regulatory details for investors.  In addition, the Ethiopian Investment Guide website (https://www.theiguides.org/public-docs/guides/ethiopia  ) provides relevant laws, rules, procedures, and reporting requirements for investors.

The revised Commercial Registration and Business Licensing Proclamation eliminated some cumbersome and duplicative requirements, including the yearly renewal of business registrations and the minimum capital requirements to set up limited liability companies, and requires a competency certificate in sectors such as health, security and environment.  The Proclamation allows registration of franchises and holding companies.

Competition and Anti-Trust Laws

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), operating under the Ministry of Trade and Industry, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare.  It has an administrative tribunal with a jurisdiction on matters pertaining to market competition and consumer protection. The authority also annually entertains many cases associated with consumer protection and unfair trade practices.

There are no restrictions for foreign companies or foreign-owned subsidiaries in the areas open to foreign investments.  The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation and its amendments. Nonetheless, companies have complained that SOEs receive favorable treatment in the government tender process.  The public sector’s heavy involvement in economic development means that SOEs often obtain a sizeable portion of open tenders.

Expropriation and Compensation

Per the 2012 Investment Proclamation, no investment by a domestic or foreign investor or enterprise can be expropriated or nationalized, wholly or partially, except when required by public interest in compliance with the law and with payment of adequate compensation.  Such investments may not be seized, impounded, or disposed of except under a court order.

The former Derg military regime nationalized many properties in the 1970s.  The current government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remain the property of the state.  In most cases, property seized by oral order or other informal means is gradually being returned to the rightful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time it controlled the property.  Public Enterprises, Assets, and Administration stopped accepting requests from owners for return of expropriated properties in July of 2008.

According to local and foreign businesses operating in the Oromia region, there have been a number of isolated incidents threatening investors in the region.  Various pretexts have been used to close down legitimate operations. False charges have been filed with regional courts, property has been confiscated, and bank accounts have been frozen, all in the name of “returning the land” to the “rightful owners” or “creating job opportunities” for the youth.  Regional officials, however, deny any systematic attack on investors and have repeatedly provided assurance that all legitimate investors will be protected. Meanwhile, other investors who have invested heavily in government and community relations and actively engaged local and regional officials have prospered.  The experience of investors is overall uneven and clear trends are not evident.

Dispute Settlement

ICSID Convention and New York Convention

Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Disputes (ICSID) Convention, but has not ratified the convention on The Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

The constitution as well as the investment law guarantees the right of any investor to lodge complaints related to his/her investment with the appropriate investment agency.  If he/she has a grievance against the decision, he/she can appeal to the investment board or to the respective regional agency as appropriate. While disputes can be resolved by international arbitration if both parties agree, enforcement of an arbitration decision is contingent on the Ethiopian court system.  However, if a dispute arises between foreign investors and the state, it will be settled based on the relevant bilateral investment treaty.

Due to an overloaded court system, dispute resolution can last for years.  According to the 2019 World Bank’s Ease of Doing Business report, it takes on average 530 days to enforce contracts through the courts.

International Commercial Arbitration and Foreign Courts

Arbitration has become a widely used means of dispute settlement among the business community as Ethiopian civil code recognizes Alternative Dispute Resolution (ADR) mechanisms as means of dispute resolution.  The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. However, there is no guarantee that the award of an international arbitral tribunal will be accepted and implemented by Ethiopian authorities.  Ethiopia is not a party to the Convention on the Recognition and Enforcement of Arbitral Awards, which creates uncertainty for potential investors and serves as disincentive to invest. There are no publicly available statistics that indicate courts’ decision bias towards state-owned enterprises (SOEs) on investment/commercial disputes that involve them.

Bankruptcy Regulations

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and   establishes a court system that has jurisdiction over bankruptcy proceedings. The primary purpose of the law is to protect creditors, equity shareholders, and other contractors.  Bankruptcy is not criminalized. In practice, there is limited application of bankruptcy procedures due to lack of knowledge on the part of the private sector.

According to the 2019 World Bank Doing Business Report, Ethiopia stands at 148 in the ranking of 190 economies with respect to resolving insolvency.  Ethiopia’s score on the strength of insolvency framework index is 5.0. (Note: The index ranges from zero to 16, with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones.)

5. Protection of Property Rights

Real Property

The constitution recognizes and protects ownership of private property.  However, all land in Ethiopia belongs to “the people” and is administered by the government.  Private ownership does not exist, but land-use rights have been registered in most populated areas.  As land is public property, it cannot be mortgaged. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is common.  Allegations of corruption in the allocation of urban-land to private investors by government agencies are a major source of popular discontent. The government retains the right to expropriate land for the common good, which it defines as including expropriation for commercial farms, industrial zones, and infrastructure development.  While the government claims to allocate only sparsely settled or empty land to investors, some people have been resettled. In particular, traditional grazing land has often been defined as empty and expropriated, leading to resentment, protests and, in some cases, conflict. In addition, leasehold regulations vary in form and practice by region.  Successful investors in Ethiopia conduct thorough due diligence on land titles at both state and federal levels, and conduct consultations with local communities regarding the proposed use of the land before investing.

We encourage potential investors to ensure their needs are communicated clearly to the host government.  It is important for investors to understand who had land-use rights preceding them, and to research the attitude of local communities to an investor’s use of that land, particularly in region of Oromia, where conflict between international investors and local communities has occurred.

The 2019 World Bank Doing Business Report has ranked Ethiopia 144 out of 190 economies in registering property, as it take on average 52 days to register property.

Intellectual Property Rights

The Ethiopian Intellectual Property Office (EIPO) oversees intellectual property rights (IPR) issues.  Ethiopia is not yet a signatory to a number of major IPR treaties, such as the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organization (WIPO) Copyright Treaty, the Berne Convention for Literary and Artistic Works, the Madrid System for the International Registration of Marks, or the Patent Cooperation Treaty.  The government expressed its intention to accede to the Berne Convention, the Paris Convention, the Marrakesh Protocol, and the Madrid Protocol. To meet this objective, EIPO is drafting a ratification proclamation. EIPO has been tasked primarily to protect Ethiopian patents and copyrights and to fight pirated software. Generally, EIPO is weak in terms of staff and budget, and it does not have law enforcement authority.  Abuse of U.S. trademarks is rampant, particularly in the hospitality and retail sectors. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is not included in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.

EIPO contact and office information is available at http://www.eipo.gov.et/  

For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles   from this page

http://www.wipo.int/directory/en/details.jsp?country_code=ET  

Embassy POC: Economic Officer, Helena Schrader, USEmbassyPolEconExternal@state.gov

7. State-Owned Enterprises

State-owned enterprises (SOEs) dominate major sectors of the economy.  There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, railway, industrial parks, petroleum importing, and sugar sectors.   State-owned enterprises have considerable advantages over private firms including priority access to credit and customs clearances. While there are no conclusive reports of credit preference for these entities, there are indications that they receive incentives, such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance.  Ethiopia does not publish financial data for most state-owned enterprises, but Ethiopian Airlines and the Commercial Bank of Ethiopia have transparent accounts.

Ethiopia is not a member to the Organisation for Economic Co-operation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs.  Corporate governance of SOEs is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals, but there is a lack of transparency in the structure of SOEs.

Privatization Program

In July 2018 the government announced the intention to privatize a minority share of Ethiopian Airlines, EthioTelecom, Ethiopian Shipping and Logistics Service Enterprise, and power generation projects, and to fully privatize sugar projects, railways, and industrial parks.  The privatization program will be implemented through public tenders and will be open to local and foreign investors. The background work for the privatization in several sectors is underway, including asset valuation of the enterprises, standardization of the financial reports, and establishment of modernized legal and regulatory frameworks.

The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors, which were largely nationalized by the Derg military regime in the 1970s.  Currently, twenty two SOEs are under the Public Enterprise, Assets, and Administration Agency.

8. Responsible Business Conduct

Some larger international companies in Ethiopia have introduced corporate social responsibility (CSR) programs; however, most Ethiopian companies do not officially practice CSR, although individual entrepreneurs engage in charity, sometimes on a large scale.  There are efforts to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and other institutions.

The government encourages CSR programs for both local and foreign direct investors but does not maintain specific guidelines for these programs, which are inconsistently applied and not controlled or monitored.  In early 2015, the Ethiopian Chamber of Commerce & Sectorial Associations published a ‘Model Code of Ethics for Ethiopian Businesses’ that was endorsed by former Ethiopian President Mulatu Teshome as a model for the business community.

Ethiopia was admitted as a candidate-member to the Extractive Industry Transparency Initiative (EITI) in 2014, but has not embraced the need for independent, non-governmental organizations and civil society to be engaged in the process.  As a result, full-membership during the next scheduled review in 2019 remains uncertain. Per the Commercial Code, extractive industries and other businesses are expected to conduct statuary audits of their financial statements at the end of each financial year, though the financial statements are not available to the public, only to financial institutions and share companies.

9. Corruption

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister.  The Commission is mandated to provide ethics training and education to prevent corruption.  The investigation and prosecution of corruption crimes are the mandates of the Federal Police Commission and the Federal Attorney General, respectively.

The Federal Police are mandated to investigate corruption crimes committed by public officials as well as “Public Organizations.”  The latter are defined as any organs in the private sector that administer money, property, or any other resources for public purposes.  Examples of such organizations include share companies, real estate agencies, banks, insurance companies, cooperatives, labor unions, professional associations, and others.

Transparency International’s 2018 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 34 (the score indicates the perceived level of public sector corruption on a scale of zero to 100, with the former indicating highly corrupt and the latter indicating very clean).  Its comparative rank in 2018 was 114 out of 180 countries, compared to 107 out of 180 countries in 2017.

In December, the American Chamber of Commerce in Ethiopia polled its members and asked what the leading business climate challenges were.  Transparency and governance ranked as the 4th leading business climate challenge, ahead of licensing and registration and public procurement.

Ethiopian and foreign businesses routinely encounter corruption in tax collection, customs clearance, and land administration.  Many past procurement deals for major government contracts, especially in the power generation, telecommunications, and construction sectors were widely viewed as corrupt.

PM Abiy Ahmed has launched a corruption clean-up that has resulted in several hundred arrests.  In connection with the embezzlement schemes involving hundreds of millions of U.S. dollars, particularly with government procurement irregularities, the government arrested and charged in September 2018 over 40 mid- and senior-level Metal Engineering Technology Corporation (METEC) officials.  In addition, the PM transferred the management of large government projects from METEC (which is widely viewed by the public as corrupt) to other government organizations. Similarly, in April 2019, the government arrested 59 officials and business people suspected of corruption. The officials are primarily from the following government institutions: Public Procurement & Property Disposal Service, Food & Drug Administration Agency, Pharmaceuticals Fund & Supply Agency, and the Ethiopian Water Works Construction Enterprise.

Ethiopia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  Ethiopia is a signatory to the African Union Convention on Preventing and Combating Corruption. Ethiopia is also member of the East African Association of Anti-Corruption Authorities.  In 2003, Ethiopia signed the UN Anticorruption Convention that was ratified in November 2007.  It is a criminal offense to give or receive bribes, and bribes are not tax deductible.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:

Federal Police Commission
Addis Ababa
+251 11 861-9595

Contact at “watchdog” organization:

Transparency Ethiopia
Addis Ababa
+251 11 827-9746
Email: TiratEthiopia@gmail.com

10. Political and Security Environment

Ethnic conflict —often sparked by historical grievances or resource competition, including land disputes— has resulted in varying levels of violence that have internally displaced as many as two million people nationwide.  Communal conflict between Oromos and Somalis has persisted along their shared border.  Remnants of the Oromo Liberation Front, an opposition movement, have battled ethnic neighbors, regional security forces, and the military.  In the south, conflict between communities in the Guji and Gedeo zones has been particularly violent and intractable.  Disputed territory in the north between the Amhara and Tigray regions is a continuing flash point.  Recent violence between Oromos and Amharas has occurred along a main road from Addis Ababa to the north.

Under PM Abiy’s administration, political space in Ethiopia has opened dramatically.  Constitutional rights, including freedoms of assembly and expression, are broadly respected.  Political prisoners have been released. Opposition parties have been allowed to form or return to the country, and they operate freely. Independent media is re-establishing itself, and laws are being revised to facilitate the rebuilding of civil society.  Nationwide elections are scheduled for May of 2020.  The electoral and pre-electoral period could represent a potential catalyst for unrest.

PM Abiy has also initiated a process of modernization, de-politicization, professionalization, and civilian accountability in his security services.  The past year provides numerous examples where security forces have allowed demonstrators space to operate peacefully.  In some instances, though, security forces have failed to stop ethnic violence in a timely fashion.  Though foreigners are rarely, if ever, specifically targeted, spillover ethnic violence has occasionally resulted in the deaths of foreign employees.

The new administration has also increased regional autonomy.  Successful American investors tell us that understanding the different business climates across the regions—there are different regional taxation regimes, unique ethnic conflicts, varying levels of reception towards profit-making companies, and contrasting approaches to policing and security issues—is key to successfully investing in Ethiopia.

Investment Climate Statements
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