Business Development and International Relationship
July 2013
COUNTRY STUDY:
ETHIOPIA
2
TABLE OF CONTENT
TABLE OF CONTENT ......................................................................................................................... 2
1. INTRODUCTION OF ETHIOPIA ................................................................................................. 3
2. POLITICAL SOUNDNESS OF ETHIOPIA .................................................................................. 7
3. ECONOMY OF ETHIOPIA .......................................................................................................... 13
4. TAX REGIME OF ETHIOPIA ..................................................................................................... 29
5. INVESTMENT REGIME OF ETHIOPIA .................................................................................. 37
6. BUSINESS CREATION REQUIREMENTS............................................................................... 42
7. INFRASTRUCTURE OF ETHIOPIA ......................................................................................... 47
8. AVAILABILITY OF SKILLED LABOR ..................................................................................... 57
9. LABOR COST IN ETHIOPIA...................................................................................................... 62
10. LAND COST IN ETHIOPIA ...................................................................................................... 63
11. AVAILABILITY OF ARABLE LAND ...................................................................................... 69
12. LEGAL FRAMEWORK OF ETHIOPIA .................................................................................. 70
13. NATIONAL DEVELOPMENT PLAN ...................................................................................... 75
SWOT ANALYSIS OF ETHIOPIA .................................................................................................. 79
LIST OF FIGURES ............................................................................................................................ 80
LIST OF TABLES .............................................................................................................................. 82
3
1. INTRODUCTION OF ETHIOPIA
Figure 1: Map of Ethiopia
4
Table 1: Key Facts of Ethiopia
Official Name Federal Democratic Republic of Ethiopia Location Eastern Africa, west of Somalia Area 1 104 300 Km2 Neighboring Countries Djibouti, Eritrea, Kenya, Somalia, South Sudan, Sudan Population 93 877 025 (July 2012 estimate) Population Growth 2.9% (2012 estimate) Official Languages Oromigna, Amarigna, Tigrigna, English, Arabic Religion Ethiopian orthodox (43.5%)
Muslim (33.9%) Protestant (18.6%) Traditional (2.6%) Catholic (0.7%) Other (0.7%)
Ethnic groups Oromo 34.5%, Amara 26.9%, Somalie 6.2%, Tigraway 6.1%, Sidama 4%, Gurage 2.5%, Welaita 2.3%, Hadiya 1.7%, Affar 1.7%, Gamo 1.5%, Gedeo 1.3%, other 11.3%
Age Structure 0 – 14 years (44.4%) 15 – 24 years (19.9%) 25 – 54 years (29.1%) 55 – 64 years (3.9%) 65 years and over (2.8%)
Literacy Rate Total: 42.7% (Male: 50.3%, Female: 35.1%) Life Expectancy at birth 60 years (2012 estimate) Unemployment rate n/a Labor Force 37.9 million Population below poverty line 29.2 % Natural Resources Gold, platinum, copper, potash, natural gas,
hydropower GDP per capita US$ 1200 (2012 estimate) GDP growth 7% (2012 estimate), 7.5% (2011), 10% (2010) Inflation rate 21.7 % (2012 estimate) ICT Telephone main lines in use: 829 000 (2011)
Mobile cellular: 14.127 million (2011) Broadcast media: 1 public TV station, 1 public radio broadcaster Internet users: 447 000 (2009)
Airports Total: 58 With 17 Paved runway: and 41 Unpaved runway:
Ports and Terminals Ethiopia is landlocked Railways 681 Km Roadways 46 812 Km
Asphalt road: 21 172 Km Source: CIA World Fact Book (2013)
5
Table 2: Timeline of Ethiopia
100 AD The settlers from South-Arabia built up a big kingdom with the city
Axum as its centre and had trade-business with the Mid-East
325 – 350 AD The civilization founded by the Axumites reached its edge under the
leadership of Ezana. He converted to christianity which from then on
was the main religion of the Ethiopic state
900 AD The extension of Islam forced the Axumites to go to the south
1270 AD With King Yekune Amlak on the throne the family-line of King Solomon
was re-established
1434 - 1468 Zera Yacob, a great emperor, established the first diplomatic relationship
with Europe
1855 - 1868 The era of Emperor Theodor, who tried to modernize the country
1889 The crowning of Emperor Menelik II. Took place in the capital Addis
Abeba. He was forced to negotiate with the Italians about the frontiers of
the Italian territory, Eritrea
1896 On 1st March the Italians had been defeated in the battle of Adowa and
Ethiopia accepted as an independent nation
1923 Ethiopia entered the League of Nations.
1930 Emperor Zauditu died and Emperor Haile Selassie was crowned in Addis
Abeba.
1931 Haile Selassie introduced a constitution and opened a parliament.
1935 War with Mussolini
1936 - 1940 Ethiopia was occupied by Italy and Haile Selassie escaped to England.
1941 Year of Liberation - On 3rd July the last Italians were forced to give up
and Haile Selassie returned
1952 Eritrea joined Ethiopia
1973 6 years of dryness had led 300.000 people into a big catastrophe
1974 Haile Selassie was overthrown by a group of army officers under the
command of Major Mengistu
1975 Haile Selassie died. A revolution-government started to “socialize”
Ethiopia
1977 War with Somalia
1978 Somali forces defeated with massive help from the Soviet Union and
Cuba
1983 -1985 Dryness and hunger - 750.000 people died
1987 Mengistu elected president under a new constitution
6
1988 Ethiopia and Somalia sign a peace treaty
1991 Ethiopian People's Revolutionary Democratic Front captures Addis
Ababa, forcing Mengistu to flee the country
1998 Ethiopian-Eritrean border dispute erupts into armed clashes
2000 Ethiopia and Eritrea sign a ceasefire agreement which provides for a UN
observer force to monitor the truce and supervise the withdrawal of
Ethiopian troops from Eritrean territory
2005 Disputed multi-party elections lead to violent protests over months
2006 Ethiopian troops enter Somalia, engage in fierce fighting with Islamists
controlling large parts of the country and capital
January 2009 Ethiopia formally withdraws forces from Somalia
May 2010 Ruling Ethiopian People's Revolutionary Democratic Front (EPRDF)
wins huge majority in parliamentary elections, handing PM Meles
Zenawi a fourth term
August 2012 Prime Minister Meles Zenawi dies after several months of rumors about
his declining health. Deputy Prime Minister and Foreign Minister
Hailemariam Desalegn takes over the following month Source: www.history-timelines.org.uk
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2. POLITICAL SOUNDNESS OF ETHIOPIA
2.1 Political Regime
The government of Ethiopia is currently a federal republic. The government runs by a
constitution which was adopted in 1994, after several decades of political unrest (during
which Ethiopia transitioned from an imperial regime towards a democratic one). The
constitution of 1994 establishes the prime minister as the head of the government and
the president as chief of state. The government is composed of an executive branch, a
legislative branch and a national supreme court.
The federal state comprises nine autonomous states vested with power for self-
determination. Each autonomous state is headed by a state president elected by the
state council. Ethiopia is structured as a bicameral parliament with 548-seat Council of
People’s Representatives being the highest authority and 117-seat Council of the
Federation being for the common interests of the nation. Members of both councils are
elected by universal suffrage for a five-year term. The judiciary is constitutionally
independent.
After the death of the Prime Minister Meles Zenawi in August 2012, Hailemariam
Desaglen succeeded him as prime minister, initially in an acting capacity. Hailemariam
was then elected as the Chair of the Ethiopian People's Revolutionary Democratic
Front (EPRDF), the ruling party, on 15 September 2012.
The EPRDF and the government apparatus exercise firm control over all aspects of
Ethiopian society. In the elections of May 2010 the EPRDF won an overwhelming
majority with 546 of the 547 seats. The strictly monitored elections went off peacefully
but press and other freedoms came under pressure. There was much International
criticism of the lack of scope for political opposition.
8
Table 3: Democracy Index of Ethiopia in 2011
Global
Rank
Overall
score
Electoral process
and pluralism
Functioning of
government
Political
participation
Political
culture
Civil
liberties
Ethiopia 121 3.79 0.00 3.93 5.00 5.63 4.41
Score on a scale of 10 Source: Economist Intelligence Unit’s Democracy Index 2011
According to the Economist Intelligence Unit, Ethiopia is the 121st most democratic state
in the world as at 2011 (118th in 2010). Ethiopia which was labeled an authoritarian
regime in the classification fell short of being a hybrid regime because of weaknesses in
electoral process and pluralism.
2.2 Conflicts and Crimes
The border conflict with Eritrea plays a significant part in Ethiopia’s foreign policy.
Although the two countries signed a peace agreement on border demarcation in Algiers
in 2000, the current situation is ‘no war, no peace’. The eastern part of Ethiopia, which
borders on Somalia, has a large Somali minority. One of Ethiopia’s aims is to stabilize the
situation in Somalia. Coface (2013) believes that strong military tensions with Southern
Somalia and Eritrea will remain. Ethiopia was also alert to the threat of conflict in Sudan
following the split between North and South in July 2011. There were fears that an influx
of refugees could cause conflict to spill over from both Somalia and Sudan.
2.3 Corruption
The government's attitude in dealing with the problem of corruption largely reflects the
overall system and character of governance in the country. The government strategy is
clearly top-down, dominating anti-corruption institutions, the anti-corruption debate
and the formulation of anti-corruption policy. Global Integrity 2010 reports that
corruption has become increasingly prevalent in public institutions in Ethiopia, and
the Bertelsmann Foundation 2012 claims that Ethiopian society's deeply ingrained
“clientelism” does not foster a culture of accountability and transparency. Despite the
introduction of anti-corruption initiatives in previous years, including the Federal Ethics
and Anti-corruption Commission (FEAC) in 2001, corruption remains widespread at
many levels of government administration in the country. A December 2011 article
by Ethiopian Review reports that public assets are acquired by officials and regime
supporters through means of fraud, the judiciary is corrupted through political
9
interference and manipulation, and the Ethiopian government is allegedly spending
millions of dollars, acquired through the US food and anti-poverty aid program, on the
basis of political favoritism.
In addition, Ethiopia's Anti-Corruption Commission (FEAC) estimates in a 2007
report that corruption is worst in the interaction between the public and private sectors.
Corruption has traditionally been perceived by foreign companies to be a major
impediment to their operations in Ethiopia. For example, according to the World Bank &
IFC Enterprise Surveys 2006, there are indications that petty corruption is widespread
in Ethiopia, given that approximately 13% of the companies surveyed expect to
pay facilitation payments to 'get things done', while 23% identify corruption as a major
constraint. This perceived challenge is supported by Global Integrity 2006, referring to a
businessman who describes Ethiopia as 'the land of 10%', which implies that hardly
anything can be accomplished without adding this amount to the costs as
a kickback. Freedom House 2011, reports that the state's active intervention in the
economy affords low-level officials the discretion of soliciting bribes, while offering
high-level officials the opportunity of self-enrichment by colluding with economic
interests to evade regulations or commit fraud. This problem is also referred to in a
December 2011 article by the Ethiopian Review which notes that some enterprises
owned by officials enjoy bank loans of USD millions without sufficient collateral.
Moreover, some businessmen allegedly make huge payments in the form of kickbacks
and bribes to participate in procurement and contracting, and that import/export
businesses complain about corrupt customs officials.
Nonetheless, as emphasized by the Bertelsmann Foundation 2010 and other sources,
there have been some improvements in the perception of corruption in Ethiopia.
According to the Transparency Ethiopia Corruption Diagnostic Baseline Survey 2009,
59% of the surveyed citizens living in the Ethiopian capital, Addis Ababa, believed that
the level of corruption would decrease in the future. The same tendency is reflected by
surveyed households in Transparency International's Global Corruption Barometer
2010/2011, where 59% perceived the government's fight against corruption as
‘effective’, while 41% perceived the level of corruption to have decreased over the past
three years.
10
On the positive side, the World Economic Forum Global Competitiveness Report 2011-
2012 indicates that foreign companies' perception of the occurrence of petty
corruption in Ethiopia has changed slightly for the better. For example, whereas the
surveyed companies in the 2008-2009 report ranked corruption as the single most
problematic factor for conducting business in the country, corruption is now perceived
by companies to be much less of a constraining factor compared to access to financing,
inflation, tax regulations, and inefficient government bureaucracy. The same report also
reveals that foreign businesses perceive the demand for bribes and other irregular
payments for routine government services to be less widespread than in other countries
in the region.
2.4 Regulatory Quality
According to the US Department of State 2012, Ethiopia's regulatory system is generally
considered to be non-discriminatory, although, there have been instances in which
burdensome regulatory requirements have acted as obstacles to doing business in the
country. According to the US Department of State investment climate statement 2012,
the government of Ethiopia has eliminated most of its discriminatory tax, credit and
foreign trade treatment of the private sector as well as simplified administrative
procedures and established guidelines regulating business activities.
Although official and unofficial barriers, such as corruption, still deter foreign
investment and certain sectors remain off-limits to foreign participation (e.g. banking),
the country has taken several steps to liberalize its foreign investment laws, such as
those relating to agriculture, and to streamline the regulatory environment and
registration process to obtain a business license. For instance, the government-
established Ethiopian Investment Agency (EIA) provides investment information and a
one-stop shop that, according to the US Department of State 2012, significantly cuts the
cost and time of obtaining investment and a business license. A business license can now
be obtained in one day if all requirements are met. Other investment and trade related
information is provided by the Ethiopian Chamber of Commerce and Sectoral
Association, which is an autonomous private sector organization.
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The legal system is based on common law, but consistent enforcement is an issue. The
rule of law consequently remains limited, due to the lack of checks and balances
between state powers and a traditional interference of the executive branch in judicial
matters. Moreover, according to the US Department of State 2012, judges often lack
understanding of commercial matters and case scheduling suffers from extended delays.
This constitutes a major impediment for settling commercial disputes and results in a
weak understanding and enforcement of property and contractual rights. Both
the Ethiopian Arbitration and Conciliation Center and the Addis Ababa Chamber of
Commerce provide commercial dispute services. International arbitration is also
possible for foreign companies, but there is no guarantee that a decision made by an
international arbitration body will be fully accepted and implemented by Ethiopian
authorities, as reported by the US Department of State 2010. Ethiopia is not a member of
the International Centre for the Settlement of Investment Disputes (ICSID) or of the New
York Convention of 1958.
Table 4: Governance indicators of Ethiopia in 2011
Governance Indicator Percentile Rank Governance Score
(0-100) (-2.5 to +2.5)
Voice and Accountability 10.80 -1.34
Political Stability/Absence of Violence 6 -1.63
Government Effectiveness 42 -0.40
Regulatory Quality 18 -0.99
Rule of Law 29.11 -0.71
Control of Corruption 26 -0.69
Score ranges from approximately -2.5 (weak) to 2.5 (strong) governance performance Percentile rank among all countries Source: Worldwide governance indicators (2013)
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Figure 2: Country Risk of Ethiopia
Source: ONDD (Office national du ducroire)
13
3. ECONOMY OF ETHIOPIA
Ethiopia, like many countries in Sub-Saharan Africa, has enjoyed a period of rapid
growth in the past decade. The economic results of this state-led development model
have been impressive. As a matter of fact, despite the lack of commercially exploitable
hydrocarbons reserves found elsewhere on the continent, Ethiopia has achieved export-
driven economic growth rates that are the envy of other African countries.
Ethiopian production has grown from nil to make Ethiopia one of the largest exporters
of cut flowers in the world. This reflects Ethiopia’s facilitation of just-in-time supply
chain participation in the perishable export sector.
Ethiopia’s strategic location, natural resources, and abundant labor position it to attract
labor-intensive manufacturing. Ethiopia is centrally located in the global economy,
within non-stop transport distance to all major markets, being roughly equidistant
between the United States and Japan, between China and Brazil, between Europe and
India, and between Russia and South Africa.
Table 5: Ethiopia’s distance to G7 and BRICS economies
Source: bkp Development Research & Consulting
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3.1 Economic Growth
In 2011, the economy continued on the high-growth trajectory of the previous seven
years. Growth has been broad-based, with the services and the industrial sectors
growing at the highest rates. This momentum is expected to continue in 2012 and 2013,
albeit at a slower pace. The five-year Growth and Transformation Plan (GTP), however,
which emphasizes agricultural transformation and industrial growth, projects the
economy to grow at much higher rates.
Figure 3: Real GDP Growth
Figures for 2010 are estimates; for 2011 and later are projections
Source: African Economic Outlook, Ethiopia 2012
The 11.4% economic growth in 2011 marked the eighth consecutive year of rapid
growth. Moreover, growth has continued to be broad-based with industry, services and
agriculture growing by 15%, 12.5% and 9% respectively. Hotels and restaurants, real
estate, renting and business activities, and financial intermediation made the largest
contribution to the growth of the services sector. The services sector is expected to
continue to grow rapidly, though at a slower pace than in previous years, at 7% and
7.6% in 2012 and 2013 respectively.
The strong industrial sector performance of 2011 was driven by rapid expansion in
mining and, to a lesser extent, manufacturing. In 2011 mining grew by an unprecedented
48% reflecting the impact of investments in the expansion of mining activities and
exports, especially gold. Although Ethiopia’s industrial base is still relatively small, the
growth prospects of this sector are significant, as new industries – such as cement,
15
textile factories and leather – are coming on stream and new projects are planned in
other areas including steel, chemicals and pharmaceuticals. Five cement factories are
currently under construction.
The agricultural sector, which accounts for 80% of employment, remains a key source of
growth. In 2011 the sector grew by 9%, driven by cereal production which reached a
record high of 19.1 million tons in 2011. Agricultural production has been boosted by
favorable weather conditions in cereal-growing areas, enhanced government support
services to smallholders, improvement in yields and expansion in the area under
cultivation.
Figure 4: GDP Contribution by Sector
Source: African Economic Outlook, Ethiopia 2012
3.2 International Trade
Despite a continued robust performance in export of goods and remittances in 2011/12,
strong consumer goods imports and the deteriorating service balance in the first half of
the period, moved the current account into a deficit. Notwithstanding these
improvements, large errors and omissions recorded in 2011/12 need to be addressed.
16
Figure 5: Current account of Ethiopia
-4500
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
500
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
In m
illi
on
US
Do
lla
rs
Source: IMF Country report 2012, Ethiopia
Strong export growth in 2011 followed a drop in merchandise exports in 2009 caused by
the global financial crisis. The value of exports jumped to USD 2.7 billion (US dollars)
from USD 2.0 billion in 2010, an increase of 35%, while merchandise exports, as a share
of GDP, increased from 8.4% in 2010 to an estimated 8.9% in 2011. Exports in 2012 and
2013 are expected to continue performing well, in view of the expansion of export
capacity in mining, agro business and manufacturing, as well as the special incentives
offered by the government for non-traditional exports.
Since 2006, Ethiopia’s annual import growth had averaged 6.6%, but in 2011 import
growth decelerated sharply. The slowdown was partly due to the tightening of credit
conditions and the introduction of more restrictive business and licensing regulations.
The result was an improvement in the trade deficit from 23.8% of GDP in 2010 to 22.5%
in 2011. Looking ahead, imports are projected to grow more rapidly in 2012 and 2013
which is expected to lead to deterioration in the current account from 6.3% of GDP in
2011 to 8.6% and 8.4% in 2012 and 2013 respectively.
17
Figure 6: Imports and exports of Ethiopia
-20000
-15000
-10000
-5000
0
5000
10000
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
In m
illi
on
US
Do
lla
rs
Imports
Exports
Trade Balance
Source: IMF Country report 2012, Ethiopia
In 2010/11, Europe emerged as the largest market for Ethiopia’s exports. It accounted
for 50 percent of the total merchandise exports of the nation. Meanwhile, about 26.5
percent of the total Ethiopia’s exports were shipped to Asian countries, especially China.
African nations accounted for about 18 percent of Ethiopia’s total exports in the same
period while American markets accounted for 5.1 percent.
Regarding Ethiopia’s imports by countries of origin, about 67 percent of its imports in
2010/11 were originated from Asia, 21.3 percent from Europe, 5.5 percent from
America and 6 percent from Africa.
Table 6: International partners of Ethiopia 2011/12
Main products Main partners Share of imports Imports Petroleum products, fertilizers,
machinery, motor vehicle Saudi Arabia 14.3% China 10.7% USA 8% India 4.7%
Main products Main partners Share of exports Exports Coffee, oilseeds, leather products,
khat, gold, flowers, live animals Germany 14.2% China 12.2% Belgium 7.8% Saudi Arabia 6.8% USA 6.3%
Source: CIA World FactBook (2013)
18
The foreign direct investment (FDI) in Ethiopia, in 2011/12, was hugely dominated by
two countries; Turkey and India (together took 58.57% of the total FDI capital
registered in the fiscal year). FDI is projected to increase gradually to a long run yearly
average of 4.5 percent of GDP from 3.1 percent in 2011/12 on account of policies to
promote large scale FDIs.
Figure 7: Foreign direct investment of Ethiopia
0
500
1000
1500
2000
2500
3000
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
In m
illi
on
US
Do
lla
rs
Foreign Direct Investment
Source: IMF Country report 2012, Ethiopia
Figure 8: Distribution of major investment project by sector in 2010/11 (in %)
Source: NBE Annual report 2010/11
The Global Enabling Trade Report 2012 published by the World Economic Forum
captures the extent to which individual economies have developed institutions, policies,
19
and services facilitating the free flow of goods over borders and to destination. Ethiopia
occupies the 106th position (out of 132 countries) from 107th in the previous report. In
this report the most problematic factors for exporting and importing are identifying the
potential markets and tariff barriers respectively.
Figure 9: Enabling trade index of Ethiopia
Source: World Economic Forum; Global enabling trade report 2012
Ethiopia is a member of the Common Market of Eastern and Southern Africa (COMESA)
and the Intergovernmental Authority for Development (IGAD), but has not yet ratified
the COMESA Free Trade Area Protocol. The ratification of the Free Trade Area (FTA)
would be significant in creating opportunities for regional trade expansion.
3.3 International Solvency and International Openness
In terms of international solvency, the foreign exchange reserve reached US$3 billion
2010/11, covering 2.8 months of imports.
Table 7: Some indicators of international trade
Figures in US$ millions 2010/11 Est. 2011/12
Imports (goods & services) 10,090 13,279
Exports (goods & services) 5,345 5,994
Foreign exchange reserve 3,044 2,114
Months of imports 2.8 1.7
GDP 33,429 41,902
Source: IMF Country report 2012, Ethiopia
20
The ratio of the Ethiopia’s total trade (sum of exports and imports) to its GDP is 45.99%
in 2011/12, indicating Ethiopia’s international openness.
3.4 Currency Exchange Rates
Ethiopia’s currency is the Ethiopian Birr (ISO code is ETB), which is supplied by the
National Bank of Ethiopia. Ethiopia operates a freely floating exchange rate system.
Table 8: Exchange rates of the birr as at 07/06/2013
USD EUR GBP JPY CNY
1 ETB 0.0535 0.0405 0.0343 5.1504 0.3283
Inverse 18.6809 24.7171 29.1518 0.1942 3.0457
Source: www.xe.com (07/06/2013)
Foreign exchange reserve sales were used for liquidity sterilization, and are likely not to
recover given the substantial imports needs to finance GTP investment. These
Substantial FX sales have led to significant decline in FX reserves. Together with a higher
inflation in 2011/12 has contributed to an appreciation of real effective exchange rate
(REER). The premium between the official and parallel market exchange rates recently
widened possibly reflecting unsatisfied demand at the official exchange rate.
Figure 10: Official and parallel exchange rate (birr per US dollar)
Source: IMF Country report 2012, Ethiopia
21
According to the IMF, buildup of foreign exchange reserves from currently projected 1.7
months of import cover at end-2011/12 to above 3 months will be required in the
coming years to provide a buffer against potential external shocks.
3.5 Monetary policy
The National Bank of Ethiopia (NBE) is responsible for implementing the monetary
policy of the country. The principal objective of the monetary policy of the National Bank
of Ethiopia is to maintain price & exchange rate stability and support sustainable
economic growth of Ethiopia.
Table 9: Interest rate structure of commercial bank
Source: NBE Annual report 2010/11
The introduction of a wide range of monetary instruments by central banks engenders
competition, efficiency and transparency and broadens financial intermediation in the
banking system;
The NBE uses open market operations (sale and purchase of government securities) as
one of its monetary policy instruments. In the absence of its own securities, certain
amount of government treasury bills needs to be allocated to NBE by the government for
its monetary policy purpose.
1) A standing central bank credit facility is another instrument used to enhance the
financial capacity of commercial banks and to promote financial intermediation
22
and efficiency. The key advantages of such standing credit facility are
transparency and predictability of accessing central banks’ resources to cover
short-term needs.
2) Reserve requirements (5% of all Birr and foreign currency deposit liabilities)
3) Setting of floor deposit interest rate
4) Direct borrowing/lending in the inter-bank money market and introducing re-
purchase agreement
5) Use of selected credit control when necessary, and
6) Moral Suasion
Tableau 10: Results of Treasury Bills Auction at June 30, 2011
Particulars 2008/09 2009/10 2010/11
Number of bidders 261 280 220
Amount demanded (in million birr)
28-day bill
91-day bill
182-day bill
46,767.2
10,441.9
29,477.7
6,847.6
51,258.0
19,760.0
27,553.8
3,944.3
55,760.0
30,635.0
22,159.9
2,965.2
Amount supplied (in million birr)
28-day bill
91-day bill
182-day bill
28,471.9
4,265.0
15,931.7
8,275.2
55,203.3
15,110.0
28,150.5
11,942.8
83,390.7
41,575.9
35,152.6
6,662.1
Amount sold (in million birr)
Banks
Non-banks
27,839.8
2,672.0
25,167.8
41,736.4
13,902.0
27,834.4
52,316.0
20,271.3
32,044.8 Source: NBE Annual report 2010/11
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3.6 Inflation
Inflation remains high (21 percent at end-2011/12).
Figure 11: CPI Inflation (year-on-year), 2008 - 2012
Source: IMF Country report 2012, Ethiopia
In the 2010/11 fiscal year (8 July – 7 July), macroeconomic management failed to reduce
inflation, which was driven mainly by escalating food prices. Both domestic and
exogenous factors were responsible for causing the resurgence in inflation. These
include a loose monetary policy, rising prices of imported inputs, malfunctioning of the
domestic market, and supply shocks. However, inflation is expected to decline notably in
2013 owing to continued macro stabilization efforts.
3.7 Budgetary Policy
The overall fiscal deficit (excluding grants) expanded from Birr 17.5 billion (4.6% of
GDP) in 2009/10 to Birr 24.7 billion (4.8% of GDP) in 2010/11. General government
budgetary operations resulted in a deficit of Birr 8.2 billion in 2010/11. More than 94
percent of the deficit was financed by net external borrowing. The remaining balance
was covered by net domestic borrowing and privatization receipts.
The external debt stock has risen rapidly and has almost quadrupled since debt relief
was granted under the Heavily Indebted Poor Countries/Multilateral Debt Relief
Initiative (HIPC/MDRI) in 2006. External public debt as at end 2010/11 amounted to
USD 7.3 billion (26.3% of GDP), representing an increase from 18.7% a year earlier.
External debt ratios are projected to increase further before declining over the medium
24
to longer term as Ethiopia’s exports continue expanding. The sharp increase in
Ethiopia’s external debt stock and the rise in debt indicators are attributed to the surge
in public enterprise borrowing mainly for infrastructure development.
Table 11: External public debt of Ethiopia
Particulars 2008/09 2009/10 2010/11 Figures in millions of USD
Debt outstanding
Multilateral
Bilateral
Commercial
2,029.1
1,020.5
254.9
2,729.1
1,389.7
1,451.0
3,480.9
1,724.5
2,113.4
Lender Total 3,304.5 5,569.8 7,318.8 Source: NBE Annual report 2010/11
The 2011 debt sustainability analysis shows that, despite the rise in the external debt
burden, Ethiopia is at low risk of debt distress after factoring in the inflow of
remittances which has increased appreciably in recent years. However, the huge off-
budget financing needs of the GTP (Growth Transforming Plan) could pose a risk to debt
sustainability in the future. This underscores the importance of monitoring closely non-
concessional borrowings of public enterprises and careful screening of public
investments. While Ethiopia’s debt-management framework is adequate, efforts to
strengthen capacity further are required.
3.8 Poverty profile of Ethiopia
According to the 2010/11 HICES1, the proportion of poor people (poverty head count
index) in the country is estimated to be 29.6% in 2010/11. In 2010/11, while the
proportion of the population below the poverty line stood at 30.4% in rural areas, it is
estimated to be 25.7% in urban areas. The poverty gap index is estimated to be 7.8%
while it is 8.0% for rural areas and 6.9% for urban areas. Similarly, the national level
poverty severity index stood at 0.031 with rural poverty severity index (0.032) being
slightly higher than that of urban areas (0.027).
1 HICES: Household Income and Consumption Expenditure Survey
25
Table 12: Poverty headcount indices and inequality in 2010/11
Total poverty Food poverty Gini coefficient
(inequality)
Urban 0.257 0.279 0.371
Rural 0.304 0.347 0.274
Total 0.296 0.336 0.298 Source: Ministry of Finance and Economic Development
The incidence of poverty declined markedly between 2004/05 and 2010/11. The
headcount poverty rate fell from 38.7 % in 2004/05 to 29.6 % in 2010/11. This implies
that Ethiopia is on the right track to achieving the MDG target of reducing poverty by
half. Over the same period, poverty gap is also reduced, but not the severity of poverty.
Headcount poverty fell in all regions of the country.
3.9 Informal sector
According to Ethiopia’s Ministry of Labor and Social Affairs, in urban areas of the
country out of the total employed population 34.1 percent were engaged in the informal
sector (2009/10). Most of them have very low level of productivity and income. They
tend to have little or no access to organized markets, to credit institutions, to modern
technology, to formal training and to many public services and amenities.
3.10 Banking Sector
Banks, insurance companies and microfinance institutions are the major financial
institutions in Ethiopia. At the end of September 2012, there were 18 banks, 15
insurance companies and 31 micro-finance institutions operating in the country. Of the
18 banks, 15 were privately owned. The ratio of total population to total bank branch
went down to 58,139.5 revealing improvement in financial service outreach.
26
Table 13: Registered banks in Ethiopia
Name of bank Establishment date Number of branches
1 Awash International Bank 1994 80
2 Commercial Bank of Ethiopia* 1963 644
3 Development Bank of Ethiopia* 1901 32
4 Construction and Business Bank* 1975 32
5 Dashen Bank 1995 55
6 Wegagen Bank 1997 50
7 Bank of Abyssinia 1996 47
8 United Bank 1998 41
9 Nib International Bank 1999 45
10 Cooperative Bank of Oromia 2004 38
11 Lion International Bank 2006 20
12 Zemen Bank 2008 1
13 Oromia International Bank 2008 25
14 Bunna International Bank 2009 8
15 Berhan International Bank 2009
16 Abbay Bank 2010
17 Addis International S.C 2011
18 Debub Global Bank 2012
19 Enat Bank 2012
* Represents public banks, those without “* “are private banks Source: National Bank of Ethiopia
The total capital of the banking system reached Birr 20.2 billion at the end of the first
quarter of 2012 of which private banks altogether took 46.9 percent share. Commercial
Bank of Ethiopia alone accounted for 37.5 percent of the total capital of the banking
system.
27
Table 14: Key figures of banking sector in Ethiopia
2008/09 2009/10 2010/11 Figures in Birr billions
Deposits
Demand
Savings
Time
Total
37,267.3
37,153.3
3,731.4
78,152.0
46,149.0
48,049.9
4,434.4
98,633.3
70,842.4
64,528.7
5,160.6
140,531.8
Borrowings
Local
Foreign
Total
2,399.4
647.3
3,046.7
4,665.6
978.7
5,644.2
8,666.5
1,019.4
9,686.0 Source: NBE Annual report 2010/11
As for deposits collected as at end of September 2012, private banks collected 40%
while public banks collected the remaining balance (about 60%). Total disbursement of
fresh loans by the banking system reached Birr 9.9 billion at the end of September 2012.
Of the total amount of loans disbursed, 55.3% was disbursed by public banks and 44.7%
by the private sector.
Table 15: Sectoral distribution of fresh loans (2012)
Banking industry32%
Agriculture26%
Domestic trade16%
International trade14%
Housing and construction
12%
Source: National Bank of Ethiopia, quarterly bulletin
28
According to Economic Outlook 2012, the financial sector is shallow, with a limited
range of services. The vast majority of small entrepreneurs lack the collateral necessary
to obtain a bank loan. By June 2011 the private credit to GDP ratio for Ethiopia was
around 9% compared with the average of 30% for sub- Saharan Africa. According to the
World Economic Forum’s Global Competitiveness Report 2011-12, Ethiopia ranked 125
out of 142 countries with respect to financial-market development.
Further, the banking sector remains closed to foreign participation and capital markets
are non-existent. This has limited progress in innovation and dynamism in the sector.
The government has recently taken further steps to strengthen the financial sector. In
2011 the National Bank of Ethiopia (NBE) launched a modern payment system and set
up a centralized clearing system which will speed up the time for settlement of cheques.
Figure 12: How Ethiopia and comparator economies rank on the ease of getting credit
Source: Doing Business 2013 by World Bank
29
4. TAX REGIME OF ETHIOPIA
The principal types of taxes are customs duty, value added tax (VAT), excise tax, profit
tax on business, income tax from employment, income tax from dividends and royalty
tax. The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for
collecting revenue from customs duties and domestic taxes.
4.1 Business Income Tax
According to Proclamation No.286/2002, taxable business income shall be determined
per tax period on the basis of the profit and loss account or income statement which
shall be drawn in compliance with the generally accepted accounting standards
provisions of directives issued by ERCA.
a) Corporate Income Tax
Corporate income tax or profit tax payable by business organizations or companies is
30% of their taxable income.
b) Income Tax on Individual Entities /Unincorporated Business
Annual taxable income (Birr) Income tax payable
Up to 1,800 Exempt
1,801 – 7,800 10%
7,801 – 16,800 15%
16,801 – 28,200 20%
28,201 – 42,600 25%
42,601 – 60,000 30%
Over 60,000 35% Source: Ethiopian Investment Agency, Factor Cost (2012)
30
c) Rental Income Tax
This regards income derived from renting of houses or office buildings, manufacturing
plants, materials and goods, etc.
Tableau 16: Rental tax rates by income category
Annual taxable income (Birr) Income tax payable
Up to 1,800 Exempt
1,801 – 7,800 10%
7,801 – 16,800 15%
16,801 – 28,200 20%
28,201 – 42,600 25%
42,601 – 60,000 30%
Over 60,000 35% Source: Ethiopian Investment Agency, Factor Cost (2012)
4.2 Personal Income Tax
Any income derived from employment, including any payments or gains in cash or in
kind is taxable in accordance with the following schedule.
Table 17: Personal income tax rates by income category
Employment monthly income (Birr) Tax rate
The first 150 Exempt threshold
151 – 650 10%
651 - 1,400 15%
1,401 - 2,350 20%
2,351 - 3,550 25%
3,551 – 5,000 30%
Over 5,000 35% Source: Ethiopian Investment Agency, Factor Cost (2012)
4.3 Value Added Tax (VAT)
VAT is paid at a rate of 15% of the value of every taxable transaction by a registered
person and all imports of goods and services other than those exempted.
4.4 Turnover Tax
In Ethiopia turnover tax is paid by those who are not registered for VAT and whose
value of annual taxable transaction is less than 500 thousand Birr. The turnover tax
rates are:
31
2% on goods sold and services rendered locally;
2% on contractors, grain mills, tractors and combine harvesters;
10% on others.
Note: By its directives, the ministry of Finance and Economic Development has
exempted bread and milk; medicine, medical supplies and medical services from
turnover and value added tax.
4.5 Excise Tax
Excise Tax Proclamation No. 286/2002 indicates that, excise tax is levied on selected
items when produced locally or imported. The tax rate ranges from 10% to 100%
depending on the nature of the goods. List of all goods currently liable to excise tax along
with their tax rates is shown below:
32
Table 18: Excise tax rates by types of goods
No. Items Excise tax
1 Any type of sugar in solid form excluding molasses 33%
2 Drinks
Soft drinks and powder soft drinks
Bottled or canned water
Beer, Stout, wine and whisky
Other alcoholic drinks
40%
30%
50%
100%
3 All types of pure alcohol 75%
4 Tobacco and tobacco products
Tobacco leaf
Cigarettes, cigar, cigarillos, pipe tobacco, snuff and other products
20%
75%
5 Salt 30%
6 Motor fuels and motor spirits 30%
7 Perfumes 100%
8 Textile products 10%
9 Dish washing machines of a kind for domestic use 80%
10 Washing machine of a kind for domestic purposes 30%
11 Video decks, television or video cameras 40%
12 Television broadcast receiver, radio or sound receivers 10%
14 Motor passenger cars, Station Wagons, and other vehicles
Up to 1300 c.c
From 1301 c.c to 1800 c.c
Above 1800 c.c
30%
60%
100%
15 Carpets 30%
16 Asbestos and asbestos products 20%
17 Clocks and watches 20%
18 Dolls and toys 20% Source: Ethiopian Investment Agency, Factor Cost (2012)
4.6 Mining Income Tax
According to the Mining Tax Proclamation No. 23/1996 (Amendment), a holder of large-
scale or small-scale mining license shall pay 35% income tax on taxable income.
33
4.7 Other Income Taxes
Table 19: Incomes tax rates by type of income
Annual income (Birr) Tax rate
Royalties 5%
Income from technical services rendered outside Ethiopia 10%
Income (except less than Birr 100) from games or chance 15%
Dividends 10%
Income from rental of property (land, buildings, or moveable asset
not related to business
15%
Interest income 5%
Gains from the transfer of property
On business building, factories and offices
On shares of companies
15%
30% Source: Ethiopian Investment Agency, Factor Cost (2012)
4.8 Stamp duty
The stamp duty charges are either fixed or depend on the values of the right or
obligation executed by means of the instrument. The list of instruments liable to stamp
duty and their corresponding rates are presented below
34
Tableau 20: Stamp duty charges by types of instruments
Instruments Basis of
valuation
Stamp duty
Charges
Memorandum and articles of association of any business
organization or any associations
Upon first execution
Upon any subsequent execution
Flat
Flat
350 Birr
100 Birr
Memorandum and articles of cooperatives
Upon first execution
Upon subsequent execution
Flat
Flat
35 Birr
10 Birr
Award On Value
Bonds and warehouse bonds On Value 1 % of value
Contracts, agreements and memoranda thereof Flat 5 Birr
Security deeds Flat 1% of value
Collective agreement
Upon first execution
Upon subsequent execution
Flat
Flat
350 Birr
100 Birr
Contract of employment Salary 1 % of salary
Lease including sub-lease and transfer thereof On Value 0.5% of value
Material act Flat 5 Birr
Power of attorney Flat 35 Birr
Register title to property On Value 2% of value Source: Ethiopian Investment Agency, Factor Cost (2012)
4.9 Customs duty
Custom duties, which currently range from 0-35%, are payable on imports by all
persons and entities which have no duty-free privileges. Customs duty rates of some
selected goods are shown in the following table:
35
Tableau 21: Custom duty rates of some selected goods
The rates are not actual but they are averages of various products under one title.
Source: Ethiopian Investment Agency, Factor Cost (2012)
4.10 Withholding tax
Withholding taxes are deductions from dividends, salaries, wages and other incomes.
They are levied at the point of disbursement or incomes and are passed on to the
government by the entities collecting them. In Ethiopia, the withholding tax rates are:
a) 3% of the total value of CIF prices of imported goods;
b) 2% on the cost of supplying goods involving more than Birr 10,000 in any one
transaction or a contract or service involving more than Birr 500 in one
transaction.
4.11 Ease of paying taxes
According to Doing Business 2013, on average, firms make 31 tax payments a year,
spend 306 hours a year filing, preparing and paying taxes and pay total taxes amounting
to 33.3% of profit in Ethiopia. Ethiopia thus stands at 103 in the ranking of 185
economies on the ease of paying taxes.
36
Figure 13: How Ethiopia and comparator economies rank on the ease of paying taxes
Source: Doing Business 2013 by World Bank
37
5. INVESTMENT REGIME OF ETHIOPIA
5.1 Investment guarantee and protection
a) Guarantee against expropriation
The Constitution of the Federal Democratic Republic of Ethiopia protects private
property. The Investment Proclamation also provides investment guarantee against
measures of expropriation and nationalization that may only occur for public interest
and in compliance with the requirement of the law. Where such expropriations are
made, the Government provides adequate compensation corresponding to the prevailing
market value of property and such payment is effected in advance.
Ethiopia is a member of the World Bank-affiliated Multilateral Investment Guarantee
Agency which issues guarantees against non-commercial risks to enterprises that invest
in signatory countries. The country has also concluded bilateral investment promotion
and protection agreements with a number of developed and developing countries.
b) Remittance of funds
Foreign investors are guaranteed to make the following remittances out of Ethiopia in
convertible foreign currency at the prevailing exchange rate on the time of remittance:
Profits and dividends accruing from investment;
Principal and interest payments of external loans;
Payments related to technology transfer agreements;
Proceeds from the sale or liquidation of an enterprise;
Proceeds from the transfer of shares or of partial ownership of an enterprise to a
domestic investor
Expatriates employed in an enterprise may remit, in convertible foreign currency,
salaries and other payments accruing from their employment in accordance with the
foreign exchange regulations or directives of the country.
38
5.2 Areas of investment
a) Areas reserved exclusively for the government
Postal services with the exception of courier services;
Transmission and supply of electrical energy through the integrated national grid
system; and
Passenger air transport services using aircraft with seating capacity of more than
20 passengers.
b) Areas reserved for Ethiopian nationals
Banking, insurance and micro credit and saving services;
Travel and shipping agency services;
Broadcasting services; and
Air transport services using aircraft with a seating capacity of up to 20
passengers
c) Areas reserved for domestic investors
Retail trade and brokerage;
Wholesale trade (excluding supply of petroleum and its by-products as well as
wholesale by foreign investors of their products locally produced);
Import trade (excluding LPG, bitumen and up on the approval from the Council of
Ministers, material inputs for export products);
Export trade of raw coffee, chat, oil seeds, pulses, hides and skins bought from the
market and 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), motels, pensions, tea rooms, coffee
shops, bars, night clubs and restaurants excluding international and specialized
restaurants;
Travel agency, trade auxiliary and ticket selling services;
Car-hire and taxi-cabs transport services;
Commercial road transport and inland water transport services;
Bakery products and pastries for the domestic market;
39
Grinding mills;
Barber shops, beauty salons, and provision of smith workshops and tailoring
services except by garment factories;
Building maintenance and repair and maintenance of vehicles;
Saw milling and timber making;
Customs clearance services;
Museums, theaters and cinema hall operations;
Printing industries.
5.3 Capital requirement
Under the Investment Proclamation No.280/2002 (as amended), a foreign investor, who
invests on his own, except in consultancy services and publishing, is required to invest
not less than US$ 100,000 in cash and/or in kind for a single project. However, if he
invests in partnership with domestic investor(s), the minimum capital required of him is
US$ 60,000. The minimum capital required of a wholly foreign investor investing in
consultancy services or publishing is US$ 50,000, which may be in cash and/or in kind.
But this capital amount is lowered to US$ 25,000 if he invests in partnership with
domestic investor(s). A foreign investor reinvesting his profit or dividends, or exporting
at least 75% of his outputs, however, is not required to allocate a minimum capital.
5.7 Major investment incentives
To encourage private investment and promote the inflow of foreign capital and
technology into Ethiopia, the following incentives are granted to both domestic and
foreign investors engaged in areas eligible for investment incentives:
a) Exemption from import customs duty
One hundred per cent exemption from the payment of import customs duties and other
taxes levied on imports is granted to an investor to import all investment capital goods,
such as plant, machinery and equipment, construction materials, as well as spare parts
worth up to 15% of the value of the imported investment capital goods. However, the
following investment areas are not eligible for exemption from import customs duty:
Hotels(excluding star-designated hotels), motels, tearooms, coffee shops, bars,
night clubs and restaurants, which do not have international standards;
40
Wholesale, retail and import trade;
Maintenance services;
Commercial road transport and car-hire services;
Postal and courier services;
Real estate development;
Business and management consultancy services;
Advertisement services;
Cinematography and similar activities;
Radio and television broadcasting services;
Theatre and cinema hall operations;
Customs clearance services;
Laundry services;
Travel agency, trade auxiliary and ticket selling services; and
Lottery and games of similar nature.
Investment capital goods imported without the payment of import customs duties and
other taxes levied on imports may be transferred to another investor enjoying similar
privileges.
In accordance with the Revised Export Trade Duty Incentive Scheme Establishing
Proclamation No. 543/2007, three export incentive schemes are also available for
exporters. They are Duty Draw-Back Scheme, Voucher Scheme and Bonded
Manufacturing Warehouse Scheme.
In addition, all Ethiopian products, with the exception of few products (e.g. semi-
processed hides and skins), destined for export are exempted from the payment of any
export tax and other taxes levied on exports.
b) Exemption from the payment of income tax
Any income derived from an approved investment in new manufacturing, agro-industry
and information and communication technology (ICT) development or agriculture is
exempted from the payment of income tax for the periods as shown in the following
table, depending upon the volume of export and the location in which the investment is
made.
41
Profit tax holiday is granted subject to Council of Ministers Regulation No.84/2003 (as
amended) issued pursuant to the Investment Proclamation No. 280/2002 (as amended).
Table 22: Exemption from payment of income tax
Conditions for eligibility Income tax
exemption
Income tax exemption for
investments made in relatively
underdeveloped regions
An investor engaged in a new manufacturing, agro-industry, ICT or agriculture :
Exports at least 50% of his
products or services
5 years 6 years
Supplies at least 75% of his
products or services, to an
exporter, as a production or
service input
under special circumstance
the Board may grant
5 years
Up to 7 years
6 years
Up to 8 years
Exports less than 50% of his
products or services, or
supplies his products or
services only to the domestic
market
under special circumstance
the Board may grant
2 years
Up to 5 years
3 years
Up to 6 years
Exports at least 50% of his
products or services and
increases, in value his
production or services by over
25% through the expansion or
upgrading of an existing
enterprise
Source: Ethiopian Investment Agency
c) Carry forward losses
Business enterprises that suffer losses during the tax holiday period can carry forward
such losses for half of the income tax exemption period following the expiry of the
exemption period.
42
6. BUSINESS CREATION REQUIREMENTS
As a one-stop shop office, Ethiopian Investment Agency (EIA) renders services
necessary for the licensing and registration of a business. These services are rendered to
the following categories of investment;
Investment made by a foreign investor
Investment made by a foreign national permanently residing in Ethiopia and
taken for a domestic investor
Joint investment between domestic and foreign investors
Investment made by public enterprises.
The services include the following:
1) Issuance of investment permit
An investment permit is issued to an investor to establish a new enterprise or to expand
or upgrade one that already exists. This investment permit is necessary get incentives
and to invest in Ethiopia. The permit can be obtained in one of the following forms;
Sole proprietorship;
Business organization incorporated in Ethiopia or abroad;
Public enterprises; and
Cooperative societies.
Table 23: Business creation requirements
Category of investors Documents required Fee
(Birr)
Delivery
time
Individual investor Application form filled by investor/agent
Photocopies of relevant pages of valid
passport
Photocopy of power of attorney (in case
application is made by agent)
Three passport sized photo
600 4 hours
Business organization
that is entirely foreign-
Application form filled by manager/agent
Each Photocopies of relevant pages of
600 4 hours
43
owned
valid passport of each shareholder
Photocopies of memorandum and article
of associations
Photocopy of power of attorney (in case
application is made by agent)
Three passport sized photo of manager
Joint investment
between domestic and
foreign investors
Application form filled by agent
Photocopy of power of attorney
Each Photocopies of relevant pages of
valid passport of each shareholder
Photocopies of memorandum and article
of associations
Three passport sized photo of manager
600 4 hours
If the business
organization emanates
from mother company
or is a branch of a
business organization,
the following
documents are added;
Photocopies of memorandum and article
of associations of parent company
A photocopy of a document ascertaining
the legal personality of the business
organization (e.g. registration certificate)
Minutes of the parent company
authorizing the establishment of a
company in Ethiopia, authenticated by
public notary
A photocopy of an authenticated power of
attorney of the representative of the
company
Photocopies of the pages of the
representative’s valid passport
600 4 hours
Public enterprise Application form filled by manager of the
enterprise
A photocopy of the law under which the
enterprise is established or photocopies
of its memorandum and articles of
associations
600 4 hours
A cooperative society Application form filled by manager of the
society
A photocopy of its articles of association
and/or certificate of registration
Photocopy of power of attorney (in case
application is made by agent)
600 4 hours
Expansion or upgrade
of existing enterprises
Application form filled by investor/agent
Photocopy of power of attorney (in case
300 4 hours
44
application is made by agent)
Photocopy of a valid business license of
the existing enterprise
Photocopies of memorandum and article
of associations
Three passport sized photo of manager Source: Ethiopia Investment Agency
2) Issuance of commercial registration certificate
According to the Commercial Registration and Business Licensing Proclamation No.
67/1997, an investor is not allowed to engage in any commercial activity unless
registered in a commercial register. Such registration is made only once even if an
investor engages in different commercial activities in various regions. An investor is
expected to perform summary registration when he/she wants to establish branches
other than the place where it is principally registered. The registration service is
simultaneously provided when an investor applies for an investment permit.
The delivery of the procedure is estimated to be 4 hours and the principal registration
and summary registration is 80 Birr and 10 Birr respectively.
3) Notarization of memorandum and articles of association
If an investment is to be made by a business organization, either share company or
private limited company, which is to be incorporated in Ethiopia, a memorandum and
articles of associations are required. The Agency notarizes the memorandum and
articles of associations at the time of the formation of the company. The notarization
service is simultaneously provided when an investor applies for an investment permit.
Any amendment to either memorandum or articles of association is done by the
competent government body.
The delivery time of the procedure is estimated to be 4 hours and the fee is fixed at 600
Birr, with an additional 50 Birr for each extra copy.
4) Issuance of work permit to expatriate employees
As per the Investment Proclamation No. 280/2002 (as amended), an investor may
employ qualified expatriate experts required for the operation of his business. However,
he is required to train Ethiopians and replace the expatriate personnel within a limited
45
period of time. The Agency issues work permit to expatriate staff of investment projects
which are under implementation. Once the project is operational, the investor should
apply directly to the Ministry of Labor and Social Affairs to obtain work permits for
expatriate employees.
The delivery time of the procedure is estimated to be 4 hours and the fee is fixed at 600
Birr.
5) Issuance of business license
According to the Commercial Registration and Business Licensing Proclamation No.
67/1997, an investor is not allowed to commence commercial activity without obtaining
a valid business license. The Agency issues business licenses to investors. Any
amendment, renewal or replacement is made by the Ministry of Trade and Industry.
The delivery time of the procedure is estimated to be 1 hours and the fee is fixed at 80
Birr.
6) Grading of construction contracting companies
A foreign investor who wants to invest in a construction contracting business should
fulfill the requirements for a ‘Grade One’ construction contracting company as set out by
the Ministry of Works and Urban Development as well as the Ministry of Water
Resources. Grading of construction contracting companies is done when an investor
applies for business (operating) license. A duly filled and signed application form
designed for such purpose is required.
The delivery time of the procedure is estimated to be 2 hours with no fee or cost
involved.
7) Issuance of domestic status certificate
A foreign national, permanently residing in Ethiopia, other than an Ethiopian by birth,
may apply and register for a domestic investor status. Once a foreign national is
registered as a domestic investor, rights and privileges as well as restrictions solely
relating to foreign investors will no longer be applicable. A foreign national who wishes
to register as a domestic investor is required to declare his intentions by completing a
form designed for this purpose.
46
The delivery time of the procedure is estimated to be 1 hours and the fee is fixed at 100
Birr.
8) Registration of technology transfer agreement
A technology recipient who concludes a technology transfer agreement related to his
investment should submit the agreement to the Agency for registration. Any such
agreement that is not registered by the Agency has no legal effect. The agreement may
also be renewed as per the request of the technology recipient by submitting the
renewed agreement to the Agency.
The delivery time of the procedure is estimated to be 2 hours and the fee is fixed at 200
Birr.
Ease of Starting Business in Ethiopia
Globally, Ethiopia stands at 53 in the ranking of 185 economies on the ease of starting a
business according to Doing Business 2013. Starting a business there requires 9
procedures, takes 15 days, costs 135.3% of income per capita and requires paid-in
minimum capital of 249.1% of income per capita.
Figure 14: Ease of starting business in Ethiopia compared to other economies
Source: Doing Business 2013 by World Bank
47
7. INFRASTRUCTURE OF ETHIOPIA
6.1 Ports and shipping
In order to ensure efficient, cost effective and reliable import and export movement of
cargo to and from the sea ports of neighboring countries, the government has
established the Dry Port Service Enterprise. The Enterprise is currently operating two
dry ports which are located at Modjo, in the Oromiya Regional State, and at Semera, in
Afar Regional State.
Addis Ababa, the capital city, is linked by road to the port of Djibouti, at the Gulf of Aden.
The port of Barbara in Somaliland and Port Sudan are other external trade routes that
provide services for export-import trades of the country. Another potential port
accessible to Ethiopia is Mombassa in Kenya.
6.2 Roads
Road plays a vital role in transporting people and goods in Ethiopia. Cognizant of its
cardinal role, the Government has identified the road sector as top priority for public
investment and remarkable progress has been made in the expansion of the road
network in the country.
Addis Ababa, the capital city, is an important regional and international transport hub.
The road network radiates from Addis Ababa to regions linking it with important cities,
towns, and other economically active centers of the country. International highways also
link Addis Ababa and other cities and towns with neighboring countries such as Kenya,
Djibouti, Eritrea, Somalia, the Sudan and South Sudan.
In 2008/09, the total road network, excluding community roads, reached 46,812 km, out
of which 45 percent are Federal roads and the remaining 55 percent are rural roads
with annual growth rate of 5.5 percent.
48
Based on the classification of the road network, about 21,172 km are in the Federal
network, asphalt road constituted 33 percent and gravel road 67 percent.
All-weather rural road grew by 7.1 percent per annum constituting 25,640 km of the
total road net work in 2008/09. In the same year, the community road, non-engineered
road, was 85,767 km.
6.3 Airports and Airlines
Air transport is an important part of Ethiopia’s transport network. Ethiopian Airline,
Africa’s World Class Airline, which has gained a very good reputation internationally in
its 68 years of active services, provides both domestic and international air transport
services. It has an outstanding safety records and is one of the few profitable African
airlines.
Ethiopian services include both passenger and cargo transport in its international flights
and domestic routes. It also provides training and maintenance services to more than a
dozen other African and Middle Eastern airlines. Domestic flight services are provided
through 17 destinations across the country.
Ethiopian links the country with over 63 destinations worldwide including Brussels,
Frankfurt, London, Paris, Rome, Stockholm, Washington DC, Bahrain, Bangkok, Beijing,
Beirut, Dubai, Guangzhou, Hong Kong, Jeddah, Kuwait, Mumbai, Delhi, Riyadh, Sana’a,
Tel Aviv, Johannesburg, Nairobi, Lagos, Lusaka, Accra, Dakar and many more big cities in
Africa. It is also expanding its international services.
Regarding Ethiopian cargo services, it operates over 40 cargo destinations spread across
Africa, Europe, Asia and the Middle East via its hub – Addis Ababa, and another cargo
hub at Liege.
In addition to Ethiopian, other airlines have flight schedules from and to Addis Ababa
and these include such airlines as Emirates, KLM, Lufthansa, Kenyan and others. The
passenger terminal at Bole International Airport in Addis Ababa has new and modern
facilities providing efficient services to passengers. Ultra-modern cargo terminal
catering to fresh products and a maintenance hangar have also become operational
since 2006. This new and modern terminal has the capacity to handle 350,000 tons of
49
cargo per annum. Anticipating the future growth of perishable cargo, Ethiopian has
proactively launched an expansion project to construct a new perishable cargo terminal
that will be operational within the foreseeable future.
The Ethiopian Government has taken the policy initiatives for the development of the
aviation sector in the country. The most significant initiative undertaken by the
government is the opening up of air cargo service to foreign investors without any
capacity limit and allowing Ethiopian nationals to provide chartered services using
aircrafts with a seating capacity of up to 20 passengers.
6.4 Railways
A limited rail service stretching 780 km links Addis Ababa with the port of Djibouti via
the eastern Ethiopian city of Dire Dawa. Currently, Ethiopia uses Djibouti for its import-
export trade. The shift from Asab in Eritrea to Djibouti appears to have occurred
smoothly, without negative effect on Ethiopia's trade.
6.5 Electricity Supply
Ethiopia has enormous potential for hydropower and geothermal energy generation.
Several studies have so far been carried out to identify Ethiopia’s energy potential and to
develop short, medium and long-term investment plans for the power sector.
The country’s hydropower potential is estimated at 45,000 MW and the potential for
generating electricity from geothermal is about 5,000 MW. The country is also endowed
with enormous potentials of other renewable energy sources like solar and wind,
particularly in rural areas. Despite such huge resources, the country has so far managed
to utilize merely 1,113 MW of its power generating potential and only about 33% of the
population has access to electricity. Since the formulation of the last comprehensive
power system expansion master plan, the fundamental and unprecedented structural
change that have taken place in the economy are now finding their driving force in the
power sector.
Ethiopia has around 1,562.2 MW of installed power generating capacity, out of which
1,382.6 MW is generated from hydropower plants. The remaining 179.6 MW comes from
50
diesel and thermal power plants. The construction of new hydropower plants including,
Grand Ethiopian Renaissance Dam, will enhance its generating capacity.
Table 24: Energy tariff rates by different user category
Source: Ethiopian Investment Agency, Factor Cost (2012)
6.6 Water Supply
Ethiopia has huge run-off and ground water potential. However, it utilizes a small
portion of these resources. Access to safe potable water in urban areas was 88.6 percent
in 2008/09. Access to safe potable water in rural areas was about 61.5 percent in the
same year. The overall national average of access to potable water supply was to 66.2
percent.
A huge project deemed to satisfy safe water demand in the towns and rural areas was
launched by the country’s first five year development plan and presently it is in final
year of implementation.
51
Table 25: charges by monthly water consumption
No. Water consumption
(m3)
Fee
(Birr/m3)
1 0 – 7 1.75
2 8 – 20 3.80
3 21 – 40 4.75
4 41 – 100 5.95
5 101 – 300 7.45
6 301 – 500 9.30
7 Over 501 11.60 Source: Ethiopian Investment Agency, Factor Cost (2012)
Table 26: monthly counter rent by water counter
No. Size of the water meter
(in inches)
Counter rent
(Birr)
1 0.5 1.35
2 0.75 1.50
3 1 2.25
4 1.25 2.85
5 1.5 4.05
6 2 6.25
7 2.5 7.65
8 3 9.05
9 4 10.75
10 5 12.45
11 6 14.05 Note: Domestic customer shall be subject to progressive tariff depending on the amount of consumption. Non-
domestic customers are manufacturing industries and others. They shall pay the amount computed at
a flat rate on the category level the consumption is reached. For Example:-100 m3X5.95=595 Birr
must be paid
Source: Ethiopian Investment Agency, Factor Cost (2012)
52
6.7 Telecommunications
The Ethiopian Telecommunications Corporation (ETC), which is state owned, is the sole
telecom service provider in the country. The Corporation provides national and
international telecommunications services using satellite, micro-wave digital radio multi
access system (DRMAS), VSAT, UHF, VHF, Long Line and HF Radio.
The number of fixed and mobile telephone subscribers has increased by 2 percent and
107.3 percent, respectively, in the last few years. At present, the provision of SIM cards
has been leased to private businesses in order to ease accessibility for subscribers.
Similarly, internet subscription also grew by 118.6 percent. All regional cities and towns
are connected by direct microwave links, and have automatic telephone and cellular
phone services. International links are maintained via satellite earth stations and fiber
optics, providing telephone, telex, fax, internet, television, digital data transmission, pre-
and post-paid cellular phones and coin box services.
Furthermore, the Corporation is currently engaged in a major transformation work
including utilization of a wireless technology to benefit all rural “kebeles” (small and
lowest administrative units); improvement of public phone services in both urban and
rural areas; and establishment of a swift and reliable customer care and billing center as
well as a national network operation centre.
Table 27: Fixed line tariffs
Type of fee Charges
Subscription fee 242.00
Monthly rent 17.00
Peak Off peak
Intra urban 0.2 Birr per six minutes 0.2 Birr per six minutes
Inter urban 0.4 Birr per minute 0.25 Birr per minute
Across zone 0.72 Birr per minute 0.30 Birr per minute
All tariffs are exclusive of VAT Source: Ethio Telecom
53
Table 28: Fax tariffs
Service type Charges
Subscription fee (VAT inclusive) 242.00
Adding fax on the existing line (VAT inclusive) 17.00
Payment in birr/minute
Fax within town 0.20
Fax between different town of the same tariff zone 0.40
Fax between different tariff zones 1.20
Fax to Djibouti 7.0
Fax to the rest of the world 10.0 Source: Ethio Telecom
Table 29: Mobile service enterprise tariff, post paid
Type of fee Post paid mobile (VAT inclusive)
Initial Subscription 30.00 Birr
Reconnection (without SIM card) 15.00 Birr
Reconnection (with SIM card) 30.00 Birr
SIM Card Replacement 15.00 Birr
Monthly Rent 28.75 Birr
Change from post paid to prepaid 30.00 Birr
Change from prepaid to post paid Free
Peak Off peak
Usage charge (full mobility) 0.72 Birr per minute 0.30 Birr per minute
International call 8.63 – 10.29 Birr per minute
Local SMS 0.30 Birr per SMS
International SMS 3.80 – 5.30 Birr per SMS Source: Ethio Telecom
54
Table 30: Internet tariffs
Source: Ethio Telecom
55
NB: Ethiopia’s public monopoly of the communication sector and a vertically
integrated market structure determine access to and use of ICT in the country.
Despite pressures from international financial institutions, Ethiopia’s
telecommunications market structure has continued to be state-owned. Close
observation also shows that it is unlikely that liberalization will take place in the
short term for two reasons;
Telecommunications is viewed as a strategic asset for the economy and
national security in the horn of Africa.
The state has interest in recouping the massive investment it made in recent
years and repaying the US$1.5 billion loan.
Source: Ethiopia ICT sector performance review by researchICTafrica.net
6.8 Global competitiveness of Ethiopia in terms of Infrastructure
Infrastructure has been measured by the World Economic Forum’s Global
Competitiveness Report 2011/12. Their measure takes into account the quality and
availability of modes of transport, quality of electricity supply and telecommunication
accessibility. The table and figure below shows the quality Ethiopia’s infrastructure as
compared to other chosen economies.
Table 31: Infrastructure measure of Ethiopia and comparator economies
Indicators Country Score
(1 – 7)
Rank
(out of 142)
Infrastructure
Ethiopia 2.6 120
South Africa 4.0 62
Kenya 3.1 103
Nigeria 2.2 135
Egypt 3.8 75
Source: World Economic Forum, 2011/12
56
Figure 15: Infrastructure measure of Ethiopia and comparator economies
0 1 2 3 4 5
Kenya
South Africa
Ethiopia
Nigeria
Egypt
Score (1 - 7)
Source: World Economic Forum, 2011/12
57
8. AVAILABILITY OF SKILLED LABOR
8.1 Key features of the Ethiopian labor market
The latest population census carried out in 2007 indicated a population of about 73.8
million inhabitants in Ethiopia. Out of that, the proportion of Ethiopia’s working-age (15
years and over) population that engaged actively in the labor market, either by working
or looking for work (i.e. labor participation rate) was 74.4%, as indicates the labor
market report (2009/10).
Figure 16: Key indicators of labor market in Ethiopia
1994 1999 2005 2007
Labor participation rate 77,90% 80,50% 84,50% 74,40%
Employment rate 75,50% 73,80% 79,90% 71,50%
Unemployment rate 3,10% 8,20% 5,40% 3,70%
Inactivity rate 21,90% 22,50% 15,30% 25,60%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
90,00%
Source: Ministry of Labor and Social Affairs (2009/10)
According to 2007 population and housing census, employment status is classified as
paid employees (Government employees, NGO’s employees and domestic employees)
and other employees (Self employed, unpaid family workers, Apprentice, members of
cooperatives and others).
58
Table 32: Employed persons status
Employment status Total %
Pa
id E
mp
loy
ee
s
Government 1,105,638 3.7
Government parastatals 265,725 0.9
Private 925,206 3.1
NGO/INTL Employees 86,117 0.3
Domestic workers 631,404 2.1
Other employees 111,793 0.4
Self employed 18,718,711 62.2
Total 21,844,594 72.6
Oth
er
Em
plo
ye
d
pe
rso
ns
Unpaid family workers 6,248,960 20.8
Apprentices 73,255 0.2
Cooperatives 40,060 0.1
Employers 84,960 0.3
Other 1,805,435 6.0
Total 8,252,670 27.4
Grand total 30,097,264 100
Source: Ministry of Labor and Social Affairs (2009/10)
8.1 Illiteracy
The table below presents the percentage distribution of illiterate population by age
group;
Table 33: illiteracy of population aged 15 years and over, 2009/10
Age group Illiteracy rate
Male Female Total
Youth (15 – 24) 37.0% 53.0% 45.0%
Young adult (25-29) 48.0% 72.3% 61.0%
Adult (30+) 62.0% 84.9% 73.3%
Total (15+) 50.9% 71.1% 61.0% Source: Ministry of Labor and Social Affairs (2009/10)
The data shows that there were considerable disparities in the illiteracy status by age.
That is, the illiteracy rates increase as age increases (i.e. from youth to Adult) for both
sexes. In general the illiteracy rate for the country was reported 61.0 percent during the
2007 population and housing census.
59
Table 34: Graduates from Ethiopian schools
2007/08 2008/09 2009/10 2010/11 2011/12
Schools
Kindergarten
Primary
Secondary
Teachers Education
TVET2
Higher Education
2,740
23,354
1,087
24
458
61
2,893
25,212
1,197
26
458
72
3,318
26,951
1,335
29
460
70
3,418
28,349
1,517
32
505
74
3,580
29,643
1,170
32
505
91
Pupil – teacher ratio 57 54 51 51 50 Source: Ethiopian Federal Ministry of Education, 2011/12
8.2 Education and Training
The academic year 2011/12 recorded 84,306 graduates from all three degree streams
(i.e. Bachelors Degree, Masters Degree and PHD), of these, 78,144 were from
undergraduate, 6,092 were from postgraduate masters and 70 were from PhD degree
program.
Table 35: Distribution of graduates, 2011/12
Program
Grand total
Male Female Total
Undergraduate/Degree 58,385 19,759 78,144
Postgraduate – Masters 5,025 792 6,092
Postgraduate – PHD 63 7 70
Total 63,473 20,558 84,306 Source: Ethiopian Federal Ministry of Education, 2011/12
There are a total of 78,144 graduates in undergraduate program of which 19,759 are
females which account for 25.3%. In addition, there are 6,162 postgraduate graduate
students of which 1.1% of the total postgraduate graduates are PhD program graduates.
2 TVET : Technical and vocational education and training
60
Tableau 36: Graduates from Ethiopian schools
2007/08 2008/09 2009/10 2010/11 2011/12
Higher Education 50,643 59,027 71,723 76,358 83,651
Undergraduate 47,979 55,770 66,999 70,317 78,144
Postgraduate 2,664 3,257 4,724 6,041 6,162 Source: Ethiopian Federal Ministry of Education, 2011/12
It is worth mentioning that the total number of the graduates of higher education
institutions has revealed a 13.4% average increase from 2007/08 to 2011/12. In the
same period, an average of around 68,000 students graduates from the universities
annually with diplomas, first degrees and advanced degrees.
In 2011/12, the government regular program undergraduate intake ratio of Science &
Technology to Social & Humanities Sciences (S&T to SHS), taking the year I enrolment as
new admission, is 75:25.
The chart below indicates that the greatest portion (31%) of students that completed
the undergraduate program was constituted of those in Business and Economics;
followed by those in Social Science & Humanities (27%).
Table 37: Students graduated in undergraduate program by field, 2011/12
4 777
12 736
5 107
9 188
23 157
20 674
Engineering & Technology
Natural & Computational Science
Medecine & Health
Agriculture & Life Science
Business & Economics
Social Science & Humanities
No. of Graduates
Source: Ethiopian Federal Ministry of Education, 2011/12
61
8.3 Global competitiveness of Ethiopia in terms of skilled labor
In sum, labor market efficiency; and higher education and training are indicators that
measure how well the workers are allocated to their most efficient use in the economy;
and how well educated the workers are, respectively. Using data from the global
competitiveness report, we can compare Ethiopia to four other African economies with
respect to these indicators.
Table 38: Skilled labor measure of Ethiopia and comparator economies, 2011/12
Indicators Country Score
(1 – 7)
Rank
(out of 142)
Higher education and training
Ethiopia 2.7 132
South Africa 4.0 73
Kenya 3.7 94
Nigeria 3.2 114
Egypt 3.4 107
Labor market efficiency
Ethiopia 4.4 69
South Africa 4.1 95
Kenya 4.7 37
Nigeria 4.4 70
Egypt 3.2 141
Source: World Economic Forum, 2011/12
Figure 17: Skilled labor measure of Ethiopia and comparator economies
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
5
Ethiopia South Africa Kenya Nigeria Egypt
Sco
re (
1 -
7)
Higer education and training
Labor market efficiency
Source: World Economic Forum, 2011/12
62
9. LABOR COST IN ETHIOPIA
9.1 Wages and Salaries at Enterprise Level
Wages and salaries vary depending on the size of the enterprise, type of profession and
level of skill required. They are determined by agreement between the employer and the
employee. Generally, private sectors monthly salaries for university graduates range
from 2,000 Birr to 3,000 Birr and daily unskilled labor wages range from 25 Birr to 50
Birr.
9.2 Salaries of Civil Service Employees
The government of Ethiopia also set minimum wage for civil service employees, which is
320 Birr per month for low skilled labor. The base salary scale for the civil service
employees ranges from 420 Birr to 4343 Birr.
Source: Ethiopian Investment Agency, Factor Cost (2012)
63
10. LAND COST IN ETHIOPIA
Under the constitution of the Federal Democratic Republic of Ethiopia, land is the
property of the State and the peoples of Ethiopia. Urban and rural land is available for
investment on lease-hold and rental basis respectively.
10.1 Urban Land
In conformity with a master plan or guidelines of a city, urban land is permitted to be
held on lease by auction. Minimum price of urban land will be determined by auction.
Lease-hold title deed will be conferred on a person to whom urban land is permitted.
The minimum lease and rental prices of urban land in some regions of the country are
presented below:
64
Tableau 39: lease prices in urban areas
Regions Zone Lease price range with
respect to grade
Addis Ababa Central business zone 894 – 1686 Birr/m2
Transitional business zone 555 – 1035 Birr/m2
Expansion zone 191 – 355 Birr/m2
Tigray Regional State Industry 0.40 – 0.80 Birr/m2/year
Real estate 0.10 – 0.60 Birr/m2/year
Oromiya Regional State Industry 4.50 – 6.50 Birr/m2/year
Trade & similar services 8.5 – 14.45 Birr/m2/year
Real estate 4.11 – 12.00 Birr/m2/year
Amhara Regional State Industry 6.83 – 54.45 Birr/m2/year
Trade & similar services 9.16 – 68.56 Birr/m2/year
Residence 2.27 – 18.15 Birr/m2/year
SNNP Regional State Industry 0.30 – 1.33 Birr/m2/year
Trade & similar services 0.88 – 3.82 Birr/m2/year
Residence 0.22 – 1.07 Birr/m2/year
Dire Dawa City Central business zone 33.74 – 52.31 Birr/m2/year
Transitional business zone 2.85 – 17.09 Birr/m2/year
Expansion zone 0.5 – 1.64 Birr/m2/year
Gambella Regional State Industry 0.02 – 0.07 Birr/m2/year
Somali Regional State Up to 500 m2 0.06 – 0.12 Birr/m2/year
2001 – 3000 m2 0.16 – 0.22 Birr/m2/year
Above 4000 m2 0.24 – 0.30 Birr/m2/year
Source: Ethiopian Investment Agency, Factor Cost (2012)
Table 40: rental prices of urban areas
Regions Zone Lease price range with
respect to grade
Oromiya Regional State Industry 0.18 – 2.13 Birr/m2/year
Trade & similar services 0.40 – 3.40 Birr/m2/year
Real estate 0.12 – 1.60 Birr/m2/year
Amhara Regional State Industry 0.30 – 0.75 Birr/m2/year
Trade & similar services 0.05 – 0.25 Birr/m2/year
Residential houses 0.01 – 0.17 Birr/m2/year
SNNP Regional State Industry 0.18 – 1.05 Birr/m2/year
Trade & similar services 0.25 – 1.95 Birr/m2/year
Residential houses 0.12 – 0.55 Birr/m2/year
Source: Ethiopian Investment Agency, Factor Cost (2012)
65
Table 41: Periods of payment of urban land lease prices by region and activity
Source: Ethiopian Investment Agency, Factor Cost (2012)
10.2 Rural Land
Generally, the rental value and the lease period of rural land are determined and fixed by
land use regulations of each region. Accordingly, the prices of rural land for some
regions are shown below.
66
Tableau 42: rental prices in rural areas
Regions Zone Lease price range with respect
to grade
Duration of rent
Tigray Regional State Agriculture 30 – 40 Birr/hectare/year
Rental price can be revised every
5 years
Oromiya Regional State Agriculture 70.4 – 135.0 Birr/hectare/year 20 – 45 years based on the type,
magnitude and location of project Industry 0.03 – 0.34 Birr/m2/year
Amhara Regional State Rain fed agriculture 111 – 281 Birr/hectare/year 5 – 25 years based on the type,
magnitude and location of project
Irrigated agriculture 158 – 498 Birr/hectare/year 8 – 25 years based on the type,
magnitude and location of project
SNNP Regional State Agriculture 30 – 117 Birr/hectare/year 25 – 45 years based on the type,
magnitude and location of project Industry 0.05 – 0.15 Birr/m2/year
Benshagul Gumz Regional State Agriculture 50 – 70 Birr/hectare/year
20 – 40 years based on the type,
magnitude and location of project
Somali Regional State Agriculture 12 – 45 Birr/hectare/year
Source: Ethiopian Investment Agency, Factor Cost (2012)
67
10.3 Ease of registering property and dealing with construction permits in Ethiopia
Effective administration of land is part of ensuring formal property rights. The World
Bank’s DoingBusiness measures how complicated, timely and costly the transfer of
property of different countries is. The figure below shows Ethiopia’s performance as
compared to other economies in this field.
Figure 18: How Ethiopia and comparator economies rank on the ease of registering property
Source: Doing Business 2013 by World Bank
Globally, Ethiopia stands at 112 in the ranking of 185 economies on the ease of
registering property, according to Doing Business 2013. Their report determined that
Ethiopia averaged 10 procedures, 41 days and 2.1% of property value as cost for the
transfer of property.
As for the ease of dealing with construction permits, Doing Business measured the
procedures, time and cost for a business to obtain the necessary approval to build a
commercial warehouse, connect it to basic utilities and register it. The figure below
shows Ethiopia’s performance as compared to other economies in this field.
68
Figure 19: How Ethiopia and comparator economies rank on the ease of construction permits
Source: Doing Business 2013 by World Bank
Globally, Ethiopia stands at 53 in the ranking of 185 economies on the ease of dealing
with construction permits. Ethiopia averaged 9 procedures, 128 days and 275.6% of
income per capita as cost for dealing with construction permit.
69
11. AVAILABILITY OF ARABLE LAND
Table 43: Land use in Ethiopia
Description Area Percentage of
total area
Total area 1,104,300 km2
Land area 1,000,000 km2 90.6%
Water surface 104,300 km2 9.4%
Agricultural land 350,770 km2 31.8%
Arable land 140,380 km2 12.7%
Forest area 127,180 km2 11.5%
Other land 522,050 km2 47.3% Source: Worldstat
The Agricultural Investment Support Directorate was established in 2009 to identify
land for investors, carry out land transfers and provide various types of support to
investors. It has identified over 3 million hectares of land that can be made available to
investors.
The directorate is also charged with attempting to link small farmers with commercial
agriculture. It has renegotiated a number of lease agreements so as to reduce the land
areas, increase rental rates and standardize their terms.
Supplementary information as regards the cost of land for agricultural projects can be
found in “Land Cost” section above.
70
12. LEGAL FRAMEWORK OF ETHIOPIA
12.1 Investment Law
The Investment Proclamation of 2002, as amended in 2003, and the Regulations on
Investment Incentives and Investment Areas Reserved for Domestic Investors of 2003,
as amended in 2008, constitutes the main legal framework for both foreign and
domestic investment in Ethiopia.
The Ethiopian Investment Agency (EIA) is the government institution responsible for
implementing the investment laws or the most part. This agency is autonomous and
accountable to the Investment Board chaired by the Minister of Industry.
More information on the investment laws of Ethiopia could be found in the “Investment
Regime of Ethiopia” section above.
12.1 Commercial Law
Companies can be classified into numerous forms based on different criteria such as
basis of incorporation, liability, number of members, control, ownership and origin.
Ethiopian law recognizes six different kinds of business entities. In other words, in
Ethiopia, business can be carried out in one of the following six different forms, namely;
Ordinary Partnership, General Partnerships, Limited Partnerships, Share Companies,
Private Limited Companies, and Joint Ventures. However, the code leaves room for
special provisions that would be applicable to cooperative organizations.
Forms of business
entities
Required number of
members
Minimum capital
required
Extent of liability
Ordinary Partnership
General Partnership Unlimited
Limited Partnership Limited
Private limited company From 2 to 50 15 000 Birr Limited
Joint venture 60 000 Birr for
foreign investor
Limited
Share company At least 5 50 000 Birr Limited
71
12.2 Competition law
As part of its market liberalization program, Ethiopia has adopted a specific law dealing
with competition in 2003 entitled, “The Trade Practices Proclamation”. This
proclamation has two stated objectives;
Securing a fair competitive process through the prevention and elimination of
anticompetitive and unfair trade practices (UTPs)
Safeguarding the interests of consumers through the prevention and elimination
of restraints on the efficient supply and distribution of goods and services
12.3 Land regulations
In Ethiopia, land is public property. Both rural and urban lands are made available to
investors on a lease hold basis. Leaseholders have the right of use over urban land for
periods ranging from 50 to 99 years. With respect to rural land, the rental value and the
lease period are fixed by land lease regulations of each regional state. Lease right over
land can be transferred with on-built facilities.
On the other hand, according to Urban Land Lease Holding Proclamation No. 80/1993,
the Government may grant freely or without public tendering urban land which is to be
utilized for investment that the government encourages.
The EIA, in cooperation with the concerned regional government organs, facilitates and
follows up the allocation of land for approved foreign investment.
12.4 Labor laws
Ethiopia's labor regulations have been considerably modernized and brought into line
with international practice in recent years, including the right of employers to hire and
fire.
Normal working hours are limited to 8 hours a day or 48 hours a week. A worker is
entitled to 14 working days of annual leave for the first year of service plus one working
day for every additional year of service. A weekly rest period of 24 hours is required by
law. All public holidays (13 altogether) are paid holidays.
72
There are no restrictions under the Ethiopian law regarding the employment of women
workers. Male and female workers are subject to the same working hours. It is
prohibited; however, to employ women in jobs that are arduous or harmful to their
health. A pregnant woman cannot be assigned to night work. Maternity leave, which has
to be paid, is for a total of 90 days.
According to the Investment Code, employment of expatriates is permitted without any
restriction for key management posts of an investment project, including those of
general manager, finance controller, technical manager and marketing manager.
Expatriates may also be employed for non-management positions. However, before
employing the expatriates, the employer must ascertain, by way of making a proper
announcement, that Ethiopians with comparable qualifications are not available. In case
of planned employment of expatriates, a statement on the time schedule for their
replacement by Ethiopians and the training program designed for such replacement
should be submitted to the EIA for approval.
12.5 Intellectual property law
There is an established legal regime for the protection of intellectual property rights in
Ethiopia. The country is also member of the World Intellectual Property Organization.
The existing laws in Ethiopia in the field of Intellectual Property are; the patent
proclamation and implementing regulations, the copyright and related rights
proclamation and the trademark registration directive.
The proclamation concerning inventions, minor inventions and industrial designs issued
in 1995 offers four forms of protection: patents, patents of introduction, utility model
certificates and certificates of registration of industrial designs.
The copyright and related rights proclamation issued in 2004 give protection to literary,
artistic and scientific works. This protection goes to works of authors who are nationals
or have their habitual residence in Ethiopia, works first published in Ethiopia or within,
audiovisual works whose producers are nationals or have their habitual residence in
Ethiopia, works of architecture erected in Ethiopia, and other artistic works
incorporated in a structure located in Ethiopia.
73
The trademark directive issued in 1986 gives protection to local and foreign enterprises.
This protection is granted after publication of cautionary notice.
The government established the Ethiopian Intellectual Property Office in 2003 to, among
others, facilitate the provision of adequate legal protection for and exploitation of
intellectual property in the country.
Ethiopia assumes membership of different International Intellectual Property
Conventions and of Regional or Bilateral Arrangements including;
World Intellectual Property Organization (WIPO) since 1998
Nairobi Treaty on the Protection of the Olympic Symbol since 1998
Treaty establishing the Common Market for Eastern and Southern Africa
(COMESA) since 1994
Partnership Agreement between members of the African, Caribbean and Pacific
(ACP) Group of states and the European Union (EU)
Applied to become a member of the World Trade Organization (WTO)
12.6 Mining Law
Ethiopia has come a long way from opening private investment in the mineral sector in
1991 to a revised mining law that came into effect on 4 August 2010 called Mining
proclamation No. 678/2010.
This new legal framework supports the modern and global approach of the utilization
and administration of the natural resources for sustainable mining development. It
provides:
Non-exclusive reconnaissance license rights (for a maximum period of 18
months)
Initial three-year exclusive exploration licenses to be renewed each year
Mining licenses for 10–20 years for small-scale and large-scale mining with
unlimited renewals of 5 or 10- year periods
Guarantee for the licensee to sell the minerals locally or abroad
Favorable financial packages, e.g. tax exemptions on equipment, foreign currency
accounts, loss carry forward for 10 years
74
Settlement of disputes through negotiations and international arbitration
In sum, the new mining proclamation requires Plans for health and safety as well as
environmental protection, Social impact assessment and community development
program. It equally levies royalties of only 3% on construction materials and 8% on
precious stones and minerals.
12.7 Global competitiveness of Ethiopia in terms of legal framework
Institutional environment, which constitutes the legal and administrative framework,
has been measured by the World Economic Forum’s Global Competitiveness Report
2011/12. The table and figure below shows the quality Ethiopia’s institutions as
compared to other chosen economies.
Table 44: Legal framework measure of Ethiopia and comparator economies
Indicators Country Score
(1 – 7)
Rank
(out of 142)
Institutions
Ethiopia 4.0 58
South Africa 4.4 46
Kenya 3.3 114
Nigeria 3.3 111
Egypt 3.8 74
Source: World Economic Forum, 2011/12
Figure 20: Legal framework measure of Ethiopia and comparator economies
0 1 2 3 4 5
Kenya
South Africa
Ethiopia
Nigeria
Egypt
Score (1 - 7)
Source: World Economic Forum, 2011/12
75
13. NATIONAL DEVELOPMENT PLAN
The Ministry of Finance and Economic Development drafted a document that describes
Ethiopia’s Growth and Transformation Plan (GTP), a medium term strategic framework for
the five-year period (2010/11-2014/15).
Ethiopia’s long term vision is “to become a country where democratic rule, good-
governance and social justice reigns, upon the involvement and free will of its peoples; and
once extricating itself from poverty and becomes a middle-income economy.”
It’s vision in the economic sector is “to build an economy which has a modern and
productive agricultural sector with enhanced technology and an industrial sector that
plays a leading role in the economy; to sustain economic development and secure social
justice; and, increase per capita income of citizens so that it reaches at the level of those in
middle-income countries.”
1) Sustaining faster and equitable economic growth
2) Maintaining agriculture as a major source of economic growth
3) Creating favorable conditions for the industry to play key role in the economy
4) Enhancing expansion and quality of infrastructure development
5) Enhancing expansion and quality of social development
6) Building capacity and deepen good governance
7) Promote women and youth empowerment and equitable benefit
1/ Sustaining faster and equitable economic growth
The agricultural sector continues to be the major source of economic growth. Industrial
growth will be given particular focus. Industrial expansion will be promoted based on
both export oriented and import substituting industries. It is expected to grow at a faster
rate than other sectors. Thus, the Government’s endeavor of poverty eradication and
employment expansion will pursue by sustaining rapid and broad based economic
growth in a more coordinated and structured manner.
76
2/ Maintaining agriculture as a major source of economic growth
Fundamentals of the strategy include the shift to produce high value crops, a special
focus on high-potential areas, facilitating the commercialization of agriculture,
supporting the development of large-scale commercial agriculture where it is feasible.
To complement this, the commercialization of smallholder farming will continue to be
the major source of agricultural growth. Investment in marketing infrastructure will also
be increased. During the plan period, agriculture will be transformed to high growth
path in order to ensure the food security challenge of the country and to curb
inflationary pressure as well as broadening the export base of the country.
3/ Creating favorable conditions for the industry to play key role in the economy
In the plan period, the industry sector will receive utmost emphasis by way of
encouraging export based and import substituting industries. Vertical and horizontal
linkages between agriculture and industrial sector will be promoted. The Government’s
program will also further focus on strengthening the small-scale manufacturing
enterprises, as they are the foundation for the establishment and intensification of
medium and large scale industries.
4/ Enhancing Expansion and Quality of Infrastructure Development
In the upcoming plan period, infrastructure development will be further intensified with
due focus on the quality of services. Infrastructure development will create the
opportunity for diversified industrial growth and reduce dependence on foreign
currency through substituting imports of materials and services by domestic suppliers.
Telecommunication, railway, road, energy and irrigation development will receive
sustained support during the plan period.
5/ Enhancing expansion and quality of social development
The main ingredients of this pillar are higher education and adult education, better
primary health care, better and closer access to safe water and sanitation facilities,
halting the spread of HIV/AIDS and other infectious diseases, better food security and
nutrition, and housing conditions.
77
6/ Building Capacity and Deepen Good Governance
The Government has designed national programs, policies, and strategies to strengthen
and sustain the country's implementation capacity, which is a key to build on the on-
going democratization process. Accordingly, the implementation of Civil Service Reform
Program and Good Governance packages will be further enhanced ensuring efficiency,
effectiveness, transparency and accountability at all level. In this regard, enhancing
capability of the civil servant will be further strengthened. Concerted efforts on
information and communication technology development will be made to provide
effective support to the overall socioeconomic transformation process.
7/ Promote Gender and Youth Empowerment and Equitable Benefits
Over the last several years major efforts were made to increase girls’ enrollments in
school, expand female health extension worker coverage, and increase extension service
to the women farmers in rural areas including legislative and institutional reforms to
protect the right of women and open opportunities. The government is committed to
speeding up these changes both through education and by increasing the role of women
in public life and also strengthens their membership based organization.
78
Table 45: Selected GTP indicators
Sector/ indicator
Baseline
2009/10
Plan Target
2014/15
Macro economy
Real GDP growth rate (%)
Total consumption of expenditure as % of GDP
Gross domestic savings as % of GDP
Export of goods and non-factor services as % of GDP
Import of goods and non-factor services as % of GDP
Capital expenditure as % of GDP
Domestic revenue as % of GDP
External (Net) as % of GDP
11
90.6
9.4
10.5
27.3
10
12.9
0.8
11.2
85.0
15.0
31.2
45.7
13
17.3
0.6
Poverty and Welfare
Poverty headcount (%)
Food poverty headcount (%)
29.2
28.2
22.2
21.2
Agriculture
Agriculture value added (in billion Birr)
Coffee export (ton)
Meat export (000 metric ton)
58.4
319,647
10
86.2
600,970
111
Industry
Sugar product (000 product)
Textile and garment industry export (in million Birr)
Total capacity to produce cement (in million tons)
Metal consumption per capita (Kg)
17,712
21.8
2.7
12
42,516
100
27
34.7
Infrastructure development
Road network
Road density (Km/1000 population)
Railway network
Power generating capacity (MW)
Potable water coverage (%)
Fixed telephone subscribers (in millions)
Mobile telephone subscribers (in millions)
Internet service subscribers (in millions)
49,000
0.64
-
2000
68.5
1.2
7.6
0.20
136,000
1.54
2000
8000
98.5
8.6
64.4
7.17
Education
Adult literacy rate (%)
Gross primary enrollment ratio (%)
Government higher institution intake capacity
36
94.2
185,788
95
100
467,000
Health
Primary health service coverage (%)
Under 5 mortality rate (per 1000)
89
101
100
67 Source: Ministry of Finance and Economic Development, 2010
79
SWOT ANALYSIS OF ETHIOPIA
Strengths Weaknesses
Progress in economic diversification is
making Ethiopia a broad-based economy
Public investment in infrastructures (transport, energy and communication)
Strong and relatively cheap labor force
High energy potential especially hydroelectric energy
Vulnerable to volatility of raw
materials prices
High level of corruption and difficult business environment
Very high level of inflation
Insufficient infrastructure compared to the dimension of the country
High degree of poverty
Financial market is shallow
Opportunities Threats
Support from international donors
Ethiopia has a geostrategic position since it is centrally located in global economy
Border conflicts with Eritrea and
Sudan
Introduction of Islamic extremism in the country
Prone to weather variations that could result in food insecurity
80
LIST OF FIGURES
Figure 1: Map of Ethiopia ............................................................................................................................. 3
Figure 2: Country Risk of Ethiopia ......................................................................................................... 12
Figure 3: Real GDP Growth ....................................................................................................................... 14
Figure 4: GDP Contribution by Sector .................................................................................................. 15
Figure 5: Current account of Ethiopia .................................................................................................. 16
Figure 6: Imports and exports of Ethiopia .......................................................................................... 17
Figure 7: Foreign direct investment of Ethiopia .............................................................................. 18
Figure 8: Distribution of major investment project by sector in 2010/11 (in %) .............. 18
Figure 9: Enabling trade index of Ethiopia ......................................................................................... 19
Figure 10: Official and parallel exchange rate (birr per US dollar) ........................................... 20
Figure 11: CPI Inflation (year-on-year), 2008 - 2012 .................................................................... 23
Figure 12: How Ethiopia and comparator economies rank on the ease of getting credit 28
Figure 13: How Ethiopia and comparator economies rank on the ease of paying taxes .. 36
Figure 14: Ease of starting business in Ethiopia compared to other economies ................. 46
Figure 15: Infrastructure measure of Ethiopia and comparator economies ........................ 56
Figure 16: Key indicators of labor market in Ethiopia ................................................................... 57
Figure 17: Skilled labor measure of Ethiopia and comparator economies ............................ 61
Figure 18: How Ethiopia and comparator economies rank on the ease of registering
property ........................................................................................................................................................... 67
81
Figure 19: How Ethiopia and comparator economies rank on the ease of construction
permits.............................................................................................................................................................. 68
Figure 20: Legal framework measure of Ethiopia and comparator economies ................... 74
82
LIST OF TABLES
Table 1: Key Facts of Ethiopia .................................................................................................................... 4
Table 2: Timeline of Ethiopia ...................................................................................................................... 5
Table 3: Democracy Index of Ethiopia in 2011 .................................................................................... 8
Table 4: Governance indicators of Ethiopia in 2011 ...................................................................... 11
Table 5: Ethiopia’s distance to G7 and BRICS economies ............................................................. 13
Table 6: International partners of Ethiopia 2011/12 .................................................................... 17
Table 7: Some indicators of international trade ............................................................................... 19
Table 8: Exchange rates of the birr as at 07/06/2013................................................................... 20
Table 9: Interest rate structure of commercial bank ...................................................................... 21
Tableau 10: Results of Treasury Bills Auction at June 30, 2011 ................................................ 22
Table 11: External public debt of Ethiopia ......................................................................................... 24
Table 12: Poverty headcount indices and inequality in 2010/11 ............................................. 25
Table 13: Registered banks in Ethiopia ............................................................................................... 26
Table 14: Key figures of banking sector in Ethiopia ....................................................................... 27
Table 15: Sectoral distribution of fresh loans (2012) .................................................................... 27
Tableau 16: Rental tax rates by income category ............................................................................ 30
Table 17: Personal income tax rates by income category ............................................................ 30
Table 18: Excise tax rates by types of goods ...................................................................................... 32
Table 19: Incomes tax rates by type of income ................................................................................. 33
83
Tableau 20: Stamp duty charges by types of instruments ........................................................... 34
Tableau 21: Custom duty rates of some selected goods ................................................................ 35
Table 22: Exemption from payment of income tax ......................................................................... 41
Table 23: Business creation requirements ......................................................................................... 42
Table 24: Energy tariff rates by different user category ............................................................... 50
Table 25: charges by monthly water consumption ......................................................................... 51
Table 26: monthly counter rent by water counter .......................................................................... 51
Table 27: Fixed line tariffs ........................................................................................................................ 52
Table 28: Fax tariffs ..................................................................................................................................... 53
Table 29: Mobile service enterprise tariff, post paid ...................................................................... 53
Table 30: Internet tariffs............................................................................................................................ 54
Table 31: Infrastructure measure of Ethiopia and comparator economies .......................... 55
Table 32: Employed persons status ...................................................................................................... 58
Table 33: illiteracy of population aged 15 years and over, 2009/10 ....................................... 58
Table 34: Graduates from Ethiopian schools ..................................................................................... 59
Table 35: Distribution of graduates, 2011/12 .................................................................................. 59
Tableau 36: Graduates from Ethiopian schools ................................................................................ 60
Table 37: Students graduated in undergraduate program by field, 2011/12 ...................... 60
Table 38: Skilled labor measure of Ethiopia and comparator economies, 2011/12 ......... 61
Tableau 39: lease prices in urban areas .............................................................................................. 64
Table 40: rental prices of urban areas.................................................................................................. 64
Table 41: Periods of payment of urban land lease prices by region and activity ................ 65
84
Tableau 42: rental prices in rural areas ............................................................................................... 66
Table 43: Land use in Ethiopia ................................................................................................................ 69
Table 44: Legal framework measure of Ethiopia and comparator economies .................... 74
Table 45: Selected GTP indicators ......................................................................................................... 78