Overview of Investment Proclamation No. 1180-2020

Introduction

On April 2, 2020, the Federal Democratic Republic of Ethiopia unveiled a legislative reform in its economic policy with the publication of Investment Proclamation No. 1180/2020 in the Federal Negarit Gazette. This comprehensive new law signifies a strategic pivot aimed at invigorating economic development, significantly boosting foreign and domestic investment, and ultimately improving the living standards of Ethiopian citizens. By establishing a more transparent, predictable, and efficient investment administration system, the Proclamation seeks to unlock Ethiopia’s vast economic potential and integrate its economy more robustly into the global marketplace. This chapter provides a detailed analysis of the Proclamation, exploring its core objectives, key provisions, and the institutional architecture designed to facilitate a more conducive investment climate.

1. Key Themes and Foundational Objectives

The promulgation of Investment Proclamation No. 1180/2020 is rooted in a clear recognition of several critical imperatives for Ethiopia’s sustained economic growth and transformation:

• Boosting the Private Sector’s Role: A fundamental shift embedded within the Proclamation is the intent to significantly increase “the role of private sector investment in all sectors of the economy including in productive and facilitating investment areas.” This strategic emphasis aims to accelerate national economic development, ensure sustainable growth, strengthen domestic production capacity, and directly enhance the living standards of citizens by fostering a vibrant private sector-led economy.
• Enhancing Global Competitiveness and Export Expansion: The Proclamation is designed to cultivate “an economic system that accelerates national economic competitiveness, expands export trade, creates broad and high-quality employment opportunities, and facilitates sustainable and complementary linkages among various sectors.” This highlights a clear policy orientation towards export-led growth, diversifying the economy, and fostering robust inter-sectoral dependencies.
• Accelerating Technology and Skill Transfer: A key strategic objective is deemed “appropriate to accelerate the transfer and diffusion of knowledge, skill, and technology by expanding the amount and areas of foreign investor investment entering the country.” This underscores a deliberate approach to leveraging foreign direct investment (FDI) not merely for capital, but for its invaluable contribution to human capital development and technological advancement across various industries.
• Strengthening Domestic-Foreign Investment Linkages: The legislation recognizes the imperative to “expand linkages between foreign and domestic investments, improve regional distribution of investment, and enhance the competitiveness of domestic investors by utilising foreign capital.” This aims to create a symbiotic relationship where foreign capital and expertise complement and elevate domestic businesses, fostering an integrated and more resilient economy.
• Establishing a Transparent and Predictable Investment System: A paramount goal articulated is to “make the system governing investment more transparent, predictable, and efficient so as to increase investment flow, expansion, and retention.” This commitment to regulatory clarity, streamlined procedures, and a stable policy environment is crucial for attracting and retaining both new and existing investments, thereby reducing investor risk and boosting confidence.

2. Scope and Jurisdiction (Articles 3 & 4)

The Proclamation’s applicability is broad, encompassing virtually all investments within Ethiopia. However, it specifically excludes “investments in the prospecting, exploration and development of minerals and petroleum,” which are governed by specialized legislation.

The administrative oversight for investment is clearly delineated:

• Ethiopian Investment Commission (EIC): The EIC serves as the primary investment promotion and facilitation agency. It holds direct jurisdiction over:
  • Wholly foreign-owned investments.
  • Joint investments between domestic and foreign investors.
  • Investments by foreign nationals (not of Ethiopian origin) who are, by legal designation, treated as domestic investors.
  • Domestic investor projects that are eligible for incentives and require a business license from a Federal Body.
• Delegated Authorities: Specific federal regulatory bodies, such as the Ethiopian Civil Aviation Authority, Ethiopian Energy Authority, and Ethiopian Communications Authority, are empowered to handle investment permits within their respective sectors on behalf of the EIC, ensuring specialized oversight.
• Regional State Investment Organs: These bodies are responsible for managing investments falling outside the direct jurisdiction of the EIC, typically smaller-scale domestic investments or those exclusively within regional competencies.

3. Investment Objectives (Article 5)

The overarching objective of the Proclamation is “to improve the living standards of the Ethiopian peoples by ensuring rapid, inclusive, and sustainable economic and social development.” More specific objectives include:

• Strengthening National Economic Competitiveness: This is to be achieved through strategic investment in productive and facilitating sectors.
• Creating High-Quality Employment: A key focus is on generating “broad and high-quality employment opportunities for Ethiopians” and facilitating valuable technology transfer.
• Increasing Foreign Exchange Earnings: This is pursued through the enhancement of export of goods and services.
• Saving Foreign Exchange: By promoting local production of goods traditionally imported.
• Enhancing Private Sector Role: Explicitly increasing the private sector’s contribution to overall economic development.
• Utilizing and Developing Resources: Fostering the sustainable utilization and development of Ethiopia’s natural, cultural, and other resources.
• Fostering an Integrated Economy: By strengthening linkages between various economic sectors and between foreign and domestic investments.
• Encouraging Responsible Investments: Promoting investments that are socially and environmentally responsible.

4. Investment Areas, Enterprise Forms, and Capital Requirements (Articles 6, 8, & 9)

The Proclamation defines the permissible areas of investment, the legal forms enterprises can take, and the minimum capital thresholds for foreign investors.

• Openness to Investment: Generally, “any investor may engage in any area of investment except where it is contrary to law, moral, public health or security,” ensuring broad accessibility.
• Reserved Areas: Certain strategic or sensitive areas will be reserved for joint ventures with the government, solely for domestic investors, or for joint ventures with domestic investors, as further specified by regulation. All other areas are explicitly open to foreign investors. The Ethiopian Investment Board (EIB) holds the power to revise these reserved lists based on evolving national interests.
• Enterprise Types: Investments can be undertaken by individuals, enterprises incorporated in Ethiopia or abroad, public enterprises, or cooperative societies. All such entities must adhere to registration requirements under the Ethiopian Commercial Code or other applicable laws.
• Minimum Capital for Foreign Investors (Article 9):
  • Generally, a foreign investor is required to inject a minimum of USD 200,000 for one investment project.
  • This is reduced to USD 150,000 for joint investments with domestic investors, encouraging local partnerships.
  • Further reductions apply to foreign investors engaged in specific professional services such as architectural, engineering, technical consultancy, technical testing, analysis, or publishing: USD 100,000 for sole investments or USD 50,000 for joint ventures with domestic partners.
  • Exceptions to these minimum capital requirements include:
    • Reinvestment of profits by existing foreign investors.
    • Individuals elected to the board of directors when a private limited company converts to a share company.
    • Foreign investors acquiring existing enterprises or shares.
  • Foreign investors are obligated to register their imported capital with the appropriate investment organ within one year of its entry into Ethiopia.

5. Investment Permit (Articles 10-13)

The investment permit is a critical document for formalizing and regulating investments under the Proclamation.

• Necessity: An investment permit is a mandatory requirement for foreign investors, joint domestic and foreign investments, certain categories of foreign nationals treated as domestic investors, and domestic investors seeking incentives in eligible areas (including expansions or upgrades of existing projects).
• Exemption: Foreign nationals of Ethiopian origin who are treated as domestic investors may operate without a permit if they are not seeking investment incentives.
• Permit Renewal: Permits must be renewed annually until the commencement of production or service delivery. Once a business license is issued, further permit renewal is not required.
• Revocation (Article 11(3), 13): An investment permit can be revoked under specific conditions, primarily if the investor fails to commence implementation within two years, or fails to complete implementation within two years of the agreed timeframe, unless a compelling good cause is demonstrated.
• Suspension: Permits can be suspended for various non-compliance issues, including failure to submit accurate reports, obtaining permits fraudulently, using permits for unintended purposes, failure to renew, or violation of laws. A one-year period is typically granted to rectify the issue before further action.
• Consequences of Revocation: Upon revocation, all associated benefits immediately cease, and any incentives received must be returned within one month. Furthermore, a foreign investor whose permit has been revoked is barred from obtaining a new permit for a period of one year.

6. Guarantees, Protection, and Facilitation (Articles 18-24)

The Proclamation provides various guarantees and facilitative measures to ensure investor confidence and smooth operations.

• Immovable Property: Foreign investors and foreign nationals treated as domestic investors are granted the right to own immovable property (excluding land) for investment purposes. Large-scale foreign investors may also own one dwelling house.
• Expropriation: The government retains the right to expropriate investment for public interest, provided it is done in conformity with the law, non-discriminatorily, and with the payment of “equitable compensation at market value” in advance.
• Repatriation of Funds (Article 20): Foreign investors are guaranteed the right to repatriate:
  • Profits and dividends.
  • Principal and interest on foreign loans.
  • Payments related to registered technology transfer agreements.
  • Payments from registered cooperation agreements.
  • Proceeds from the sale or transfer of shares or entire enterprises.
  • Proceeds from liquidation.
  • Compensation payments.
  • Notably, domestic investors in joint ventures are generally not permitted to repatriate funds in foreign currency. Expatriate employees of investors are permitted to repatriate their salaries.
• Foreign Loans and Accounts (Article 21): Investors have the right to obtain foreign loans, and foreign investors are specifically allowed to open foreign currency bank accounts in Ethiopia, subject to National Bank of Ethiopia directives.
• Expatriate Employment and Work Permits (Article 22): Investors are permitted to hire foreign nationals for high-level management, supervisory, training, and technical roles. However, there is a clear obligation for investors to train Ethiopians for succession into these roles. Work permits for expatriates are generally valid for three years and are renewable annually based on the demonstrated absence of qualified Ethiopians and concrete training efforts. The EIC retains the right to refuse renewal or cancel permits if a foreign national is deemed unnecessary.
• Visa Services (Article 23): The EIC is mandated to facilitate appropriate visas for foreign investors, their families, and allows for visas to be issued in third countries with a supporting letter from the Commission. Owners/shareholders of investments may receive a five-year multiple-entry visa. General Managers, Board Members, and senior staff may receive a three-year multiple-entry visa. The maximum stay per entry on multiple-entry visas is 90 days.
• One-Stop Service (Article 24): The EIC is responsible for providing streamlined one-stop services and coordinating with relevant government agencies for investors under its permit jurisdiction. Regional investment organs are expected to provide similar services for investors operating within their purview.

7. Grievance Procedures and Dispute Settlement (Articles 25-28)

The Proclamation establishes clear mechanisms for investors to address grievances and resolve disputes.

• Right to Complain: Investors are granted the right to lodge complaints with the appropriate investment organ regarding investment-related grievances.
• Appeal Process:
  • Appeals against final administrative decisions of the EIC are directed to the Ethiopian Investment Board (EIB) within 30 working days of notification. The EIB is mandated to render a decision within 90 working days.
  • Appeals against final administrative decisions of other Federal Government Executive Bodies impacting investment are first directed to the EIC within 30 working days. The EIC will propose a solution within 30 days. If this solution is rejected by either the investor or the concerned government body, the investor can then appeal to the EIB within 30 working days, with the EIB required to decide within 90 working days.
• Dispute Settlement: Investment disputes arising between investors and the government are primarily to be resolved through discussion or negotiation. For foreign investment disputes, the Federal Government may agree to arbitration. Crucially, if a foreign investor chooses either litigation or arbitration, that choice is considered final and precludes them from pursuing other dispute resolution options for that particular matter.

8. Investment Administration Organs (Articles 29-52)

The Proclamation re-establishes and defines the roles of the key administrative bodies responsible for investment promotion and facilitation.

• Ethiopian Investment Board (EIB):
  • Re-established and chaired by the Prime Minister (or a designated government official as Vice-Chair).
  • Composed of 13 members, including high-level government officials from relevant sectors and two non-voting private sector representatives.
  • Its functions include overseeing the implementation of the Proclamation, monitoring the EIC, initiating policy recommendations, proposing legislative amendments, issuing directives, and deciding on appeals.
  • Crucially, the EIB has the power to strategically open or reserve investment areas for foreign participation, reflecting its pivotal role in shaping investment policy.
• Ethiopian Investment Commission (EIC):
  • Re-established as an autonomous Federal Government Agency directly accountable to the Prime Minister.
  • Its overarching objective is to “establish a conducive investment climate, attract and retain investments, and implement a transparent and efficient investment administration system.”
  • The EIC is responsible for leading and promoting investment, issuing/renewing/revoking permits, registering capital and technology transfer agreements, providing one-stop services to investors, and monitoring project performance.
• Federal Government and Regional State Administrations Investment Council:
  • Established to foster essential collaboration and coordination in investment administration between Federal and Regional governments.
  • Chaired by the Prime Minister (or Deputy PM), it includes the heads of all Regional States and City Administrations, along with relevant investment organ heads.
  • Its role is to address basic grievances and significant disputes related to land provision and pre/post-investment services from regional bodies, ensuring seamless coordination.
• Coordination with Regions: The Proclamation places strong emphasis on close cooperation with Regional State investment administration organs to ensure a uniform, integrated, and efficient national investment administration system. This includes specific directives on land provision processes, with regions responsible for identifying and classifying land for investment projects and ensuring timely responses to land requests.

9. Miscellaneous Provisions (Articles 53-58)

The concluding section addresses various general and transitional matters.

• Industrial Parks: Existing laws governing Industrial Parks remain applicable unless explicitly stated otherwise within this Proclamation.
• Compliance and Sustainability: All investors are mandated to comply with national laws and give “due regard to social and environmental sustainability values including environmental protection standards and social inclusiveness objectives,” promoting responsible investment practices.
• Rule-Making Power: The Council of Ministers is empowered to issue regulations for the implementation of the Proclamation, while the EIB, EIC, and sector-specific authorities can issue detailed directives.
• Repealed Laws: Investment Proclamation No. 769/2012 (as amended) and Council of Ministers Regulation No. 313/2014 (which established the EIB and EIC) are formally repealed. However, a crucial transitional provision ensures that rights and benefits accrued under the previous Proclamation for existing investments remain applicable, safeguarding vested interests.
• Effective Date: The Proclamation officially came into force on the date of its publication in the Federal Negarit Gazette, April 2, 2020.

Conclusion

Ethiopian Investment Proclamation No. 1180/2020 marks a transformative moment in the country’s economic policy, signaling a strong commitment to attracting, facilitating, and retaining both domestic and foreign investment. By addressing previous legislative ambiguities and introducing a more streamlined, transparent, and predictable administrative framework, the Proclamation aims to enhance Ethiopia’s competitiveness as an investment destination. The emphasis on private sector growth, technology transfer, export expansion, and responsible investment practices underscores a clear vision for sustainable and inclusive economic development. While the detailed provisions lay a robust legal foundation, the ultimate success of this Proclamation will depend on its consistent and effective implementation by the various investment administration organs, ensuring that the spirit of fostering a truly conducive investment climate translates into tangible results on the ground. This legislation is a critical step towards realizing Ethiopia’s ambitious development goals and improving the prosperity of its citizens.