2013 Investment Climate Statement - Ethiopia
Openness/Restrictions to Foreign Investment
Ethiopia’s five-year Growth and Transformation Plan (GTP), which was approved by the Ethiopian Parliament in November 2010 and is currently in its third year, is largely driving Ethiopia’s openness to foreign investment. The GTP projects significant investment contributing to a per annum Gross Domestic Product (GDP) growth rate of at least 11%. Improving the quality of social services and infrastructure, ensuring macroeconomic stability, and enhancing productivity in agriculture and manufacturing are major objectives of the plan. The GTP also puts a significant emphasis on developing local production to lessen Ethiopia’s dependency on imported goods, and encourage investment in the export-oriented sectors of textiles/garments, leather/leather products, cut flowers, fruits and vegetables, and agro-processing. Given the scale of public investment needed to meet GTP targets, Ethiopia will need significant inflows of foreign direct investment. Strong domestic economic growth was registered in the first two years of the plan period, with the government of Ethiopia (GOE) estimating growth at an average of 11.2% annually. International Monetary Fund (IMF) estimates drop the growth to a still impressive 7-7.5%. While the Ethiopian government projects growth to remain above 11% annually, the IMF expects the annual growth to decelerate to 6.5% in the medium term due to limited opportunities for the private sector to leverage the large public investment, crowding out of private sector credit, and entrenched inflation expectations.
The World Bank's Doing Business report for 2013 ranked Ethiopia at 127 out of 185 countries, losing ground from the 2012 ranking of 125. Contributing to the drop were declines in scores for investor protections, tax payments, contract enforcement, and resolution of insolvency.
Foreign investors generally do not face unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers. Although bureaucratic hurdles continue to affect project implementation, the Ethiopian Investment Agency (EIA) has proposed an expedited "one-stop shop" service that it hopes will significantly cut the time and cost of acquiring investment and business licenses, though U.S. investors report that the EIA still lacks capacity to meet its own stringent deadlines. A business license can be obtained in one day if all requirements are met, though in practice this is uncommon. A foreign investor intending to buy an existing private enterprise or buy shares in an existing enterprise needs to obtain prior approval from the EIA.
Ethiopia's World Trade Organization (WTO) accession process has been underway since 2003. Ethiopia submitted a Memorandum of Foreign Trade Regime to the WTO Secretariat in December 2006, sent replies to the first round of WTO member questions in January 2007, and held its first working party meeting in May 2008. Ethiopia’s goods market access offer was submitted in February 2012 and the third working party meeting was held in March 2012. Ethiopian Government officials have stated that WTO accession by 2014 is a priority.
In 2009, the Ethiopian government broadened its agricultural policy focus from increasing smallholder productivity, adding encouragement of private investment (both domestic and foreign) in larger-scale commercial farms to the existing priorities. The Ministry of Agriculture (MOA) created a new Agricultural Investment Support Directorate that is tasked with negotiating long-term leases (all land is owned by the government) on over 7 million acres of land for these commercial farms. The Directorate's goal is to boost productivity, employment, technology transfer, and foreign exchange reserves by offering incentives to private investors. The program, even in its early stages, has encountered some protests from individuals and groups claiming interests in land to be made available to new investors. In 2010 the government established an Agricultural Transformation Agency (ATA) with a mandate to help streamline agricultural investments and more generally to improve the enabling environment for both smallholder and commercial agricultural development in the country.
According to a number of studies, Ethiopia is rich in renewable energy resources. While the total endowment of hydropower is estimated to be up to 45,000 MW per annum, only 3% of the country’s hydropower potential is currently being exploited. Ethiopia is a country on the brink of an energy revolution, but requires significant assistance to realize its potential, particularly in the areas of geothermal, wind and solar and biomass resources as long-term options for power generation for both local industrialization and as a potential source of FX earnings. In accordance with targets outlined in the GTP, the Ethiopian Electric Power Corporation (EEPCo) has set concrete plans to achieve 75% energy access by 2015 and aspires to become a regional power exporter and green energy hub for East Africa.
Power generation improved by around 230% between 2008 and 2012, with six hydroelectric and wind power projects coming online: Tekeze (2009, hydroelectric, 300 MW), Gibe II (2010, hydroelectric, 420 MW), Tana Beles (2010, hydroelectric, 460 MW), Amerti Nesha (2011, hydroelectric, 97 MW), Ashegoda (2012, wind, 30 MW), and Adama I (2012, wind, 51 MW). Additionally, four more projects (Gibe III, Ashegoda expansion, Adama II, and the Grand Ethiopian Renaissance Dam) are under construction. Their combined output would be nearly 8,150 MW. However, an inadequate power transmission system means that Ethiopia’s increased energy supply is not yet being utilized efficiently. The Ministry of Water and Energy (MOWE) is actively seeking additional investment in Ethiopia's energy sector, to meet rapidly growing domestic needs and to fulfill ambitious plans to export electricity to neighboring countries. In October 2011, Ethiopia began 35 MW of power exports to Djibouti estimated to generate USD US$1.5 million per month and is finalizing plans to begin exporting 100 MW of power to Sudan in early 2013. Financing is in place for construction of a transmission link to Kenya as part of a larger East African Electricity Highway project funded by the World Bank and African Development Bank. Development of renewable energy sources is a basic principle of the government’s energy policy and the government is looking to private investment to help drive development of non-hydro renewable power resources. MOWE has introduced feed-in tariff legislation which will establish the rates and conditions for independent power producers to sell electricity to the national grid, however the bill has gone through several revisions and it is not clear when it will become law.
.The revised Investment Code of 1996, as well as the Investment Proclamation provide incentives for development-related investments, and have gradually removed most of the sectoral restrictions on investment; Ethiopia's investment code prohibits foreign investment in banking, insurance, and financial services. The remaining state-controlled sectors include telecommunications, power transmission and distribution, and postal services with the exception of courier services. Manufacturing of weapons and ammunition can only be undertaken as joint ventures with the government.
Other areas of investment reserved for Ethiopian nationals include: broadcasting; air transport services; 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; capital goods rentals; export trade of raw coffee, chat, oilseeds, pulses, hides and skins bought from the market; 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. However, the GOE has indicated an interest in bringing foreign private sector expertise to some of the above sectors. Ethiopian-Americans can obtain a local resident card from the Ministry of Foreign Affairs that allows them to invest in many sectors closed to foreigners. Foreign firms can supply goods and services to Ethiopian firms in the closed sectors.
The 2012 amendment to Ethiopia’s investment proclamation introduced provisions for the establishment of industrial development zones, both state-run and private, with favorable investment, tax, and infrastructure incentives. The amendment also raised the minimum capital requirement to US$200,000 per project for wholly-owned foreign investments and US$150,000 for joint investments with domestic investors (or US$100,000/US$50,000 respectively in the areas of engineering, architectural, accounting and auditing services, business and management consultancy services, and publishing). A foreign investor reinvesting profits/dividends may not be required to allocate minimum capital.
Inflation rates, while still high, stabilized over 2012. The GOE has taken an active role in managing inflation through a series of measures including strict monetary and fiscal policies limiting the growth of broad money, resulting in year-on-year inflation undergoing a steady series of declines and stabilization periods, dropping from 39.3% in November 2011 to 15.6% in November 2012. The GOE remains vigilant about combating inflation; however, structural inefficiencies such as a state monopolized multi-modal logistics system and an oligopolistic wholesale sector will likely continue to keep Ethiopia’s inflation rate in double digits.
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.
Ethiopia's ranking on various indices:
TI Corruption Index
33/113 out of 176 countries
Heritage Economic Freedom
52/134th out of 179 countries
World Bank Doing Business
127th out of 185 countries
MCC Gov’t Effectiveness
MCC Rule of Law
MCC Control of Corruption
MCC Fiscal Policy
MCC Trade Policy
MCC Regulatory Quality
MCC Business Start Up
MCC Land Rights Access
MCC Natural Resource Mgmt
Conversion and Transfer Policies
All foreign currency transactions must be approved by Ethiopia's central bank, the National Bank of Ethiopia (NBE). The local 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 US$50,000.
Ethiopia's Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit freely profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may also 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 service or other international payments. The right of expatriate employees to remit their salaries is granted in accordance with NBE foreign exchange regulations.
Ethiopia’s forex reserves fell from an average level of 3 months import coverage in 2010-2011 to 1.8 months coverage in April 2012. Forex reserves have been heavily depleted, but showed signs of stabilizing towards the end of 2012. According to the IMF, the use of forex sales as a means of sterilizing local currency liquidity is the main cause of the shortfall; though it has been further exacerbated by weaker than expected exports of coffee, Ethiopia’s main export crop.
The birr has depreciated approximately 100% against the U.S. Dollar between November 2006 and November 2012, through a series of controlled step-downs, including 20% devaluation in September 2010. As of December 2012, the exchange rate was approximately 18.15 birr per dollar. The illegal parallel market exchange rate was approximately 19.06 birr per dollar, a premium of 5% over the official rate.
Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding US$10,000).
Expropriation and Compensation
Per Ethiopia's 1996 Investment Proclamation and subsequent amendments, assets of a domestic investor or a foreign investor, enterprise or expansion cannot be nationalized wholly or partly, except when required by public interest and in compliance with the laws and with payment of adequate compensation. Such assets may not be seized, impounded, or disposed of except under a court order.
The Derg military regime nationalized many properties in the 1970s. The current government's position is that property seized "lawfully" by the Derg (i.e., 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 lawful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time of its control over the property. Ethiopia's Privatization and Public Enterprises Supervising Agency (PPESA) stopped accepting requests from owners for return of these formerly expropriated properties in July 2008.
According to the Investment Proclamation, disputes arising out of foreign investment that involve a foreign investor or the state may be settled by means agreeable to both parties. A dispute that cannot be settled amicably may be submitted to a competent Ethiopian court or to international arbitration within the framework of any bilateral or multilateral agreement to which the government and the investor's state of origin are contracting parties.
Both foreign and domestic investors involved in disputes have expressed a lack of confidence in the judiciary to objectively assess and resolve disputes. Ethiopia's judicial system is overburdened, poorly staffed and inexperienced in commercial matters, although efforts are underway to strengthen its capacity. While property and contractual rights are recognized and there are commercial and bankruptcy laws, judges often lack understanding of commercial matters and case scheduling suffers from extended delays. The Addis Ababa Chamber of Commerce has an Arbitration Center dedicated to assist those with the arbitration process. There is no guarantee that the award of an international arbitral tribunal will be fully accepted and implemented by Ethiopian authorities. Ethiopia has neither signed nor ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the “New York Convention.”
Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), is accountable to the Ministry of Trade, and is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. Some of the Commission's powers include: investigating complaints by aggrieved parties; compelling witnesses to appear and testify at hearings; and searching the premises of accused parties. Since 2011, the TPCPA has conducted 15 workshops for over 5000 government and private sector attendees. However, since its inception, the TPCPA has been primarily focused on self-organization and administrative work, and had not conducted any significant enforcement activities as of January 2013.
Performance Requirements and Incentives
Ethiopia does not formally impose performance requirements on foreign investors.
The 2003 amendment to the Investment Proclamation outlines investment incentives for investors in specific areas. New investors engaged in manufacturing, agro-processing activities, or the production of certain agricultural products, 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 ”developing 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.
A special loan fund through the Development Bank of Ethiopia (DBE) provides 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. Travel agencies/tour companies have increased duty-free privileges for the importation of goods such as vehicles, provided they are used solely in tourism activities.
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, Southern Nations, and Afar.
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. There is no right of private ownership of land. All land is owned by the state and can be leased for up to 99 years. In November 2011, the government enacted a controversial urban land lease proclamation that allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors.
Protection of Property Rights
Secured interests in property are protected and enforced, although all land ownership remains in the hands of the state. Certain residents have been relocated (and usually compensated) when the government decides that the land they are living on should be used for a road or other public use. Land leasehold regulations vary in form and practice by region. Mortgages are uncommon as loan terms are generally quite short.
Ethiopia has yet to sign a number of major international intellectual property rights (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 GOE has expressed its intention to accede to the Berne convention and Madrid protocol by 2015. The Ethiopian Intellectual Property Rights Office (EIPO) has been tasked primarily to protect Ethiopian copyrighted materials and pirated software. Generally, EIPO has weak capacity in terms of manpower and none in terms of law enforcement. In addition, a number of businesses, particularly in the tourism and service industries, operate in Ethiopia freely using well-known trademarked names or symbols without permission.
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. Government ministries often pass decisions and associated paperwork to various ministries before any decision is finalized. In many cases, this paperwork gets stuck in one ministry and no decision is made.
In 2011, the central bank issued 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 a new public procurement and property administration agency. This agency is an autonomous government organ, has its own judicial arm, and is accountable to the Ministry of Finance and Economic Development.
Efficient Capital Markets and Portfolio Investment
Access to finance is an impediment to increased Ethiopian domestic private investment. While credit is available to investors on market terms, a 100% collateral requirement limits the ability of some investors to take advantage of business opportunities. Additionally, an April 2011 measure forcing non-government banks to invest the equivalent of 27% of each loan made in National Bank of Ethiopia (NBE) bonds has contributed to liquidity shortages that have reduced the ability of banks to lend to the private sector.
Ethiopia currently has nineteen banks--three state-owned, one party owned, and fifteen privately-owned. In September 2011, the NBE raised the minimum paid up capital required to establish a new bank from Birr 75 million to 500 million which effectively stopped the entry of most new banks into the market. Foreign banks are not permitted to provide financial services in Ethiopia. The state-owned Commercial Bank of Ethiopia mobilized 65.1% of the total bank deposits and provided more than 50% of total bank loans in the fiscal year 2011/12. The commercial banks' non-performing loan ratio has declined to less than 5%.
Ethiopia does not have a securities market, and sales/purchases of debt are heavily regulated. The GOE is drafting legislation to regulate the over-the-counter market for private share companies.
The NBE controls the bank minimum deposit rate, which now stands at 5%, while loan interest rates are allowed to float. Real interest rates have been negative in recent years mainly due to high inflation. The government offers a limited number of 28 days, 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. The yields on these T-bills are below 2%. This market remains unattractive to the private sector and over 95% of the T-bills are held by the state-owned Commercial Bank of Ethiopia and public enterprises.
The Ethiopia Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, and haricot beans. The GOE launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. However, critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing international rates.
Competition from State-Owned Enterprises
State-owned enterprises and ruling party-owned entities dominate major sectors of the economy. There is state monopoly or state dominance in sectors such as telecommunications, power, banking, insurance, air transport, shipping, and sugar. Ruling party-affiliated "endowment" companies have a strong presence in the ground transport, fertilizer, and textile sectors. Both state-owned enterprises and "endowment" companies dominate the cement sector.
State-owned enterprises have considerable advantages over private firms, particularly in the realm of Ethiopia's regulatory and bureaucratic environment, including ease of access to credit and speedier customs clearance. Local business owners as well as 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 to these entities, there are indications that they receive incentives such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance. Ethiopia publishes aggregate financial data of state-owned enterprises, but detailed information is not included in the national budget, and few state-owned enterprises outside of Ethiopian Airlines publicly release detailed financial statements.
Corporate governance of state-owned enterprises is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals. In 2010, the Ethiopian government "corporatized" state-owned enterprise Ethiopian Telecommunications Corporation (ETC) by turning over its management to France-Telecom per a two-year contract. As part of this process, a new company, Ethio Telecom (ET), was formed to replace ETC. In January 2013, France-Telecom handed back the management of Ethio Telecom after completion of the contract. Similar to the “corporatization” of ETC, a tender for the management of Ethiopian Electric Power Company (EEPCO) was advertised in 2011, though no winner has been announced.
The Public-Private Dialogue Forum (PPDF), a joint consultative forum between the private sector and the government, held its second meeting in February 2012, focusing on customs, logistics and transport issues, especially those involving the inefficiency of state-owned enterprises. The private sector was represented by the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA) and the government by the Ministry of Trade (MOT). Additionally, Prime Minister Hailemariam Desalegn met with representatives of the private sector in October 2012 to discuss their commercial concerns, continuing a series of direct private sector engagements started by former Prime Minister Meles Zenawi.
Nearly all tenders issued by the Ethiopian government's Privatization and Public Enterprises Supervising Agency (PPESA) are open to foreign participation. In some instances, the government prefers to engage in joint ventures with private companies rather than sell an entire entity. The government has sold over 300 public enterprises since 1994. Most of these enterprises were small enterprises in the trade and service sectors. Approximately 20 enterprises were privatized in 2011, including two major breweries, and around 60 public enterprises remain under PPESA control.
Corporate Social Responsibility
Some larger international companies have introduced corporate social responsibility (CSR) programs; however, most local companies do not practice CSR. There is a movement to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and others.
Ethiopia has been relatively stable and secure for investors. Insurgents operating in parts of the Somali Region of Ethiopia have warned investors against exploring for oil or natural gas resources in this area. Some elements of the outlawed Ogaden National Liberation Front continue to operate in parts of the Somali Region and there are reports of sporadic clashes with security forces.
Beginning in 2008, the government enacted a series of laws that effectively constrained opposition parties, the media, and civil society. The Ethiopian People’s Revolutionary Democratic Front (EPRDF), which is the ruling party coalition, and its allied parties subsequently took close to 90 percent of the popular vote and won 545 out of 547 parliamentary seats in the 2010 national elections, which were judged to have lacked anything close to a level playing field. Regional-level elections (including for seats in the Addis Ababa and Dire Dawa city councils) will be held in 2013, followed by national parliamentary elections in 2015.
In 2009, the Ethiopian government passed an Antiterrorism Proclamation granting executive branch-controlled security services virtually unlimited authority to take unilateral action to disrupt suspected terrorist activities. Terrorist activities are broadly defined in the legislation. As of December 31, 2012, the law has been cited in the convictions of nine journalists, five political opposition leaders, and an Ethiopian employee of the UN. Two Swedish journalists were found guilty of “providing support for terrorists” and illegally entering the country in 2011 and were sentenced to eleven years in prison, but received a pardon in September 2012.
Five European tourists were killed and two were kidnapped in January 2012 by the Afar Revolutionary Democratic Unit Front (ARDUF), an extremist group backed by Eritrea. In retaliation, the Ethiopian military made incursions into Eritrea in March targeting the ARDUF and the Eritrean military. An attack on a farm operated by Saudi Star Development in the Gambella Region in April left five people dead, and was blamed on the Gambella Nilotic Union. The Ethiopian government regards these incidents as terrorist attacks.
In February 2012, the Ethiopian government announced that it had arrested eight al-Qaida operatives with links to Kenya, Sudan, Philippines, Saudi Arabia, and South Africa in the Bale area of Oromia Region in December 2011.
Ethiopia ratified the United Nations (UN) Anticorruption Convention in 2007. The UN Investment Guide to Ethiopia (2004) asserted that routine bureaucratic corruption is virtually nonexistent in Ethiopia. The guide added that bureaucratic delays certainly exist, but are not devices by which officials seek bribes. It is a criminal offense to give or receive bribes, and bribes are not tax deductible.
Transparency International’s 2011 Corruption Perceptions Index, which measures perceived levels of public sector corruption ranked Ethiopia as 33 out of 100 (with 0 indicating “highly corrupt” and 100 indicating “very clean”). Ethiopia's rank on the corruption perception index was 113 out of 176 countries in 2012 and 120 out of 182 rated countries in 2011.
The Ministry of Justice and the Federal Ethics and Anti-Corruption Commission (FEACC) are charged with combating corruption. Since its establishment, the Commission has arrested many officials on charges of corruption, including managers of the Privatization Agency, Ethiopian Telecommunications Corporation, National Bank of Ethiopia, Ethiopian Geological Survey, the state-owned Commercial Bank of Ethiopia, and private businessmen.
Bilateral Investment Agreements
Ethiopia has bilateral investment and protection agreements with China, Denmark, Italy, Kuwait, Malaysia, Netherlands, Russia, Sudan, Switzerland, Tunisia, Turkey, Yemen, Spain, Algeria, Austria, UK, Belgium/Luxemburg, Libya, Egypt, Germany, Finland, India, and Equatorial Guinea and 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. Ethiopia also has avoidance of double taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan and the UK. There is no avoidance of double taxation treaty between the United States and Ethiopia.
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 has not originated any investment in Ethiopia in recent years.
Approximately 85% of Ethiopia's 84 million people worked in agriculture in 2011. The Ethiopian government is the most important sector of employment outside of agriculture. According to the Central Statistical Agency’s urban employment and unemployment survey result, urban unemployment was estimated to be 17.5 % as of 2012. (24.9% of people ages 15-24 are unemployed.)
Ethiopia has ratified all eight core ILO conventions, including most recently, the Palermo Convention. The Ethiopian Penal Code outlaws work specified as hazardous by ILO conventions. The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. The U.S. Government produces an annual report on labor conditions in Ethiopia, including an assessment of child labor.
According to the 2012 Index of Economic Freedom (produced by the Heritage Foundation), Ethiopia scored a 55.5 out of 100 for labor freedom, 1.6 points below the previous year and 6 points below 2010. The index rating states that “the formal labor market has not been developed. Outmoded employment regulations remain a barrier to business, although enforcement is not stringent.” The Confederation of Ethiopian Trade Unions has been expanding its membership and, along with the Ethiopian Employers’ Federation, actively supports foreign direct investment.
Ethiopia generally enjoys labor peace. The right to form labor associations and engage in collective bargaining is constitutionally guaranteed for many workers, but excludes managerial employees, teachers, and civil servants. Although the constitution and law provide workers with the right to strike to protect their interests, detailed provisions make legal strike actions difficult to carry out. In practice, labor strikes are rare.
Child labor is widespread in Ethiopia. While not a pressing issue in the formal economy, child labor is common in rural agrarian areas and the informal economy in urban areas. 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 statutorily prohibited from hiring children under the age of 14. There are strict labor laws defining what sectors may hire "young workers," defined as workers aged 14 to 18, but these laws are infrequently enforced. Labor remains readily available and inexpensive in Ethiopia. Skilled manpower, however, is scarce in many fields. Approximately 60% of Ethiopians over the age of 15 are illiterate ( defined by UNESCO as “[in]ability to identify, understand, interpret, create, communicate and compute, using printed and written materials associated with varying contexts”). There is no national minimum wage standard.
Foreign Trade Zones/Free Trade Zones
There are no areas designated as foreign trade zones and/or free ports in Ethiopia. Because of the 1998-2000 Ethiopian-Eritrean war, Ethiopian exports and imports through the Eritrean port of Assab are prohibited. As a result, Ethiopia conducts almost all of its trade through the port of Djibouti with some trade via the Somaliland port of Berbera and Sudan's Port Sudan. Despite Ethiopia's efforts to clamp down on small-scale trade of contraband, unregulated exports of coffee, live animals, chat (a mildly narcotic amphetamine-like leaf), fruit and vegetables, and imports of cigarettes, alcohol, textiles, electronics and other consumer goods continues.
Foreign Direct Investment Statistics
Foreign direct investment (FDI) flows into Ethiopia have gradually increased in the last few years. According to estimates by the World Bank (August 2012), the annual inflow of FDI increased from US$0.5 billion in 2007 to US$1.2 billion in 2011. Floriculture, horticulture, textile, and leather are the sectors that have attracted the most FDI. Recently, commercial farming has attracted Indian, Saudi, European, and U.S. investors. According to the Ethiopian Investment Agency, the stock of U.S. foreign direct investment since 1993 in Ethiopia reached nearly US$1.4 billion as of December 2011, which includes both projects under implementation and in operation.
U.S. companies with a presence and participation in Ethiopia's economy include (either through direct presence or licensing/distribution agreement): Boeing, Coca-Cola, Pepsi-Cola, Caterpillar, John Deere, Proctor & Gamble, Johnson & Johnson, Ford, Mack Trucks, General Motors, Ernst & Young, Radisson, Sheraton, Hilton, Motorola, Microsoft, IBM, Cessna, Bell Helicopters, Perkins, Massey Ferguson, Case III, 3M, Lucent Technologies, Cisco, Federal Express, United Parcel Service, Rank/Xerox Corporation, HP, Cargill, Navistar, Hughes Network, DuPont, Oracle, and General Electric.