ETHIOPIA BUSINESS QUESTIONS AND ANSWERS
Q. What are Ethiopia’s most promising business opportunities?
A. Ethiopia is endowed with abundant agricultural resources and has diverse ecological zones. In 2009, the Government of Ethiopia (GOE) shifted its agricultural policy focus towards encouraging private investment (both domestic and foreign) in larger-scale commercial farms. The Ministry of Agriculture (MoA) created a new Agricultural Investment Support Directorate that is currently negotiating long-term leases on over seven million acres of land for these commercial farms. The new Directorate’s goal is to boost productivity, employment, technology transfer, and foreign exchange reserves by offering incentives to private investors.
GOE also seeks to attract investors through incentives for priority export sectors – textiles/garments, leather, horticulture/floriculture and agro-processing. Many Ethiopian goods are eligible for duty-free access to the U.S. market under the African Growth and Opportunity Act (AGOA). Leading non-agricultural sectors for U.S. trade and investment include: renewable energy, information technology and communications (ICT), construction, tourism and aviation. The GOE has developed a list of approximately 200 eServices or electronic services needed to be developed in the next several years.
Nearly all tenders issued by the GOE’s Privatization and Public Enterprises Supervising Agency (PPESA) are open to foreign participation. Most of the 310 public enterprises sold since 1994 have been small enterprises in the trade and service sectors. There are several examples of big privatized enterprises such as four breweries which were acquired by foreign enterprises including Heineken (Holland) and Diageo (UK). About 50 public enterprises remain under PPESA as of early 2012.
Q: Tell me more about investment opportunities.
A: Ethiopia has abundant agricultural resources and diverse ecological zones. Opportunities for investment exist in agriculture, specifically by investing in large scale farming or engaging in supplying the needed agricultural inputs (machineries, fertilizer, seeds, etc). The Government of Ethiopia is currently encouraging private investment (both domestic and foreign) in larger-scale commercial farms.
With the ongoing heavy investment on renewable energy sources in the country, there is demand for engineering services in the areas of wind, solar, geothermal, biomass (municipal landfills, organic waste) as well as hydropower. Equipments necessary for generation, transmission and billing of electric power are also in high demand and could prove to become an investment focus over the next period.
Information and communications technology (ICT) is rapidly evolving from a relatively low base. Sub-sectors such as mobile banking services and outsourcing services, website software and technologies, software development for eGovernment services, and ICT training services are going to be among the major investment opportunities in the country.
The ambitious road construction and expansion projects in the country also offers opportunities either to directly involve in the construction work or export of construction machinery, chemicals, and building materials as well as consultancy and supervision services.
Q: What sources of finance are available locally?
A: Access to finance is challenging on the local market. The best source for large scale local finance is the Development Bank of Ethiopia if the investment happens to fall among the so called “priority sectors”. The bank provides loans up to 70% of the investment for commercial agriculture, agro-processing, manufacturing and extractive industries, specifically supporting export-focused ones.
Local commercial banks often require a large percentage of the loan as collateral, which is usually consist of liquid assets and real-estate physically located in Ethiopia. Banks in Ethiopia are constrained with various administrative directives that severely diminish their potential to offer more loans to the private sector.
Q. How do I establish a business in Ethiopia?
A. The Ethiopian Investment Agency (EIA) should be one of the first stops for an investor wishing to apply for a business license and receive information on any pertinent incentives. In addition, all importers and exporters who establish a local office must be registered with the Ministry of Trade to seek project approval and the Ethiopian Revenue and Customs Authority (ERCA) to obtain a tax identification number (TIN).
A U.S. firm wishing to establish a branch office in Ethiopia must submit the following documents for registration:
• A notarized copy of the registration of a parent company in the country of origin.
• Copy of the Memorandum and Articles of Association.
• An authenticated decision of the parent company’s board of directors or a similarly authorized body for the establishment of a branch in Ethiopia. The decision should indicate the types of activities of the branch, the individuals appointed by the parent company to act on its behalf, and the capital allocated for its operation.
• An authenticated power of attorney issued by an authorized organ of a company for the permanent representative in Ethiopia.
• Financial reference from the company’s bank.
• A notice published in a local newspaper announcing the establishment of a branch company in Ethiopia
Please refer to the World Bank’s Doing Business in Ethiopia report linkfor more information.
Q: What support can I expect from the U.S. Government?
A: The U.S. Embassy in Addis Ababa is the focal point for American firms and investors interested in doing business in Ethiopia. We provide
• Partner selection and networking;
• Basic trends in economic and political developments in Ethiopia;
• Abridged business climate assessments for market entry and import/export procedures.
For contact information, please visit this link.
Q: What business and investment incentives does the Government of Ethiopia provide?
A: The 2003 amendment to the Investment Proclamation outlines the investment incentives for investors in specific areas. New investors engaged in manufacturing, agro-processing activities, or the production of certain agricultural products and who export at least 50% of their products or supply at least 75% of their product to an exporter as production inputs are exempt from income tax for five years. An investor who exports less than 50% of his product or supplies his product only to the domestic market is income tax exempt for two years. Investors who expand or upgrade existing enterprises and export at least 50% of their output or increase production by 25% are eligible for income tax exemption for two years. An investor who invests in the relatively under-developed regions of Gambella, Benishangul Gumuz, South Omo, Afar, or Somali Region will be eligible for an additional one-year income tax exemption. An investor who exports hides and skins after processing only up to crust level will not be entitled to the income tax incentive.
The Government of Ethiopia has established a special loan fund through the Development Bank of Ethiopia (DBE) and made available land at low lease rates for priority export areas such as floriculture, leather goods, textiles and garments, and agro-processing related products. An investor can borrow up to 70% of the cost of the project from this special fund without collateral upon presenting a viable business plan and 30% personal equity.
Investors are allowed to import duty free capital goods and construction materials necessary for the establishment of a new enterprise or for the expansion of an existing enterprise. In addition, spare parts worth 15% of the value of the capital goods can be imported duty-free. This privilege may not be granted if comparable capital goods or construction materials can be produced locally and have competitive prices, quality, and quantity. Imported duty free capital goods can no longer be used as loan collateral. In 2010, travel agencies/tour companies were granted increased duty free privileges for the importation of goods such as vehicles.
The Ministry of Agriculture’s (MOA) Agricultural Investment Support Directorate offers grace periods of up to seven years on land rents. The directorate is currently focused on land deals in the remote regions of Gambella, Benishangul Gumuz, SNNPR, and Afar.
Ethiopia does not have discriminatory or excessively onerous visa, residence, or work permit requirements for foreign investors; however, investors may face bureaucratic delays in obtaining these documents.
Q: If I need legal assistance, where should I look?
A: There are a number of legal firms and professional individuals that can be contacted for legal assistance. For your convenience, you can find out more at this link.
Q: Where can I find macroeconomic and financial information?
A: Main sources of macroeconomic and financial information are the Ministry of Finance and Economic Development (MoFED), the National Bank of Ethiopia (NBE) and the Central Statistical Agency (CSA). You can find Information related with GDP, government finance, investment, savings, national debt, and aggregate sectoral performance indicators directly on MoFED’s website.
Information related to monetary indicators, banking activities, foreign trade, balance of payments, and exchange rate could be accessed fromNBE and others related with inflation indicators, periodic survey results on employment/unemployment, manufacturing and other specific sector performances, and general census results from CSA.
Q. Is there a U.S. business community on the ground?
A. The U.S. Embassy in Addis Ababa is working with the U.S. – Ethiopia Business Forum which focuses on promoting bilateral trade and investment between the United States and Ethiopia.