The Ethiopian Government has made commendable efforts, through legislative and procedural reforms, to improve the investment climate of the country and thereby attract more foreign direct investment. Since 1992, the investment law has been revised four times to ensure the participation of more foreign investments in various sectors of the economy. The latest law, the Investment Regulations No. 474/2020 (the “Regulation”) was promulgated on 02 September 2020.
The Regulation, in a stark deviation from its predecessor has changed the “positive list” approach into a “negative list “. In the repealed Investment Regulation of 2012, foreign investors were only allowed to invest in sectors expressly listed in the investment regulation or in sectors opened by the decision of the Ethiopian Investment Board. The shift towards a ‘negative list’ is probably the most significant aspect of the new investment law because foreign investors are now allowed to invest in any investment area except those that are expressly reserved.
1. Major Amendments in the Regulation
1.1 Opening of Reserved/Restricted Sectors to Foreign Investment
One of the major change the Regulation has brought is the restoration of the “negative listing” of investment areas that are open to foreign investors which enables foreign investors to enjoy a much greater opportunity with regards to the areas that they can invest in. The negative listing approach employs the opening of all economic sectors to FDI except those that are expressly reserved/restricted by law. This approach aspires to cope with the ever-changing technological evolutions and pace of business in a globalized economic sphere. This approach is a reversal of the 2012 Investment Regulation which adopted the “positive listing” method that was restrictive by design.
As part of the negative listing approach, the Regulation provides three categories of investment areas. These are areas exclusively reserved for joint investment with government, areas exclusively reserved for domestic investors and areas exclusively reserved for joint investment with domestic investors. All other sectors not reserved in aforementioned sectors will be open for foreign investment.
1.1.1 Areas of investment that are open for foreign investment:
22.214.171.124 Electronic commerce;
126.96.36.199 Real estate development;
188.8.131.52 Education services;
184.108.40.206 Health services excluding primary and middle level health services
220.127.116.11 Grade 1 construction and drilling services;
18.104.22.168 Wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia;
22.214.171.124 Import of liquefied petroleum gas and bitumen;
126.96.36.199 Cement manufacturing;
188.8.131.52 Capital goods finance business;
184.108.40.206 VAS (Value Added Services);
220.127.116.11 Management consultancy services;
18.104.22.168 Engineering consultancy services;
22.214.171.124 Repair and maintenance of heavy industry machineries and medical equipment;
126.96.36.199 Operating lease of industry-specific heavy equipment’s, machineries and specialized vehicles;
188.8.131.52 Star-designated national cuisine restaurant service;
184.108.40.206 Star-designated hotel, lodge, resort, motel, guesthouse and pension services;
220.127.116.11 Producing bakery products and pastries for export market;
18.104.22.168 Railway transport services;
22.214.171.124 Cable-car transport services;
126.96.36.199 Cold-chain transport services;
188.8.131.52 Freight transport services having a capacity of more than 25 tones;
184.108.40.206 Agro-processing and commercial farms;
220.127.116.11 Any investment activity that doesn’t fall under one of the below three categories (areas exclusively reserved for joint investment with government, areas exclusively reserved for domestic investors and areas exclusively reserved for joint investment with domestic investors).
1.1.2 Areas allowed for foreign investors to jointly invest with the government:
18.104.22.168 Manufacturing of weapons, ammunition and explosives used as weapons or to make weapons;
22.214.171.124 Import and export of electricity;
126.96.36.199 International air transport services;
188.8.131.52 Bus rapid transit; and
184.108.40.206 Postal services excluding courier services.
1.1.3 Areas of investment in which foreign investor/s can own up to a maximum of 49% of share capital:
A foreign investor jointly investing with a domestic investor (Ethiopian nationals or companies wholly owned by Ethiopian nationals) in the following areas can own up to a maximum of 49% of share capital of a joint venture company. These areas are:
220.127.116.11 Freight forwarding and shipping agency services;
18.104.22.168 Domestic air transport service;
22.214.171.124 Cross country passenger transport service using buses with a seating capacity of more than 45 passengers;
126.96.36.199 Urban mass transport service with large carrying capacity;
188.8.131.52 Advertisement and promotion services;
184.108.40.206 Audiovisual services; motion picture and video recording and distribution; and
220.127.116.11 Accounting and auditing services.
1.1.4 Areas of investment exclusively reserved for domestic investors:
18.104.22.168 Banking, insurance and microfinance businesses, excluding capital goods finance business;
22.214.171.124 Transmission and distribution of electrical power through integrated national grid system;
126.96.36.199 Primary and middle level health services;
188.8.131.52 Wholesale trade, excluding wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia, electronic commerce;
184.108.40.206 Retail trade, excluding retail of and electronic commerce as provided under appropriate law, of own products produced in Ethiopia;
220.127.116.11 Import trade, excluding liquefied petroleum gas and bitumen;
18.104.22.168 export trade of raw coffee, khat, oil seeds, pulses, minerals, hides and skins, products of natural forest, chicken, and livestock including pack animals bought on the market;
22.214.171.124 Construction and drilling services below Grade I;
126.96.36.199 Hotel, lodge, resort, motel, guesthouse, and pension services, excluding those that are star-designated;
188.8.131.52 Restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;
184.108.40.206 Travel agency, travel ticket sales and trade auxiliary services;
220.127.116.11 Tour operation;
18.104.22.168 Operating lease of equipment’s, machineries and vehicles, excluding industry-specific heavy equipment’s, machineries and specialized vehicles;
22.214.171.124 Making indigenous traditional medicines;
126.96.36.199 Producing bakery products and pastries for domestic market;
188.8.131.52 Grinding mills;
184.108.40.206 Barbershop and beauty salon services, smithery, and tailoring except by garment factories;
220.127.116.11 Maintenance and repair services, including aircraft maintenance repair and overhaul (MRO), but excluding repair and maintenance of heavy industry machineries and medical equipment;
18.104.22.168 Aircraft ground handling and related services.
22.214.171.124 Saw milling, timber manufacturing, and assembling of semi-finished wood products;
126.96.36.199 Media services;
188.8.131.52 Customs clearance service;
184.108.40.206 Brick and block manufacturing;
220.127.116.11 Lottery and sports betting;
18.104.22.168 Laundry services, excluding those provided on industrial scale;
22.214.171.124 Translation and secretarial services;
126.96.36.199 Security services;
188.8.131.52 Brokerage services;
184.108.40.206 Attorney and legal consultancy services; and
220.127.116.11 Private employment agency services, excluding such services for the employment of seafarers and other similar professionals that require high expertise and international experience and network.
18.104.22.168 Transport services, excluding the following areas:
(a) Railway transport services;
(b) Cable-car transport services;
(c) Cold-chain transport services;
(d) Freight transport services having a capacity of more than 25 tones; and
(e) Transport services reserved for joint investment with the Government or domestic investors.
Disclaimer: This information is intended as a general overview and discussion of the subjects dealt with. The information provided here was accurate as of the day it was posted; however, the law may have changed since that date. This information is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Mehrteab Leul & Associates is not responsible for any actions taken or not taken on the basis of this information. Please refer to the full terms and conditions on our website.
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