Introduction

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 In the repealed Investment Regulation of 2012, foreign investors were only allowed to invest in sectors expressly listed in the investment regulation or in sectors opened by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:

1.1.1.1           Electronic commerce;

1.1.1.2           Real estate development;

1.1.1.3           Education services;

1.1.1.4           Health services excluding primary and middle level health services

1.1.1.5           Grade 1 construction and drilling services;

1.1.1.6           Wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia;

1.1.1.7           Import of liquefied petroleum gas and bitumen;

1.1.1.8           Cement manufacturing;

1.1.1.9           Capital goods finance business;

1.1.1.10        VAS (Value Added Services);

1.1.1.11        Management consultancy services;

1.1.1.12        Engineering consultancy services;

1.1.1.13        Repair and maintenance of heavy industry machineries and medical equipment;

1.1.1.14        Operating lease of industry-specific heavy equipment’s, machineries and specialized vehicles;

1.1.1.15        Star-designated national cuisine restaurant service;

1.1.1.16        Star-designated hotel, lodge, resort, motel, guesthouse and pension services;

1.1.1.17        Producing bakery products and pastries for export market;

1.1.1.18        Railway transport services;

1.1.1.19        Cable-car transport services;

1.1.1.20        Cold-chain transport services;

1.1.1.21        Freight transport services having a capacity of more than 25 tones;

1.1.1.22        Manufacturing;

1.1.1.23        Agro-processing and commercial farms;

1.1.1.24        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:

1.1.2.1           Manufacturing of weapons, ammunition and explosives used as weapons or to make weapons;

1.1.2.2           Import and export of electricity;

1.1.2.3           International air transport services;

1.1.2.4           Bus rapid transit; and

1.1.2.5           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:

1.1.3.1           Freight forwarding and shipping agency services;

1.1.3.2           Domestic air transport service;

1.1.3.3           Cross country passenger transport service using buses with a seating capacity of more than 45 passengers;

1.1.3.4           Urban mass transport service with large carrying capacity;

1.1.3.5           Advertisement and promotion services;

1.1.3.6           Audiovisual services; motion picture and video recording and distribution; and

1.1.3.7           Accounting and auditing services.

1.1.4 Areas of investment exclusively reserved for domestic investors:

1.1.4.1           Banking, insurance and microfinance businesses, excluding capital goods finance business;

1.1.4.2           Transmission and distribution of electrical power through integrated national grid system;

1.1.4.3           Primary and middle level health services;

1.1.4.4           Wholesale trade, excluding wholesale of petroleum and petroleum products and wholesale of own products produced in Ethiopia, electronic commerce;

1.1.4.5           Retail trade, excluding retail of and electronic commerce as provided under appropriate law, of own products produced in Ethiopia;

1.1.4.6           Import trade, excluding liquefied petroleum gas and bitumen;

1.1.4.7           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;

1.1.4.8           Construction and drilling services below Grade I;

1.1.4.9           Hotel, lodge, resort, motel, guesthouse, and pension services, excluding those that are star-designated;

1.1.4.10        Restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service;

1.1.4.11        Travel agency, travel ticket sales and trade auxiliary services;

1.1.4.12        Tour operation;

1.1.4.13        Operating lease of equipment’s, machineries and vehicles, excluding industry-specific heavy equipment’s, machineries and specialized vehicles;

1.1.4.14        Making indigenous traditional medicines;

1.1.4.15        Producing bakery products and pastries for domestic market;

1.1.4.16        Grinding mills;

1.1.4.17        Barbershop and beauty salon services, smithery, and tailoring except by garment factories;

1.1.4.18        Maintenance and repair services, including aircraft maintenance repair and overhaul (MRO), but excluding repair and maintenance of heavy industry machineries and medical equipment;

1.1.4.19        Aircraft ground handling and related services.

1.1.4.20        Saw milling, timber manufacturing, and assembling of semi-finished wood products;

1.1.4.21        Media services;

1.1.4.22        Customs clearance service;

1.1.4.23        Brick and block manufacturing;

1.1.4.24        Quarrying;

1.1.4.25        Lottery and sports betting;

1.1.4.26        Laundry services, excluding those provided on industrial scale;

1.1.4.27        Translation and secretarial services;

1.1.4.28        Security services;

1.1.4.29        Brokerage services;

1.1.4.30        Attorney and legal consultancy services; and

1.1.4.31        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.

1.1.4.32        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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