Chapter V: Regulating and Administration of Investment in

Ethiopia
Definition of Regulation
Regulation is a normative standard that should be obeyed, and a
violator must be forced to comply where there is non-compliance
The act of regulating refers to the state of being regulated
An authoritative rule dealing with details or procedure safely
regulations
A rule or order issued by executive authority or regulatory
commissioner or agency of a government and having the force of
law
Investment regulation may be defined as control of the
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government on investment
Regulation can be classified into three, such as
A regulated market is a market over w/c government bodies
exert a level of oversight & control.
Market regulation has a shortcoming of instability & uncertainty
because it is the market which leads the sector
Industry regulation may be cooperative or imposed by dominant
enterprises. Industrial regulation has the advantage to eliminate the
instability for both the business organizations and the employee
Government regulation of industry is an act of oversight on
individual or firm’s behaviour via the mechanisms of setting the
process or controlling the quantity & quality of goods & services
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produced.
Yet there is no guarantee that the products’ quality will be kept
high.
Governmental regulation aims at fairness, non-discrimination,
consumer protection and quality maintenance
Regulated industry is a type of business controlled by
government rules
The quality of government policies & institutions is a determining
factor in ensuring sustainable development gains from investment
Policy making may be aimed at short term gains rather than long
term development objectives in developing countries.

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The distribution and use of host countries share on revenue maybe
determined with little attention to development considerations
Pursuant to Proclamation No.1180/2020, the system of
administration of investment should be transparent and efficient;
The main purpose of regulating investment is to ensure
transparency & efficiency in the investment administration
A regulation that boosts investment & free market competition is
considered as a good regulation
PRINCIPLES OF GOOD REGULATION
What are the indicators of good regulation?

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 Regulation may be defined as the combination of organizations
rules, sanctions that result in behaviours, consistent with orderly
markets,accountabilty,transparency and stability
Good regulation should be beheld as a deriving force for reliable &
high quality financial services
As per to WBG if any member state endeavours its economy to
perform well should take the following five steps:
a) Simplify and deregulate(free) in competitive markets
b) Focus on enhancing property rights
c) Expand the use of technology
d) Reduce court involvement in business matters
e) Make reform a continuous process
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The Need for Regulating Investment
Investment companies operate in a broad & sophisticated
regulatory regime designed to protect investors and ensure
appropriate levels of governance & transparency
So states need to maintain effective control over their economic
environment
Investment is an economic activity & the government should
regulate it.
The right of a state to control entry of foreign investment flows
from sovereignty is unlimited.
Entry of any foreign investment can be banned by a state.

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Once an alien enters a state, both investor and investment property
are subject to the law of the host state
States have the right to regulate the entry & establishment of
transnational corporations envisaging determining the role such
corporations may play in economic and social development and
prohibiting or limiting the extent of their presence in specific
sectors.
In rule, states have the power to control foreign investment in their
jurisdictions.
The conflict b/n the liberal idea of free flow of investment with the
notion of sovereign rights to control the entry of investment is
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evident
Powerful states w/c see benefits in maintaining the stance of
economic liberalism, have not been able to adhere to such liberal
ideas in their own policies.
Economic liberalism has remained an ideal whereas the right of
power of the sovereign state to exclude aliens
or to impose condition on their entry is an accepted principle of the
law
What is the purpose of domestic laws in regulating investment?
The objective of the domestic laws regulating both the entry as
well as the operation of foreign investment in the host country is
to enlarge the scope for domestic control.
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The host state seeks to increase its influence over the foreign
investment by limiting entry through devices over w/c control
could be more easily exercised
The foreign investment laws could indicate that entry could be
made only through a joint venture with a local partner & specify
the type of shareholding that the foreign party could have
REGULATION OF INVESTMENT IN ETHIOPIA
The main purpose of regulating foreign investment is to control
the investment so that it is possible to reject the harmful projects
and give incentives to those that are beneficial to our country

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 One part of the economic reform programs taking place in Ethiopia
is improving the country's ranking in the World Bank's ‘Ease of
Doing Business’
A) Constitutional Framework of investment in Ethiopia
In Ethiopia, the responsibility of the government emanates from the
Constitution FDRE constitution articles 51(4)
55(2)(a),4,89(1)(2)(5),
B) Economic policy of Ethiopia
The economic policy of the country emphasises regulating
investment so as to ensure that it plays a role in the development of
the people.
Economic policy comprises three main parts such as:
Economic objectives consist of Macroeconomic stability and
Growth and development. 10
Economic instruments refers to a free market economy comprise
finance administration policy, (type of taxes, government
expenditure), monetary policy (provision of money, reserve
requirements), interest and so forth
Economic Models -deal with how the economy is transacted (the
structure, opportunities and challenges),
It is noteworthiness to know how the policy instruments are
interconnected with the economic policy objectives and other
similar matters
It may designate the economic theorizing and empirical evidence
of the perception
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Privatization is the transfer of assets and functions from public to
private hands by selling or contract.
The basic argument for privatization is that the private investors
can do the activities more cheaply & efficiently than state and local
governments
Deregulation is an essential in market oriented economy.
It implies to the removal or substantial reduction of government
regulations of entire investment
Areas of Investment Reserved for Domestic investors
Investors are classified into domestic or foreign investors

Pursuant to article 6 (1)(2) of 1180/2020 of investment

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proclamation
Whereas areas of investment are categorized as joint investment

with the Government, domestic investors, and for joint investment

with domestic investors

Scope of investment proclamation 1180/2020 (arts 3, and 9(3)

(a) (b)

Investments in relation to prospecting, exploration and

development of minerals and petroleum are excepted from the

scope of the investment proclamation

There is a separate legal regime governing investments in

these sectors i.e. ministry of mines

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That being said, similar to the repealed proclamation, the Ethiopian

Civil Aviation

Authority are delegated by EIC to license investors in their

respective sectors
As per to investment proclamation no.1180/2020, there is no a
sector that will be reserved for the government only.
The sector listing has four major categories i.e. those reserved for
joint venture with the government; sectors reserved for domestic
investors and those that are reserved for joint venture by foreign
investors and domestic investors.

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 Any sector that is not specifically mentioned in any of the
categories listed in the above categories are open for foreign
investors. See Art.6 (2) of 1180/20 cum Arts.3 to5 of regulation
474/2020
Sector listing approach can be classified as an Open and restrictive
system
Open system approach comprises:
 Host country admits FDI without a formal screening and approval
process or a mere filing or notification requirement
 Fully open countries are not many
 OECD Regulatory restrictiveness index shows 15
 EU member States, Eastern Europe, Chile and Argentina
 From Africa: Rwanda and Mauritius stand out
Restrictive-system approach
 Host country puts conditions for admission,
 Sector specific restrictions
 Equity restriction or local management requirement
 Performance requirements

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A) AREAS OF INVESTMENT FOR JOINT WITH GOVERNMENT

As per to art..3 of investment regulation no.474 /2020 an investor

may invest in any of the following investment areas only jointly

with the Government

Manufacturing of weapons, ammunition and explosives used as

weapons or to make weapons

International air transport services;
Import and export of electricity, transmission and distribution of
electrical energy through integrated national grid system; and
Postal services with the exception of courier services

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 B) SECTORS OPEN TO ETHIOPIAN NATIONALS
As per to Art. 4 (1-32) of investment regulation no.474/2020
Aforesaid negative listing model, those listed sectors are fully or
partially restricted for foreign investors.
C) Investment areas reserved for joint investment by domestic and
foreign investors
Any foreign investor can invest jointly with a domestic investor
areas stated under art.5 (1-2) of investment regulation no.474/2020
D) AREAS OPEN TO FOREIGN INVESTORS
Sector listing approach is classified as positive and negative
approaches
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All investment areas not listed under articles 3, 4 and 5 herein are
open to foreign investors i.e. Negative approach system is
adopted
The investment proclamation no.1180/2020 has adopted negative
listing approach.
It follows enumeration of sectors or sub sectors in w/c foreign
investors are prohibited or restricted
Any sector or subsector that does not appear on the list is
considered open for FDI
On the list may be prohibitions, ownership limitations, screening
requirements ,minimum investment requirements & performance
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requirements are the major ones
 Investment sector regulation in Ethiopia
Positive listing approach was Negative listing approach is adopted
adopted by Investment by investment proc.No.1180/2020
proc.No.769/2012 & preceding

Open for
FDI Open for FDI
JV with
Govt
Reserved with
Reserved for
domestic
Govt investors
Reserved for
Ethiopianfor
Reserved JV with Domestic
Nationals investors
Domestic
Investors JV with Govt

Closed for
FDI 20
Key for Positive listing approach
Case-by-case approval/ screening
Further divided into a positive listing and negative listing
approaches
Exhaustive enumeration of all sectors or sub-sectors in w/c
foreign investors may invest in.
It’s a static document and is not seen as progressive
Fails to cope with technological evolutions and pace of business in
a globalized World

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Gaps observed
Restrictive by design
Rigid, limits innovation and new developments
Restricts integrated business models
Restricts investments in value adding & enabling service sectors
Policy reversal from the past 3 consecutive laws (Investment
Proclamations No. 375/2002, 280/2002 & 769/2012)
Against global trend & best practice

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Key for negative listing approach
Listed sectors: fully or partially restricted for FDI
All other sectors: open for FDI
Enumeration of sectors or sub-sectors in w/c foreign investors are
prohibited or restricted
Any sector or sub sector that does not appear on the list is
considered open
On the list may be prohibitions, ownership limitations, screening
requirement, minimum investment requirement & performance
requirements are the major opens

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 EIB mandated to revise the list (add or remove from the negative
list)
The need to take a holistic approach towards improving
investment attraction, retention and expansion:
 Relaxing entry barriers
 Sector restriction
 Capital limits
 Licensing /permit
 Visa

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Procedures of investment in Ethiopia
The Ethiopian investment commission are efficient in granting
investment permit (Art.3(1) of 1180/2020 investment
proclamation
EIC grants investment permit pursuant to articles of 7,8,and
investment regulation no.474/2020
The entry of foreign investment to Ethiopia as well as the manner
is which investment is made are regulated

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No investor may at any time, hold domestic and foreign investor
permits concurrently Art.10(4) of 1180/2020 investment
proclamation
Business license
Licensing investors indicates issuing of a license by the authorized
government body to the person to undertake in the investment
Any investor may engage in any area of investment except where it
is contrary to law, moral, public health or security.
It is duty of EIC to check persons are engaging in a lawful activity
& to prevent illegal activities by refusing a license.

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Everybody who needs to carry out trading must have a valid
business license.
A business license may be defined as a permission issued for a
trader to carry out a particular business
The investment proclamation kept the renewal period at one year
but has changed the validity period to two years.
A foreign investor seeking to buy an existing enterprise in order to
operate it in its current state or to buy shares of an existing
enterprise is required to obtain prior approval from the EIC.
This service used to be provided at the Ministry of Trade in the
past.
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The inconsistency of the application of the investment laws by the
two organs has been a challenge in the past
Any investor is required to adhere the following procedures :
A completed application form is one of the documents required
for an investment permit.
It is necessary to complete the form as fully and accurately as
possible.
If the space provided in the form is not sufficient, use
supplementary sheet of paper.
Convert foreign currencies to local currency (ETB) at current
exchange rates
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Every investor is required to abide by the laws and regulations of
the Country.
An investor who submits an application for investment permit will
thus be automatically taken for unconditional commitment to all
laws, regulations, directives and specifically those related to the
specific investment area.
The investment permit should be used only for the purpose of
implementing the approved investment project.
The application form should be submitted together with other
required documents.
The application form is FREE COPY.
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 Receipt is provided for any payment effected for the service
rendered
Restrictions on Foreign Direct Investment (FDI)
The quality of FDI rules in terms of their liberalization or
restrictiveness in the following six areas:
(a) Restrictions on foreign ownership & market access,
(b) National treatment,
(c) Screening and approval,
(d) Management and composition of board of directors,
(e) Entry of foreign investors, and
(f) Performance requirements.
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The United States & Singapore are among the most open to foreign
investment, as the results suggest.
The US, for most parts, requires reciprocity by a partner to
deregulate its investment sectors.
Singapore by tradition of its policies is open to foreign investors to
shore up its domestic economy.
Canada & Mexico, both being NAFTA members, are found to be
restrictive in their FDI rules.
This may be somewhat surprising as the NAFTA is seen as an FTA
having comprehensive FDI rules.

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Yet, setting FDI rules is one thing & implementation is another.
Even if one country sets up liberal FDI rules, FDI may be
restricted if liberal FDI rules are implemented effectively.
Very often, a lack of transparency in the implementation of FDI
rules discourages FDI.
In light of these issues, an assessment of the implementation of
FDI rules should be conducted.
For such an assessment, information collected from
multinationals that undertake FDI is very useful
A country with an open FDI policy regime would successfully
attract FDI.
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There have been a small number of studies that examine the

impacts of FDI rules on FDI flows.

The United Nations Conference on Trade and Development (1998)

statistically examined the effect of BITs on FDI flows & found no

evidence that BITs increased FDI

The most salient feature of restriction is found on foreign

ownership or the degree of participation that foreign investors can

influence the enterprise.

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FDI has increased its importance in international economic

activities in recent decades as world FDI has increased much faster

than world GDP or world trade

FDI has contributed to the economic growth of FDI recipient

countries, because FDI not solely generates production &

employment but also transfers technology and management know-

how w/c play essential roles in achieving economic growth.

Rapid expansion of FDI at the global level as well as regional or

national levels is attributable to a number of factors. 34

One of the most important factors is liberalization of FDI policies.
Realizing the beneficial impacts of FDI, many countries have
liberalized FDI policies in order to attract FDI.
Some countries have even implemented incentives such as
corporate income tax exemptions
Foreign investors claim there is substantial room for further
liberalization of FDI policies, despite the already substantial
progress.
Such views led to an attempt at the WTO comprise the
establishment of investment rules as an agenda for multilateral trade
negotiations.
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Developed countries supported the attempt, but it failed largely
because of strong opposition from developing countries
Even if countries are eager to attract FDI, they would like to
maintain the right to regulate or restrict FDI for various reasons,
envisaging national security & protection of industries and workers
Faced with regulations and restrictions on FDI, investor countries
began using FTAs to liberalize FDI policies in FTA partner
countries.
The provisions on FDI in FTAs are meant to give investors of the
contracting parties more concessions in doing businesses in the
contracting countries of the FTAs
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These envisage easier market access and the right of
establishment, the rendering of national treatment & the regulation
of performance requirements such as local content and employment
As per the investment proclamation 1180/2020 there is no a sector
that is reserved for the government only
Minimum Capital Requirement (Art.9 of 1180/2020) With regards
to the minimum capital that foreign investors are required to bring
in the status quo
The Current proclamation expanded the list of conditions in
w/c foreign investors might not be required to meet the
minimum capital requirement.
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As per current proclamation in addition to reinvesting of profit,
persons elected as members of a board of directors following the
change of a private limited company to a share company;
..and a foreign investor buying the entirety of an existing
enterprise owned by a foreign investor or the shares therein is not
required to meet the minimum capital requirement
As per to art.22 of 1180/2020, an investor is allowed to hire duly
qualified foreigners in the position of higher management without
any restriction.
The term ‘higher management’ position has created ambiguity in
the past.
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Yet, current investment law defined it to comprise the chief
executive officer (CEO), chief operating officer (COO), and chief
financial officer (CFO).
Investors are allowed to hire expatriates in the position of
supervision, trainers & other technical professions only if they can
ascertain that Ethiopians possessing similar qualifications or
experience required by the sector are not available
As per to art. 22(4) of 1180/2020,the investor is responsible for
replacing, within a limited period of time, such expatriate
employees by Ethiopian by arranging and providing the necessary
training.
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As per to article 18, a foreign investor or a foreign national
treated as domestic investor shall have the right to own
immovable property necessary for his investment.
Whereas immovable property does not comprise land
A foreign investor or a foreign national treated as domestic
investor who owns large investment may be allowed to own one
dwelling house.

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Chapter VI: The institutional framework for the Administration
of investment in Ethiopia (Article 29)
The organs of investment administration comprises the following:
The Ethiopian Investment Board;
The Ethiopian Investment Commission;
The Federal Government and Regional State Administrations
Investment Council; and
Investment administration Organs established pursuant to Regional
Laws.
The Ministry of Trade and Industry

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The ministry’s mission is to promote & expand the development
of industry by creating conducive enabling environment for the
development of investment & technological capacity of the
industry sector by rendering official support & services to the
development investor.
To address issues of poverty & raise agricultural productivity and
modernise the economy to commercial agriculture, the following
are deemed essential

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Higher level of investment and savings
Adequate access to credit facilities for sectors such as agriculture,
manufacturing industry and tourism
Investment in infrastructure, particularly rural infrastructure
Greater access to export market: EU, COMESA, Middle East,
Japan, and China
Trade-related Technical Assistance (TRTA) has to be
complemented by higher levels of financial assistance to the
country
A sustainable and fast industrial development can only be ensured
if the sector is competitive in the international market.
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Apart from its linkage with agriculture, it should be export
oriented and led by the industrial export sector
In order to successfully implement the strategy, the state has
focused on three areas, namely Providing support to the private
sector;
Coordinating & guiding the activities of all stakeholders; and,
Addressing market failures.
The principal strategy for industrialization is to link the
agriculture sector to the industry sector as the latter uses
agriculture products as inputs of production

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The Investment Board (art.30 (a –h))
The Ethiopian Investment Board (EIB) is the highest investment
policy making body on Investment and Industry Park in the
country
As per to 31 of 1180/2020,EIB is chaired by The Prime Minister
Exercise Powers and Duties specified under Proclamation,
Regulations issued hereunder & other laws enacted to regulate the
designation, operation and supervision of industrial parks;
Supervise the implementation of & follow up activities of the
Commission;
Initiate Policies on matters pertaining to investments;
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Recommend, as necessary, amendments to this Proclamation and
Regulations issued hereunder;
Issue directives necessary for implementation of proclamation
and regulations & follow up and oversee the implementation of
the directives
Decide on complaints lodged by investors against final
administrative decisions of the commission or other federal
government executive bodies submitted in accordance with the
grievance procedures specified in the proclamation

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Put forward to the pertinent Government Organ an assessment-
based recommendation regarding the type and extent of
investment incentives to be granted to investments and the criteria
for identifying investments eligible for incentives
Decide, in consultation with relevant public and private sector
stakeholders, to open to foreign investors those investment areas
reserved for joint investment with the government
Or to domestic investors, or for joint investment between domestic
and foreign investors, as well as restrict foreign investment in
areas open to foreign investors where such decision is justified by
public interest considerations.
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Two non-voting private sector representation

Directive to be issues on procedures for submission of apps,

decision making, dissemination of decisions

Meeting frequency pushed to quarterly

The Investment Commission (Art.35)

The Ethiopian investment commission is hereby re-established as
an autonomous federal government agency having its own legal
personality and being accountable to the prime minister.
Mandate clarified (proactive investment promotion, aftercare, IC
improvement, investor feedback loop etc.)
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The Objectives of EIC is to establish a conducive investment
climate, attract and retain investments, and implement a
transparent and efficient investment administration system in the
country
The commission is vested the powers and duties listed under
article 38 of the proclamation 1180/2020
Serve as nucleus for matters of investment and lead, promote,
coordinate and enhance activities thereon
Initiate policy and implementation measures required to create a
conducive and competitive investment climate, and follow up
execution of same upon approval;
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Lead investment promotion activities, compile a list of potential
investors, and implement targeted investor recruitment work;
EIC is responsible for Issuing investment permit
EIC is duty bound to build up the capacity of the regional
investment organs
As per to article 24, EIC serves as one stop shop because all
necessary matters should be completed in it to invest
The Regional Investment Organs (Art.44)
Federal-regional coordination and problem solving platform
Strategic and high-level issues
Chaired by the PM, includes regional presidents, A/A & D/D city
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mayors, investment commissioners/heads
Discipline/timeframe on land approval
The council is vested the powers & duties enumerated under
article 45.
As per to art.50 coordination with regional state investment
administration organs are set out.
The Commission shall work in close cooperation with Regional
State Investment Administration Organs and other Stakeholders
with a view to creating a uniform, coordinated and efficient
national investment administration system

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As per to art. 51(2) regions are duty bound to identify & classify
land to be used for investment projects, organize such land
centrally under one regional state administration body and transfer
the information to the appropriate investment organs

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