Mehrteab Leul & Associates Law Office
DLA Piper Africa, Ethiopia
The Ethiopian Government has made commendable efforts, through legislative and procedural reforms, to improve the investment climate of the country and thereby attracting more foreign direct investment. In line with market-oriented economic policy, the investment regime has been liberalised through a series of Government legislation. 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 is promulgated in January 2020.
After the appointment of the current Prime Minister (Abiy Ahmed) in April 2018, the Ethiopian Government has taken a fresh road to economic reform, starting by privatising fully owned government enterprises and boosting the private sector. As the role of FDI in the private sector being a key component to a nation’s economy, it was held by the government that amending the existing investment law (Proclamation No. 769 of 2012 as amended in 2014) is a vital step to the reform. As a result the New Investment Proclamation (the Investment Proclamation) was approved on 30 January 2020 by the House of Peoples Representatives. However, the Investment Proclamation is not yet published in the official legal gazette of Ethiopia, the Federal Negarit Gazette.
Major Amendments to the 2020 Investment Proclamation and Draft Investment Regulations
Opening of reserved/restricted sectors to foreign investment
One of the major changes the Investment Proclamation has brought is the restoration of the “negative listing” of investment areas that are open to foreign investors enabling foreign investors to enjoy a 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 globalised economic sphere. This approach is a reversal of the 2012 Investment Proclamation and Regulations which adopted the “positive listing” method that was restrictive by design. Under this method, all investment activities open for FDI were positively listed and foreigners could not directly invest in areas not specifically appearing on the list. This has now changed into a negative listing whereby foreigners can invest in all areas of investment except those explicitly reserved.
As part of the negative listing approach, the Investment Proclamation 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 the aforementioned sectors will be open for foreign investment. The Investment Proclamation avoided a category of sectors that will exclusively be held by the government and introduces a new category of sectors in which joint investment with domestic investors will be mandatory. Some of the areas of investment which were exclusively reserved for Ethiopian nationals under the previous laws are likely to be opened for foreign investments with the condition that foreign investors undertake these investments in joint venture with the government and/or domestic investors.
Even if it has not yet been made final and approved by the Council of Ministers, the Draft Investment Regulations (the Draft Investment Regulations) to implement the Investment Proclamation has provided the details of the sectors eligible for the above categories. The Draft Investment Regulations divides sectors allowed for foreign investors in context of joint investments into to two depending on minimum percentage of local content (indigenisation) requirement. These are:
Areas of investment in which foreign investor(s) can own up to a maximum of 75% 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 75% of share capital of a joint venture company. These areas are:
- forwarding and shipping agency services;
- domestic air transport services; and
- inland public transport having a capacity of more than 45 seats and freight transport services having a capacity of more than 32 tones.
- 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:
- advertisement and promotion works;
- audiovisual services, motion picture and video recording, and production and distribution services;
- accounting and auditing services;
- mass media services;
- making indigenous traditional medicines; and
- Grade 2 construction services.
Furthermore, investment in the transmission and distribution of electricity energy through the national grid system, previously reserved for the government, is now open for joint venture investment with the government.
On the other hand, investment areas, including banking and insurance, that were exclusively reserved for Ethiopian nationals in the previous laws are now open to any person falling within the definition of domestic investor, including foreign nationals of Ethiopian origin. Investment areas that are exclusively reserved for domestic investors include banking, insurance and micro-credit and saving services, retail trade (excluding retail of own manufactured products produced in Ethiopia), import trade (excluding liquefied petroleum gas and bitumen) and few other selected areas of investment that are enclosed into the list with a view to protect domestic investors and small and medium enterprises.
New work permit rules and investment visa
The Investment Proclamation preserves the former rule that any investor may employ duly qualified expatriate experts required for the operation of its business and there will be no restrictions regarding top management positions. However, it further explains what “top management” constitutes. Top management includes chief executive officer, chief financial officer and chief operations officer. Moreover, the Investment Proclamation allows the spouse of an investor or a foreign worker the right to be employed and obtain a work permit in Ethiopia which was not addressed under the 2012 Investment Proclamation. The Investment Proclamation further provides that the Ethiopian Investment Commission or a delegated investment organ may facilitate the processing of visa applications of foreigners and their dependent family members coming to Ethiopia in relation to investment.
Establishment of the Federal Government and Regional State Administrations Investment Council
This is a council chaired by the Prime Minister. The Investment Proclamation established this Council in order to simplify investment and facilitate a synchronised investment system between the Federal government and regional State administration. The Council among other things prevent and resolve limitations to the provision of investment services including the allocation of land by regional state investment administration bodies.
Approval of brownfield investments by the Investment Commission
The 2012 Investment Proclamation requires that a foreign investor seeking to buy an existing enterprise in order to operate it in its current state or to buy shares of an existing enterprise shall obtain prior approval from the Ministry of Trade and Industry. However, the Investment Proclamation changed this and now the approval of brownfield investments is transferred from the Ministry of Trade and Industry to the Ethiopian Investment Commission.
Grievance handling rules
The Investment Proclamation included elaborate grievance handling rules and time efficient resolution of investment disputes. It went to the extent of introducing an arrangement where an investor may file a complaint to the Ethiopian Investment Commission against any decision of federal executive bodies’ decision where it considerably affects its investment.
On the other hand, regulations in relation to minimum investment capital (which ranges from a minimum of USD50,000 to a maximum of USD200,000 per project), repatriation of dividend and profits, access to external loan, the right to open foreign currency account, registration of technology transfer agreement and export-oriented non-equity based foreign enterprise collaboration agreement, one stop services, investment guarantee and protection and ownership of immovable property in the 2012 Investment Proclamation are all maintained in the Investment Proclamation.
The amendment of the 2012 Investment Proclamation is a part of Ethiopian Government’s bid to reform the economy. In its Preamble, the Investment Proclamation provides that it is aimed at producing an economic framework that fast tracks the global competitiveness of the national economy, increases export performance and generates more and better employment opportunities. In the Draft Investment Regulations which is expected to be approved by the Council of Ministers, the Ethiopian Government has taken significant steps in opening up investment areas for foreign participation. Under the Draft Investment Regulations, anything that is not expressly reserved for domestic investors is presumed by implication as open for foreign investment. This is a major change from the 2012 Investment Proclamation, which used to provide that anything that is not expressly open for foreign investment is by implication reserved for domestic investors.
Holding company is a company that typically confines its activities to owning stock/shares in and supervising management of other companies. In Ethiopia, neither the repealed Commercial Registration and Business Licensing Proclamation No. 686/2010, nor the Commercial Code of 1960 gave recognition to the formation of holding companies. However, practically, there are de facto group of affiliated and holding companies in Ethiopia. For instance, MIDROC Ethiopia Groups, East African Holdings, DH Geda Group of Companies and Kangaroo Business Groups are among the practical examples of holding or group of related/affiliated companies.
To accommodate the practical situation in this regard, the new Commercial Registration and Business Licensing Proclamation No. 980/2016, which came into force on the 5th of August 2016, recognizes the formation of holding companies. This law provides that two or more private limited companies can establish a holding company. The holder company shall be jointly and severally liable with its member companies to the claim of third parties.
Additionally, the new law recognizes and regulates franchisee trade agreement, border trade business and opening of branch offices by foreign chamber of commerce in Ethiopia. Furthermore, the new law prohibits operating as a sole importer or distributor. It also relaxed the rules on the requirement of certificate of competence.
Trademark, Trade Name and Firm/Company Name in Ethiopia
Under the Ethiopian legal system, trademarks are regulated by the Trademark Registration and Protection Proclamation No.501/2006 (the Proclamation) and the Trademark Registration and Protection Council of Ministers Regulation No. 273/2012 (the Regulation). The Proclamation defines a trademark as “any visible sign capable of distinguishing goods or services of one person from those of other persons and it includes words, designs, letters, numerals, colors or the shape of goods or their packaging or the combinations thereof. ” (Article 2 (16)) The Regulation provides that the use of trademarks means attaching a trademark to goods or packaging or labeling of goods; displaying the trademark closely associated with the goods; placing the trademark in advertising or promotional material in relation to goods or services; or in any other way establishing a relationship between the trademark and the goods or the services (Article 2 (6)).
Trademarks are registered in Ethiopia by filing an application for registration with the Ethiopian Intellectual Property Office (EIPO). Following this, the application will undergo formality and substantive examinations. If the application is accepted, a notice inviting possible opposition to the registration of the mark will then be published in a gazette having nationwide circulation. If no opposition is lodged, EIPO will register the mark and issue a certificate of registration in favor of the registrant. Once registered, trademarks have to be renewed every seven years.
Trade names are regulated under the Commercial Code of Ethiopia and the Commercial Registration and Business Licensing Proclamation No. 686/2010 (the Registration Proclamation). The Commercial Code defines a trade name as “the name under which a person operates a business and which clearly designates its business.” (Article 135 of the Commercial Code cum Article 2 (9) the Registration Proclamation)
Under Ethiopian law, any person desiring to engage in a commercial activity shall register its trade name at the place where it is registering in the commercial register. Before the registration of a trade name in the commercial register and in the trade name register, it shall be verified that the trade name has not been registered already. In order to verify this, there is a legal requirement to cause the publication in a newspaper which has a nationwide distribution, at the expense of the applicant, of a notice indicating the subsequent registration of the trade name. Where no objection is lodged against the registration of the trade name within 15 days following publication of the trade name in a newspaper, the registering office will issue a trade name registration certificate to the applicant upon the applicant’s payment of the necessary fee. The registration of a trade name shall be a prima facie evidence of entitlement to and validity of the same trade name.
Company/firm names are regulated by the Ethiopian Commercial Code of 1960 (The Code) . There is no express definition given as to what constitutes a company/firm name. However, a firm name or company name is impliedly provided for under Articles 135 (2), 207 (3), 280 (3), 305, 514, etc. of the Code. The Code’s rules on share companies provide that company name shall be as “agreed but shall not offend public policy or the rights of third parties and shall include the words ‘Share Company’” (Article 305). Similarly, the rules of the Commercial Code on private limited companies provide that a private limited company may have a firm-name which may indicate the nature of its business and the firm-name shall be followed by the words “Private Limited Company” (Article 514).
Firm/company name is used to identify and distinguish business organizations from each other for the purpose of allocating rights and duties attributable to them. It is possible to apply to the registering office to reserve a given firm/company name. In order to do this, the applicant must submit three alternative names to the registering office. After conducting a name search, if one of the names fulfils the requirements under Ethiopian commercial law and is available for use, the registering office will reserve/register the name. Once reserved, a company name can only be valid for a period of six months. This means that an entity under formation must be incorporated under the company/firm name within six months from the date the name was reserved/registered. Before signing memorandum and articles of association, founders or members of a business organization shall first reserve/register a firm/company name because the company name has to feature in these documents.
Individual traders and business organizations (including foreign investors) must have a firm name or company name registered with the concerned government organ before commencing business in Ethiopia. Regarding the institutional frameworks, it is the EIPO that has a mandate to register trademarks whereas the Ministry of Trade, Ethiopian Investment Commission and regional trade bureaus are empowered to register and administer trade names and company names in Ethiopia.
In conclusion, it is possible to have trade name which is the same as or different from trademark and/or company name and vice versa. However, a business organization can have only one company/firm name and more than one trademarks and trade name.