Ethiopia

Merchandise Trade

Trade in Services

Foreign Direct Investment Policy

1. Attracting foreign investment is a key objective of the Ethiopian government, embedded within its current (2016-2020) five-year Growth and Transformation Plan II (GTP II). The government is seeking to attract investment in the high-priority sectors of heavy and light manufacturing, agribusiness, textiles, sugar, chemicals, pharmaceuticals, and mineral and metals processing. The government is taking steps to streamline the investment process by developing a more efficient one-stop-shop facility for foreign investors.


2. Ethiopia's investment code provides incentives for development-related investments, reduces capital entry requirements for joint ventures, permits the duty-free import of some capital goods and opens the real estate sector to foreign investors, among other incentives.


3. Overall economic growth targets are an annual average GDP growth of 11%. In line with its manufacturing strategy, the country hopes the industrial sector will grow by an average of 20%, thereby creating more jobs. Over a multi-year time horizon, rising manufactured goods exports will continue to bolster export growth. Industrial parks in Melle, Dire Dawa, Adama and several other locations are set to come online by the end of 2019 in line with the government's plans for Ethiopia to become a larger regional manufacturing hub in the long term. With a devaluation of the birr going some way towards boosting export competitiveness, this will further facilitate a rise in the trade of manufactured goods over time.


4. The Ethiopian government is aggressively mobilising capital into new power projects, with GTP II outlining a robust power projects pipeline that will strengthen the capacity for electricity generation over the next decade. Under GTP II the government plans to mobilise USD20 billion of investment in order to build 10-12 new power generation facilities.


5. Industrial parks will be particularly beneficial to the manufacturing sector, with tax and duty incentives set by the government to accompany investment in the textile and garment industry, leather and leather products, sugar and sugar-related products, cement, metal and engineering, chemicals, pharmaceuticals, and agro-processing. Incentives for developers include a tax holiday of as long as 15 years and duty-free privileges, with further advantages for building done outside the capital. Incentives for manufacturers include tax exemptions of 10 years if they export all their products from a site not in Addis Ababa.


6. State-owned enterprises (SOEs) dominate major sectors of the economy and preference is given to them for investment, access to credit, foreign exchange, land, procurement contracts and import duties. Traditionally, very few SOEs release detailed financial statements, which makes it difficult to scrutinise their financial data. Corporate governance of SOEs is monitored by a board of directors comprising senior government officials. That said, the Ministry of Public Enterprises has begun streamlining governance and financial management of SOEs as well as improving transparency.


7. Ethiopia's foreign ownership restrictions are above average for the region, particularly in the service industries. Certain sectors are reserved to domestic investors. Reserved sectors include broadcasting, retail and wholesale trade (except in petroleum and locally produced goods), import trade, export trade of local agricultural products, small- and medium-scale construction, bars and nightclubs, small hotels and restaurants, travel agencies, car and taxi services, bakery products, grinding mills, barber shops and beauty salons, goldsmith shops, tailoring services, building and vehicle maintenance services, saw-milling, customs clearance, museums and theatres, and printing.


8.  A comparatively large number of sectors are dominated by government entities, including telecommunications, defence, financial services, media, transport and retail. Notable additional sectors dominated by publicly owned enterprises include electricity and transport.


9. The government in Ethiopia is now committed to selling minority stakes in a number of state-owned enterprises in order to address foreign-exchange shortages, with Ethio Telecom, Ethiopian Airlines and the Ethiopian Electric Power Company likely to be early candidates. In addition, the authorities have taken initial steps towards liberalising the country’s financial sector – previously tightly controlled, and considered largely off-limits to foreign investors. Parliament is considering measures that would allow the private sector to operate digital-based financial services, and in July 2019 approved legislation allowing foreign nationals of Ethiopian origin to buy shares in local banks and start lending businesses. While this will have little material impact on the sector – the diaspora comprises some 5mn people, but only a small proportion are likely to be in a position to invest in the banking industry – it is part of a positive trajectory, underscored by the granting in August 2019 of a business licence to a foreign-owned financial services company. Ethio Lease, a wholly-owned subsidiary of US-based Africa Asset Finance Company, will lease imported equipment, ranging from farm machinery to medical and IT equipment, to Ethiopian companies under local currency contracts, so helping firms bypass acute foreign currency shortages.


10. All foreigners are required to open accounts denominated in Ethiopian birr with one of the commercial banks or authorised dealers or with special permission from the National Bank of Ethiopia (NBE). Credits to the accounts can be made only with foreign exchange receipts from abroad or checks from other similar accounts. Credits between two locally based accounts are not permitted.


11. All foreign currency transactions must be approved by the NBE. The birr usually operates under a managed float regime, which sometimes raises risks of foreign currency liquidity constraints.


12. The Ethiopian authorities announced in April 2019 that they would undertake a study on financial sector liberalisation in conjunction with the World Bank. A number of foreign financial firms – including Egypt’s Commercial International Bank, Kenya’s Equity Bank Group and South Africa’s ABSA – have publicly announced their interest in expanding into Ethiopia, although sporadic political instability may act as a constraint on investor interest.


13. There are no discriminatory or excessively onerous visa, residence or work permit requirements applicable to foreign investors.


14. Foreign currency exceeding the equivalent of USD3,000 must be declared to customs upon arrival in the country. The exchange of foreign currency is permitted only via authorised banks. Currency up to the equivalent of USD40,000 may be exported.


15. The Ethiopian government's policy shift in mid-2018 to allow private and foreign investment in two of its key SOEs, the state telecommunications company Ethio Telecom and air carrier Ethiopian Airlines, suggests upside risks for further economic reforms in the quarters ahead. This will open more opportunities for foreign investors as in September 2018 the government further announced that foreign ownership will be allowed up to 49% in the logistics businesses. Previously, foreign participation was not allowed.


16. The Banking and Financial Services sector, which is dominated by SOEs, remains closed off to foreign investors. At present, foreign banks are only allowed to have liaison offices in the capital city of Addis Ababa, mainly to facilitate credit to companies from their home countries and not to provide financial services for the domestic market. Ethiopia's state-owned banks represent one of the most important lenders to the government and other SOEs. This allows the government to allocate resources to its priority areas (agriculture, industrial activities, trade and infrastructure) in line with its strategic objectives.

Sources: Ethiopia Ministry of Revenues, Fitch Solutions

Fitch Solutions Risk Summary

ECONOMIC RISK
The Ethiopian economy will remain on a strong growth trajectory over the next few years despite internal political challenges. With the country's sizeable population, improving logistics and low electricity prices, the country will increasingly position itself as a regional manufacturing hub over the next decade. However, economic growth will slow to a two-decade low in 2020 as a result of the global Covid-19 pandemic. Uncertainty regarding how long it will take to contain the global Covid-19 pandemic is the largest risk to Ethiopia's economy. Another risk is the ramp up in government debt that will occur in 2020 as the government increases spending to support the economy. The debt burden has risen quickly over the past few years, and this could be exacerbated by the large amount of government-guaranteed debt held by public enterprises.

OPERATIONAL RISK
Ethiopia is one of the most attractive investment markets in East Africa and one of the brightest stories emerging in Sub-Sahara Africa on account of its vast investment opportunities, driven by infrastructure-led growth, reforms to the business environment, a large pool of available labour and abundant natural resources. The country has second largest population in Africa, which underlines immense opportunities for consumer-facing businesses. However, Ethiopia is currently operating well below potential and is constrained by its underdeveloped infrastructure, limited access to credit, over-reliance on foreign aid and a largely low-skilled labour pool. In addition, Ethiopian businesses are exposed to regional insecurity, particularly the threat of terrorism in the Horn of Africa and violent inter-ethnic tensions.

Source: Fitch Solutions
Date last reviewed: June 1, 2020

Fitch Solutions Political and Economic Risk Indices

7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)

Treaties and Agreements between Hong Kong and Ethiopia

• There is a bilateral investment treaty agreement between Ethiopia and mainland China signed in 1998, and which came into effect in 2000.
• In May 2010, the agreement between Ethiopia and Hong Kong governing the avoidance of double taxation from exercise of international air transportation activities came into force.

Sources: UNCTAD, Hong Kong Inland Revenue Department

Chamber of Commerce (or Related Organisations) in Hong Kong

Consulate of Ethiopia in Hong Kong
Address: Room 1204, 12/F, Harbour Crystal Centre, 100 Granville Road, Tsim Sha Tsui, Kowloon
Email: ethiopia_consulate@hotmail.com
Tel: (852) 2363 0200
Fax: (852) 3579 2722

Source: Visa on Demand

Visa Requirements for Hong Kong Residents

Hong Kong residents may obtain a tourist visa valid for up to three months on arrival at Addis Ababa (Bole) International airport, at a cost of approximately USD52 for one month and USD72 for three months. To get a visa on arrival, travellers need to also have two passport photographs. In June 2018, Ethiopia launched an 'e-visa'. This allows Hong Kong residents to easily apply for tourist visas (more visa categories will be added in future). All other categories of visitors must get a visa from the Ethiopian Embassy closest to their place of legal residence before travelling.

Source: Main Department for Immigration and Nationality Affairs, Ethiopia
Date last reviewed: May 31, 2020