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Home FDI

Ethiopia’s ‘foreign investor’

Ermias Wodajo by Ermias Wodajo
June 6, 2022
in Africa, Ethiopia, FA, FDI
Reading Time: 2 mins read
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When Ethiopia amended its investment law, four times within the past two decades, it was about opening sectors for foreign investors.

Among major changes, through all of those times, and quite a recent bold one is on setting foreign investment areas from ‘exception rule’ towards ‘negative listing rule’. This is a shift in legislative line and policy from ’A foreign investor is allowed to invest in areas specified in the schedule toward ‘All investment areas except those listed exclusively for domestic investors and joint ventures are open for foreign investors. (Article 4 of regulation 270/2012 and Article 6 of regulation 474/2020)

The domestic investor is defined to refer to the government and Ethiopian national, including a company wholly owned by Ethiopian nationals while the foreign investor is a foreign capital investment by a foreign national, company with foreign national shareholding, and a company incorporated outside Ethiopia.

The legislative framework has gone from the two, domestic and foreign lists, and added a new category- investment areas for joint ventures. It holds two classes: joint venture with the government, either foreign or domestic; and domestic investor with a foreign investor. This new category, setting the minimum capital requirement and maximum shareholding percentage of the foreign investors, which equals a minimum of USD 150,000 and between 49-75% maximum shareholding, listed some of the areas reserved for the domestic investor for a joint venture.

Also read: How PPPs could change the face of Ethiopia real estate

Almost all investment areas, except those listed under the domestic investor exclusive list, fall under joint venture arrangements open to foreign investors. It is as simple as to say all investment areas in Ethiopia, except those exclusive lists, set under Article 4 of regulation 474/2020, are open for foreign investors. Even those exclusive could be opened to the foreign investors by the Ethiopian investment board, without a need for a legislative house amendment. The board is empowered, under the investment proclamation, to open investment areas, those reserved for domestic investors or areas of the joint venture, for foreign investors.

These all envisage Ethiopian commitment to opening its economy with one only exception of exclusive areas reserved for the domestic investors, which still could also be opened by the investment board at any time soon. At the contextual level, based on empirical evidence, the most important factor influencing IJV strategy and success is institutions. Ethiopia is on exploiting the greater use of institutional theory. While the banking business is left exclusively for domestic investors, the central bank, NBE, has also made a policy change to allow non-bank institutions to offer financial services and foreign mobile money operators to provide financial services in Ethiopia. The National Bank of Ethiopia (NBE), this week, hinted, through the governor’s press interview, at resuming the Banking Business Proclamation amendment, a legal framework to allow foreign banks to join with set minimum capital on a joint venture arrangement.

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Tags: Ermias WodajoEthiopiaEthiopia’s ‘foreign investor’FDIFeatureForeign direct invesmentэфиопияأثيوبياエチオピア埃塞俄比亚
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Ermias Wodajo

Ermias Wodajo

Ermias holds two years plus a decade of professional experience, an equal share in both public and private sector, in the past 6 years of federal Attorney post qualified experience (PQE) focusing on international and national investment aspects of corporate and commercial laws, which mainly include pre and post subsidiary new company formation, legal representation, board counsel, compliance, draft and review corporate affairs documents and strategic operational consultation. The first six years with additional part time legal professionals training job and past two years, a remote based, predominantly a part-time, global insight provider position, facilitation and delivering exceptional global impact setting insights on investment catalyst aspects of FDI. He has delivered an exceptional earlier feasibilty and post investment consultation and legal representation of many foreign companies, with well recognized proactive strategic engagement for the first of five investments in Hawassa Industrial Park, which mainly include: PVH Hawassa Industrial park subsidiary, JP textile, KGG garment, TAL Apparel and Quadrant Apparel Group. His research insight on regulatory frameworks of Ethiopian Industrial parks published on Beijing Law Review (Vol 10 No.1.Jan 2019), successfully addressed the huge gaps on the inward and forward linkage between industrial park investment & local economy. e-mail: wodajolaws@gmail.com Linkedin profile

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