HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Ethiopia

# 					2018 Investment Climate Statements: Ethiopia			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

Ethiopia has faced repeated cycles of civil unrest, some of it violent, over the last two and a half years. In October 2016, the GOE declared a state of emergency (SOE), which lasted until August 2017. Despite the lifting of the SOE, discontent continued to simmer, leading to internal disagreements within the ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) about how to address popular concerns. The Ethiopian Prime Minister Hailemariam Desalegn then unexpectedly resigned on February 15, 2018. The following day a state of emergency was re-imposed. After a lengthy process, the EPRDF then elected Dr. Abiy Ahmend Ali as prime minister (PM) and he took office on April 2, 2018. He acknowledged severe economic constraints and met with representatives of the private sector within his first two weeks in office. His reform agenda is still inchoate at this time, and the below text predominantly reflects developments under his predecessor.

Ethiopia has had one of the fastest growing economies in the world with GDP growth averaging 10 percent in the last decade according to the International Monetary Fund (IMF). In 2016/17 the Ethiopian economy grew at an estimated rate of 9 percent, as agriculture rebounded from severe drought conditions in 2015/16 and industrial activity continued to expand in response to investments in infrastructure and manufacturing. The IMF projects growth to remain high in 2017/18, estimating a growth rate 8.5 percent, supported by continued recovery from past droughts combined with export expansion as new manufacturing facilities and infrastructure come online. Ethiopia is the second most populous country in sub-Saharan Africa after Nigeria, with a population of roughly100 million.

The government of Ethiopia follows integrated five-year plans to guide its state-led industrial development. The second of these Growth and Transformation Plans (GTP II), covering 2016–2020, is now being implemented. GTP II targets an average growth rate of 11 percent in the next five years with the objective of achieving middle income status by 2025. To realize these ambitious goals, the government pursues consistent and prudent macroeconomic policies and continues to invest heavily in large-scale social, infrastructural and energy projects. GTP II includes incentives for international investors such as: 1) facilitation of profit; 2) ease in hiring expatriate personnel; 3) temporary income tax exemptions for investments in selected sectors; and, 4) duty-free imports of capital goods, components, and raw materials for exporting industries and manufacturers in priority sectors.

Nonetheless, while public sector infrastructure projects can provide significant investment opportunities, they also absorb the lion’s share of the available capital, creating a scarcity of capital for the private sector. The World Bank estimates that public infrastructure spending has accounted for approximately 19 percent of Ethiopia’s total GDP since fiscal year 2011-2012.

Priority sectors identified by GTP II include renewable energy, construction, healthcare, tourism, textile and apparel, leather products, telecommunications infrastructure and value-added services, and aviation support services and products. Low-cost labor, a strategic location on the African continent, an excellent national airline, the world’s cheapest energy, and growing consumer markets are key elements attracting foreign direct investment (FDI).

Significant devaluations occurred in September 2010 and October 2017, and in addition the government maintains a policy of slow but steady annual devaluation at a rate of five to six percent. Chronic and acute foreign exchange shortages are a far more serious challenge. 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. Banking, insurance and accounting services, retail, telecommunications and transportation are closed to foreign investors.

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 government retains the right to expropriate land for the “common good,” which it defines to include 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 considered “empty” and expropriated, leading to resentment, protests and, in some cases, conflict. Confusion with respect to registration of urban land-use rights, particularly in Addis Ababa, is commonplace. Likewise, allegations of corruption in the allocation of urban land to private investors by government agencies are a root cause of popular discontent. Successful investors in Ethiopia conduct thorough due diligence on land title at both state and federal levels, and undertake consultations with local communities regarding the proposed use of the land.

Since applying for WTO accession in 2003, Ethiopia has conducted three rounds of discussions with the WTO working group in 2009, 2011 and 2012, but no progress has been made since then. Nevertheless, the national WTO steering committee has been restructured and is in the process of reviewing the services offer. The revised services offer is scheduled to be presented to the WTO working group at the end of 2018.

In 2016 Ethiopia revised its proclamations on commercial registration and business licensing, tax administration, and income tax to improve its investment climate by adopting more efficient processes to reduce red tape. The largest volume of foreign investment in Ethiopia comes from China followed by Saudi Arabia and Turkey. Investors that concentrate on sectors that are prioritized under GTPII get preferred treatment.

On February 16, 2018, the Government of Ethiopia re-imposed a State of Emergency (SOE) after lifting an earlier SOE in August 2017. Under the State of Emergency, law enforcement bodies are granted broad authority to arrest or search individuals without a court order for activities they may otherwise consider routine. These include, but are not limited to: possession or consumption of certain media, illicit communication, participation in protests or strikes, attendance at illegal gatherings, communication with foreign or international organizations, and violation of curfews. Additionally, landlords must provide the government of Ethiopia with passport copies of all foreign tenants. Complicating matters, the government does not routinely notify consular officers at the American Embassy when American citizens are arrested or detained.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies towards Foreign Direct Investment**

Ethiopia’s second five-year Growth and Transformation Plan (GTP II) covers the years 2016 to 2020 and was approved by the Ethiopian Parliament in December 2015. The overarching goals of this plan are to transform Ethiopia’s economy from one based on subsistence-agriculture to a one dominated by manufacturing and to achieve middle income status by 2025. To achieve these goals, the government has focused on: 1) improving the quantity and quality of infrastructure; 2) developing and encouraging investment in industrial parks; 3) enhancing productivity in agriculture and manufacturing; and, 4) ensuring macro-economic stability to obtain a sustained annual GDP growth rate of at least 11 percent.

Given the scale of public investment required to support GTP II targets and low domestic savings rate, Ethiopia requires significant inflows of foreign financial resources. 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.

Telecommunications, power transmission and distribution, and postal services, with the exception of courier services, are closed to the private sector, both the foreign and domestic. The manufacture of weapons and ammunition can only be undertaken in joint ventures with the government.

Foreign investment is further inhibited by Ethiopia’s Investment Code, which prohibits foreign investment in banking, insurance, and financial services, along with the following sectors: broadcasting, air transport services (up to 50 seats capacity), travel agency services, forwarding and shipping agencies, retail trade and brokerage, wholesale trade (excluding supply of petroleum and its by-products as well as wholesale 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, custom clearance services, museums, theaters and cinema hall operations, and printing industries. 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 government has indicated an interest in opening some of the restricted sectors to foreign private sector expertise and privatizing some state-owned enterprises.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate investments in Ethiopia and its services include: 1) promoting the country’s investment opportunities; 2) issuing investment permits, business licenses and construction permits; 3) issuing commercial registration certificates and renewals; and, 4) issuing work permits. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate. Ethiopia’s rank on the World Bank Ease of Doing Business Index dropped by two places in 2017, to 161 out of 190 countries, compared to 159 out of 190 countries in 2016. This drop, however, was attributable primarily to other countries improving the investment climate rather than to a deterioration in Ethiopia’s business environment. The EIC has systematically examined each criterion on the Doing business Index, identified factors that inhibit businesses and systematically sought to improve Ethiopia’s ranking. The results to date were disappointing largely due to a lack of coordination among different government offices and inadequate attention from top Government of Ethiopia leadership. The latter was focused on the political environment leading to the re-institution of the SOE.

In the past, the International Finance Corporation (IFC) funded a national dialogue with investors through the Public-Private Consultative Forum (PPCF). Unfortunately the funding was cut in 2016, and the forum did not meet in 2017. Private sector input from the forum had sparked the reforms to both business and tax legislation, which were enacted in 2016.

The Addis Ababa Chamber of Commerce organizes a monthly business forum, which enables the business community to discuss issues related to the investment climate with government officials by sector. The American Chamber of Commerce (AmCham) was launched in December 2016, and started voicing the concerns of the U.S. businesses in Ethiopia particularly with respect to foreign exchange shortages, government procurement policies, and the labor code. AmCham has provided a mechanism to compete with investors from India, China, the U.K and Netherlands, who meet regularly with government officials through their respective associations to discuss issues that hinder their operation in Ethiopia.

In February 2017, the Special Economic Advisor to the Prime Minister launched a series of “export promotion” workshops to canvass opinion and collect policy recommendations from the private sector. The workshops were organized by the industrial sector and recommendations were presented to the Prime Minister. No U.S. members of AmCham were invited to these forums, and their opinions and experience on investment challenges was not canvassed.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Both foreign and domestic private entities have the right to establish, acquire, own and dispose of most forms of business enterprises. However, there are a number of sectors (mentioned above) that are closed to foreign investors. There is no right to 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. EIC has three Deputy Commissioners each with responsibilities for the following divisions respectively:

- Investment Operations;
- Industrial Parks Regulation; and,
- Policy Research and 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. 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.

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. US companies can get detailed information for the registration of their business in Ethiopia from the EIC website (www.investethiopia.gov.et ). Though the government is taking affirmative action to socially empower women, there is no special treatment provided to those who wish to engage in business.

The 2018 World Bank Doing Business Report states that starting a business in Ethiopia requires 12 procedures and takes 33 days. Online business registration is not yet available, but the Ministry of Trade 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 requirement to set up limited liability companies.

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

**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, Netherlands, Qatar, Russia, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen. Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Equatorial Guinea, India, Nigeria, South Africa, Spain, United Kingdom, United Arab Emirate, South Sudan and Morocco. 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.

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 which 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. 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/ .

Ethiopia’s central bank, the National Bank of Ethiopia (NBE), issued in 2011 a directive for all banks and insurance companies to adhere to International Financial Reporting Standards (IFRS).

Foreign investors have complained about the abrupt cancellation of some government tenders, a perception of favoritism toward vendors who provide concessional financing, and a general lack of transparency in the procurement system. In September 2009, the government established the Public Procurement and Property Administration Agency, an autonomous entity with its own judicial arm accountable to the Ministry of Finance and Economic Cooperation. Ethiopia participated in the U.S. Global Procurement Initiative, to improve the government procurement system.

A 2017 regulation requires the Auditor General’s office to directly identify irregularities in the procurement process. The regulation provides for criminal charges against officials involved in procurement irregularities. Those who are found to have knowingly signed off on falsified or incorrectly prepared documents will be punished with a 10-15 year prison sentence and a fine between ETB 25,000 to ETB 35,000.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures . Foreign and national investors can find detailed information 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.

**International Regulatory Considerations**

Ethiopia is a member of Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 19 member countries and it has introduced 10 percent tariff reduction on goods imported from member states. However, Ethiopia has not yet joined the COMESA free trade area.

Ethiopian standards 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, the contract agreement is biding 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 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 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 .

A 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.

The revised Commercial Registration and Business Licensing Proclamation eliminates some cumbersome and duplicative requirements, like the yearly renewal of business registrations and the minimum capital requirements to set up limited liability companies. The law removes the requirement to obtain a “competency certificate,” except in technical sectors such as health, security and environment. The Proclamation now 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, is tasked to promote a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. In addition, the Authority provides market information on some goods to the public using print and electronic media.

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 state-owned enterprises receive favorable treatment in the government tender process. As the public sector is heavily involved in economic development, this translates into a sizeable portion of the 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 partly, 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) remains 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. Ethiopia’s Ministry of State Owned Enterprises stopped accepting requests from owners for return of expropriated properties in July 2008.

According to local and foreign businesses operating in the Oromia region, there have be a number of isolated incidents threatening investors from outside 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 relations and actively engaged local and regional officials as well as maintaining strong community relations have prospered – without paying bribes. 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*

According to the Investment Proclamation, any investor has the right to lodge complaints related to his/her investment with the appropriate investment organ. If he/she has a grievance against the decision of the appropriate investment organ, he/she can appeal to the investment board or to the respective regional organ as appropriate. 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 2018 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*

While disputes can be resolved by international arbitration if both parties agree, enforcement of an arbitration decision is contingent on the Ethiopian court system. Ethiopia’s judicial system is overburdened, poorly-staffed and inexperienced in commercial matters, although efforts are underway to strengthen its capacity. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. There is no guarantee that the award of an international arbitral tribunal will be accepted and implemented by Ethiopian authorities.

**Bankruptcy Regulations**

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and confirms that the Ethiopian court system has jurisdiction over bankruptcy proceedings subject to international conventions. 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 2018 World Bank Doing Business Report, Ethiopia stands at 122 in the ranking of 190 economies with respect to resolving insolvency. Ethiopia’s score on the strength of insolvency framework index is 7.0 out of 16. (The index ranges from 0 to 16 with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones).

							4. Industrial Policies					

**Investment Incentives**

The Investment Regulation 270/2012 and its amendment outline incentives for investors. New investors in manufacturing, agro-processing, and selected agricultural products are entitled to income tax exemption ranging from two to five years depending on the location of investment. Any investor who produces for export or supplies to an exporter, or who exports at least 60 percent of his products or services is entitled to an additional two years of income tax exemption.

An investor who invests in a designated Industrial Development Zone in or near Addis Ababa is entitled to an additional two years of income tax exemptions, and to four more years income tax exemption if the investment is made in an industrial park in other areas, provided 80 percent or more of production is for export or constitutes input for an exporter. (Note: Industrial Zones are not to be confused with the Industrial Parks, whose incentives are described below).

An investor who establishes a new enterprise in less prosperous areas shall be entitled to an income tax deduction of 30 percent for three consecutive years after the expiry of the regular income tax exemption period. These areas include Gambella, Benshangul/Gumuz, Afar (except in areas within 15 kilometers from each bank of the Awash River), Somali, Guji, Borena Zones of Oromia, South Omo Zone, Segen, Bench Maji Zone, Sheka Zone, Dawro Zone, Kaffa Zone, Konta, and Basketo Special Woredas of the Southern Nations, Nationalities and Peoples Region.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

The Industrial Park Proclamation 886/2015 designates industrial parks as duty-free zones, and domestic as well as foreign operators in the parks are exempt from income tax for up to 10 years. They are also exempt from duties and other taxes on the import of capital goods, construction materials, and raw materials for production of export commodities and vehicles.

The government has announced plans to construct 17 industrial parks in various locations around the country. The Proclamation awards the same privileges to privately financed industrial parks as to joint-ventures between government and private investors. As of March 2018, six industrial parks were operational: Hawassa, Bole Lemi-I, East Industrial Park, George Shoe Park, Meleke Industrial Park, and Kombolcha Industrial Park.

Trade through the Port of Assab in Eritrea has been prohibited since the 1998-2000 Ethiopian-Eritrean border war. In consequence, 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 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. Unregulated exports of coffee, live animals, khat, fruit and vegetables, and imports of cigarettes, alcohol, textiles, electronics, and other consumer goods continue despite Ethiopia’s efforts to clamp down on smuggling.

**Performance and Data Localization Requirements**

Ethiopia does not formally impose performance requirements on foreign investors, though investors in Ethiopia routinely encounter business visa delays and onerous paperwork. In addition, investors are required to allocate a minimum capital of USD 200,000 per project. For joint investments with a domestic partner, the investment requirement is lowered to USD 150,000.

There are no forced localization or data storage requirements for private investors. Local content in terms of hiring, products, and services is strongly encouraged but not required. An investor can employ qualified expatriate experts necessary to operations, but is responsible for replacing, within a limited period, expatriate personnel by locals by arranging the necessary training. Top management positions are exempted from this requirement and ex-patriates can fill these positions indefinitely. Although not a legal requirement, in joint-ventures with state-owned enterprises investors report informal requirements of up to 30 percent domestic content in goods and/or technology.

The 2017 International Telecommunications Union report states that Ethiopia ranks 170th out of 176 countries with respect to the intensity of mobile phone and internet use and regarding information and communication technologies skills. The state-owned Ethio-Telecom maintains a monopoly on wired and wireless telecommunications services. The Value Added Service Directive No. 3/2011 of August 2011 allows private companies to provide many value-added services such as short messaging, payment transactions, entertainment and information services, call centers, and virtual Internet services, as well as location based services, through the government infrastructure. These services grew rapidly since 2016, notably in agent-banking services, bill-paying services, GPS-based taxi services, mobile medical advice, and employment platforms. With Internet penetration at only 15.4 percent, most consumers are unable to access these services. Many multinational companies also assert that the current quality of service in Ethiopia impedes information transfer and general business operations.

Proclamation No. 808/2013 mandates the Information Network Security Agency (INSA) to control the import and export of information technology, to build an information technology testing and evaluation laboratory center, and to regulate cryptographic products and their transactions.

							5. Protection of Property Rights					

**Real Property**

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, land cannot be mortgaged. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is commonplace. 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 to include 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 make sure 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.

**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, and the Patent Cooperation Treaty. The government expressed its intention to accede to the Berne Convention, Paris Convention, Marrakesh Protocol and Madrid Protocol. To meet this objective, EIPO together with Ministry of Science and Technology is drafting a ratification proclamation. EIPO has been tasked primarily to protect Ethiopian patent rights and copyrighted materials, and to fight pirated software. Generally, EIPO is weak in terms of staff and budget, and 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 listed in USTR’s Special 301 report and notorious market report.

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.

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

Credit is tight and banks often require 100 percent collateral, making access to credit one of the greatest hindrances on the Ethiopian economy. An April 2011 measure forcing non-government banks to invest the equivalent of 27 percent of each loan in National Bank of Ethiopia (NBE) bonds has exacerbated liquidity shortages.

Ethiopia does not have securities markets, and sales/purchases of debt are heavily regulated. The government is drafting legislation to regulate the over-the-counter market for private share companies. In February 2018, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B 1,’ while S&P and Fitch maintained their original rating of ‘B.’

According to Moody’s, Ethiopia’s credit strengths include very strong growth potential supported by rising foreign direct investment (FDI), large infrastructure investment and the solid government balance sheet with low fiscal deficits and debt levels. It was noted that investment in large infrastructure projects continue to support growth, as the authorities allocate close to 50 percent of government expenditures towards capital spending. Key projects like the railway to Djibouti or the Grand Ethiopian Renaissance Dam allow for marked improvements in productivity, reduction of transaction costs and the development of a manufacturing sector in the medium-term. The identified constraints include contingent liability and external risks related to rapid debt-financed investment, external vulnerability risks related to a structural shortage of US dollars for the private sector, and persistent elevated political risk amid severe social tensions. (Note: Moody’s made their assessment before the appointment of the new prime minister).

The government offers a limited number of 28-day, 3-month, and 6-month Treasury bills, but prohibits the interest rate from exceeding the bank deposit rate. The government began to offer a one-year Treasury bill in November 2011 with yields below 2 percent. This market remains unattractive to the private sector and more than 95 percent of the T-bills are held by the state-owned Commercial Bank of Ethiopia and public enterprises. The National Bank of Ethiopia is planning to introduce a market for government securities, corporate bonds, and a stock market.

In December 2014, Ethiopia issued its first Euro-bond, raising USD 1 billion at a rate of 6.625 percent. The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets. Ethiopia has exceeded the non-concessional borrowing threshold set by the World Bank, which could limit Ethiopia’s access to additional concessional lending. According to the Ministry of Finance and Economic Cooperation, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure.

The Ethiopian Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, and haricot/green beans. The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. Critics alleged that ECX policies and pricing structures are inefficient compared to direct sales at prevailing market rates, triggering an amendment to the ECX law in July 2017, which eliminated a number of criticized regulations and also permitted the trading of financial instruments at a future date. This amendment paves the way for securities markets in the future using the framework of the commodities exchange.

**Money and Banking System**

Ethiopia has eighteen commercial banks – one state-owned, and sixteen privately owned. The state-owned Development Bank of Ethiopia provides loans to investors in priority sectors. In September 2011, the NBE raised the minimum paid-up capital required to establish a new bank from ETB 75 million to 500 million, which effectively stopped the entry of most new banks. Foreign banks are not permitted to provide financial services in Ethiopia, but since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis, to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks.

Based on the most recently available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 65 percent of total bank deposits, bank loans, and foreign exchange. The NBE controls the bank’s minimum deposit rate, which now stands at 7 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years mainly due to inflation.

**Foreign Exchange and Remittances**

*Foreign Exchange*

All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (birr) is not freely convertible. A 2004 NBE directive allows non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin to establish and operate foreign currency accounts up to USD 50,000.

Foreign Exchange reserves were heavily depleted in 2012 and have remained at critically low levels since then. By July 2017, gross reserves were USD 3.2 billion, covering approximately 1.9 months of imports. According to the IMF, heavy government infrastructure investment has fueled the need for foreign exchange. In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as gold and oil seeds. Businesses encounter delays in obtaining foreign exchange for imports of six to eight months, and business must deposit the full equivalent in birr in their account to obtain the foreign exchange. The foreign exchange crunch has intensified recently, with delays of more than a year reported. Slow-downs in manufacturing due to foreign exchange shortages are common, and high-profile local businesses have closed their doors altogether due to the inability to import required goods in a timely fashion.

Although government policy gives the repatriation of profits “priority,” in reality, due to the shortage of foreign exchange, companies have experienced delays of up to two years in the repatriation of larger volumes. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that can limit growth, interfere with maintenance and spare parts replacement, and inhibit imports of adequate raw materials.

The foreign exchange shortage distorts the economy in a number of other ways: it fuels the contraband trade through Somaliland because birr is an unofficial currency there and can be used for the purchase of products from around the world. Exporters, who have priority access to foreign exchange, sell their allocations to importers at inflated rates, creating a black-market for dollars that is roughly 26 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods with high margins rather than re-investing profits in their core business. Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes, or for students to pay school fees abroad, and the like.

According to data from NBE, the birr depreciated approximately 98 percent against the U.S. dollar between August 2010 and February 2018, primarily through a series of controlled steps, including 20 percent devaluation in September 2010 and 15 percent devaluation in October 2017. As of March 2018, the official exchange rate was approximately 27.23 birr per dollar. The illegal parallel market exchange rate for the same time was approximately 34.30 per dollar with spikes up to 40ETB/dollar.

Following the 15 percent devaluation of the Ethiopian birr, the NBE increased the minimum saving interest rate from four percent to seven percent, and limited the outstanding loan growth rate in commercial banks to 16.5 percent, which limits their loan provision for businesses other than export and manufacturing sectors. Moreover, banks were instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so that the regulator can use the foreign exchange to meet the strategic needs of the country, such as payments made to procure petroleum and sugar as well as to cover transport costs of imported items.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding ETB 200,000 (roughly equivalent to U.S. reporting requirements for currency transfers exceeding USD 10,000). Ethiopia citizens are not allowed to hold or open an account in foreign exchange. Ethiopian residents entering the country from abroad should declare their foreign currency in excess of USD 1,000 and non-residents in excess of USD 3,000. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of ETB 1000 in cash can be carried out of the country.

*Remittance Policies*

Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt servicing or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations.

**Sovereign Wealth Funds**

Ethiopia has no sovereign wealth funds.

							7. State-Owned Enterprises					

State-owned enterprises and ruling party-owned entities dominate major sectors of the economy. There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, petroleum importing, and sugar. Ruling-party-affiliated endowment companies have a strong presence in ground transportation, fertilizer, and textile sectors. State-owned enterprises have considerable advantages over private firms, including access to credit and customs clearances. Ethiopian business owners and foreign investors complain of the lack of a level playing field when it comes to state-owned and party-owned businesses. 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 Organization for Economic Cooperation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs. Corporate governance of state-owned enterprises 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**

The government continues to slowly privatize government-owned entities, which were largely nationalized by the Derg military regime in the 1970s. The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors. The Ministry privatized one enterprise and sold its minority share in one enterprise in 2017. Currently twenty state owned enterprises remain under the Ministry’s control. The government also announced its plan to sell minority shares in the Ethiopian Shipping Lines and Logistics Enterprise, and in ongoing sugar projects to foreign firms.

							8. Responsible Business Conduct					

Some larger international companies 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 spectacular 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 others. CSR programs supporting workforce capacity-building and services, community-building and infrastructure investment programs by foreign corporations can align company objectives with the government GTP II development goals.

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 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. 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, although the financial statements are not available to the public, only to financial institutions and share companies.

							9. Corruption					

Transparency International’s 2017 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 35 (with 0 indicating highly corrupt and 100 indicating very clean). Its comparative rank was 107 out of 180 in 2017, compared to 108 out of 176 countries in 2016.

Major U.S. corporations that do business primarily with the Government of Ethiopia or its state-owned enterprises unanimously report that corruption in Ethiopia is “insignificant” compared to other countries in Africa. Companies stressed they paid “not one penny” to the Ethiopian Investment Commission or the Industrial Parks Development Corporation, while U.S. suppliers for Ethiopian Airlines emphasized airline had a culture of “zero corruption.” Nevertheless, Ethiopian and foreign businesses routinely encounter corruption in tax collection, customs clearance and land administration. In addition, there have been several spectacular cases of corruption in procurement for major government contracts.

In 2015 the government promulgated new legislation that broadens the coverage of corruption law to enable the Federal Police to investigate corruption crimes committed by “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.

In July 2017, the Federal Police started arresting government officials, businessmen and brokers in association with the loss of ETB 4 billion (USD 181 million) predominantly in connection with government procurement irregularities. Altogether 45 suspects were arrested, 35 of whom are government officials. The arrests were made at five institutions: 1) Ethiopian Sugar Corporation (a state-owned enterprise); 2) Ethiopian Roads Authority; 3) Addis Ababa Roads Authority; 4) Addis Ababa Housing Development Project Office; and, 5) the Ministry of Finance and Economic Cooperation.

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 now the mandates of Federal Police Commission and Federal Attorney General respectively. The Ethiopian Federal Ethics and Anti-Corruption Commission reported increasing involvement of government officials in corruption in the last year.

The newly appointed Prime Minister Abiy has repeatedly referred to the need to crack down on corruption. Less than two weeks after Abiy was sworn in as PM, the head of the military-industrial conglomerate — infamous for its corruption and its immunity before the law — resigned.

Ethiopia is not 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 which 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 CommissionAddis Ababa+251 11 861-9595

Contact at “watchdog” organization:

Transparency EthiopiaAddis Ababa+251 11 827-9746TiratEthiopia@gmail.com

							10. Political and Security Environment					

Since 1991, Ethiopia has been relatively stable for investors. Nonetheless, beginning mid-November 2015, violent protests destabilized towns throughout Oromia and security forces were deployed to quell the unrest. In January 2016, the government of Ethiopia stated it was halting implementation of the planned expansion of the City of Addis Ababa into the surrounding region of Oromia — a trigger for the protests — until the government carried out further consultation with Oromo communities. The resulting public anger triggered a wave of burning and looting of factories and flower farms in Oromia, including some that were foreign-owned. In the Amhara region, in mid-July 2016, an ongoing dispute over identity and administrative boundaries triggered three days of protests and confrontations with security forces in Gondar. In the second half of 2017 protests and sporadic violence continued in Oromia, Somali, and Amhara, including looting and burning of domestic businesses and government offices. More than a thousand protestors are believed to have been killed in the unrest since November 2015, although estimates vary.

On February 16, 2018, following the resignation of Prime Minister Hailemariam, the Government of Ethiopia imposed a second State of Emergency. Under the State of Emergency, law enforcement bodies are granted broad authority to arrest or search individuals without a court order for activities they may otherwise consider routine. The government does not notify consular officers at the American Embassy when American citizens are arrested or detained. Although a number of prisoners have been released over the past four months, including prominent opposition figures and journalists, hundreds of people remain in jail. Nevertheless, the new PM has closed down one prison notorious for human rights abuses, and has announced “reforms” of the security sector to address “inappropriate use of force” and the lack of accountability. Hope that real change is on the way has kept the country comparatively quiet since the new PM took office.

Ethnic conflict — often sparked by resource competition or land disputes — occasionally becomes violent. Over the last several years, there were reports of ethnic Tigrayans moving out of the Amhara region and back to Tigray to escape ethnically-based unrest in Amhara. In January and February 2016, deadly violence between the Nuer and the Anuak ethnic groups in Gambella Region resulted in the loss of lives, revenge killings, destruction of property and general insecurity in the region. In April 2016, Murle tribesmen from neighboring South Sudan killed almost 200 Nuer and Anuak in Gambella region, and kidnapped more than 100 children. Throughout 2016 and continuing into 2017, the Murle periodically conducted smaller-scale raids into Gambella, killing Nuer and Anuak, and kidnapping children. There have been reports of raids and clashes, possibly involving Somali Region security forces, in neighboring Oromia that has resulted in civilian deaths. Attacks by armed groups in the Somali and Oromia Region of Ethiopia disrupted travel in the region for days and even weeks at a time, with violence reaching a crescendo in the October of 2017. The Regional Presidents of both the Somali and Oromia Regions claim to have re-established peace and are calling for all internally displaced people to return to their places of residence.

Ahead of the May 2015 election, opposition parties across the country alleged widespread intimidation of supporters by the ruling party. Political violence against opposition groups on Election Day and in the aftermath of the vote resulted in the deaths of six opposition party members, observers, and one candidate. There were election-related protests in Oromia, Amhara and the Southern Nations, Nationalities and People’s regions that resulted in deaths. Following student demonstrations in the Oromia region in 2014, the government has retained tight control on university campuses, which generally continues into 2018, out of concern for the possibility of repeated unrest. Despite this security force presence, there were reports of student demonstrations at several universities in 2016, early 2017, and again in December 2017 across 18 universities. Some institutions were forced to close temporarily during the 2017-2018 academic calendar.

The Government of Ethiopia has restricted or shut down internet, cellular data, and phone services during and after civil unrest. This impedes the U.S. Embassy’s ability to communicate with, and provide consular services to, U.S. citizens in Ethiopia. Ethio telecom (ETC) is the only internet service provider in the country. Even without restrictions, the internet and mobile networks are poor. Expanding services for new buildings and subscribers throughout the country, for which ETC did not plan, has led to a substantial slowdown in network speed. Until ETC upgrades the international gateway pipeline, slow internet speeds will be the norm. In the past, the government has denied access for many popular websites and applications, including Facebook, Twitter, Instagram, YouTube, Skype, and Viber. It also blocked United States news websites such as the Washington Post, Google News, the New York Times, and foreign university homepages. There were credible reports the government monitored private online communications without appropriate legal authority. Article 11 in the 2018 SOE regulations included prohibitions on agitation and communication to incite violence and unrest through the internet, text messaging, and social media – “exchanging messaging through internet, mobile, writing, television, radio, social media, or other means of communication, which may cause any riot, disturbance, suspicion, or grievance among the public.” Although restrictions on internet and mobile communications have been eased since the new PM took office, ETC retains the ability to curtail services at any time for political and security reasons.

							11. Labor Policies and Practices					

More than 80 percent of Ethiopia’s 100 million people work in agriculture. The second-most important employer is the government. If population continues to grow at the current rate of 2.5 percent, Ethiopia will have more than 138 million people by 2030, only 27 percent of whom will be urban. Almost 65 percent of the population is under the age of 25, and 2 million people are added to the workforce every year. The very high youth unemployment rate – estimated at anywhere from 25-50 percent for the 15-24 year old age group – contributes to instability.

Although labor remains readily available and inexpensive in Ethiopia, skilled manpower is scarce. Approximately 50 percent of Ethiopians over the age of 15 are illiterate according to UNESCO’s definition. Primary school enrollment rate (age 7 to 14), on the other hand, has now reached 94 percent. To increase the skilled labor force, the government of Ethiopia has undertaken a rapid expansion of the university system in the last 20 years, increasing the number of higher public education institutions from three to 45. It has adopted an education policy that requires 70 percent of the annual student intake in public universities to focus on science, engineering and technology, but many students are not well-prepared by secondary school to study in those fields.

Ethiopia boasts robust worker protection, but the country’s federal and regional enforcement mechanisms struggle with low resources and capacity. Ethiopia has ratified all eight core International Labor Organization (ILO) conventions. The Ethiopian Criminal Code outlaws work specified as hazardous by ILO conventions. There is no national minimum wage, and public sector employees – the largest group of wage earners – earned a monthly minimum wage of ETB 420 (approximately USD 19).

Labor unions and confederations are separate entities from the government, although they are subject to a great deal of regulation and direct pressure/involvement from the government. The Confederation of Ethiopian Trade Unions (CETU) comprises well over two hundred thousand members in enterprise-based unions in a variety of sectors, but there is no formal requirement for unions to join the CETU. Much of the labor force remains in small scale agriculture/industry and thus is not covered by an enterprise union. The Ministry of Labor and Social Affairs’ Directorate of Harmonious Industrial Relations provides labor dispute resolution services, although the caseload and the directorate’s capacity are low.

The Constitution and other laws provide workers, except for civil servants and certain categories of workers primarily in the public sector, with the right to form and join unions, conduct legal strikes, and bargain collectively. Other laws and regulations that explicitly or potentially infringe upon workers’ rights to associate freely and to organize include the Civil Society and Organizations (CSO) law, Council of Ministers Regulation No. 168/2009 on Charities and Societies to reinforce the CSO law, and Proclamation No. 652/2009 on Antiterrorism. Such laws and detailed requirements make legal strike actions difficult to carry out. In practice, labor strikes are rare and no strikes occurred in the last year. Employers offering contracted employment are required to provide severance pay. The vast majority of employees that work in small scale agriculture and textiles, however, do so without a contract. Large labor surpluses and lax labor law enforcement allow employers to retain employees without contracts that ensure strong worker protections.

An initiative to amend Ethiopia’s labor law that appeared to accommodate expressed Chinese demands to reduce annual leave, double of the probation period, pay less for occupational accidents, and increase means of enforcing discipline in the workplace was stalled by vehement opposition from CETU. The law has not yet gone to parliament, but CETU claimed that the most objectionable provisions had been stricken from the draft amendment, an apparent victory for Ethiopia’s normally docile labor organization.

Although the government actively engages with the international community to combat child labor and human trafficking, which includes forced/coerced labor, both remain widespread in Ethiopia. The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. While not a pressing issue in the formal economy, child labor is common in the informal sector, including construction, agriculture, textiles, manufacturing, mining, and domestic work. Child labor is present in both urban and rural areas. According to the International Labor Organization (ILO) International Program for the Elimination of Child Labor, more than 50 percent of Ethiopia’s child laborers work in the agriculture sector. Ethiopian traditional woven textiles are included on the U.S. government’s Executive Order 13126 list of goods that have been known to be produced by forced or indentured child labor. Both NGO and Ethiopian government sources concluded that goods produced (in the agricultural sector and traditional weaving industry in particular) via child labor are largely intended for domestic consumption, and not slated for export. Employers are prohibited from hiring children under the age of 14, and for certain types of hazardous work the minimum age is 18. Ethiopia has a National Action Plan (NAP) for the Elimination of the Worst Forms of Child Labor, which it is currently updating. The Ministry of Labor and Social Affairs conducts tens of thousands of targeted inspections on occupation safety and standards, although they are not legally empowered to assess fines for infractions and they do not make this data publically available. Due to the shortage of labor inspectors and other enforcement resources, and the fact that inspectors do not inspect informal work sites, most child labor goes unreported.

In 2015, the Ethiopian Parliament ratified an overhaul to its Anti-Human Trafficking and Smuggling criminal code (covered in the 2016 Trafficking in Persons report published by the Department of State). The government also passed an Overseas Labor Proclamation that legalizes and regulates the employment of Ethiopians in foreign countries, although there is still a ban on Ethiopians traveling to the Gulf States to engage in domestic work. Over the past few years, the government has become much more engaged in combatting trafficking in persons, and the number of arrests and prosecutions of traffickers has increased.

							12. OPIC and Other Investment Insurance Programs					

The Overseas Private Investment Corporation (OPIC) has offered risk insurance and loans to U.S. investors in Ethiopia in the past but not recently.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*National Bank of Ethiopia and Ethiopian Investment Commission

*Table 3: Sources and Destination of FDI*

Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS ) so we have used data from Ethiopian investment Commission.*The yearly average exchange rate is used for each year from 1992-2017 to convert the amount of FDI from domestic currency into USD.** EU includes Netherlands, France, Ireland, Germany and UK.*** Total Outward investment data are not available.*Table 4: Sources of Portfolio Investment*

Data regarding the equity/debt breakdown of portfolio investment assets are not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and are not available for external publication from the government of Ethiopia.

							14. Contact for More Information					

U.S. Embassy main number is +251 011 130 6000.

Economic OfficerHelena SchraderUSEmbassyPolEconExternal@state.gov

Trade and Investment SpecialistAbdulkader HussenUSEmbassyPolEconExternal@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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