Where to invest in Ethiopia?

Investment in Ethiopia is rapidly increasing and the country's economy is growing at an unprecedented rate. Moreover, both local and foreign investors are now involved in the venture business. There is also a very significant flow of tourists visiting the country.

A foreign investor is considered to be a foreign citizen or enterprise, regardless of the place of its registration, in which the foreign citizen has an interest. An enterprise registered outside Ethiopia by any investor is considered to be a foreign investor.

An Ethiopian permanently residing abroad who chooses the foreign investor treatment in accordance with the law is also considered a foreign investor. This is defined by Investment Regulation No. 1180/2020.

Any foreigner can invest in Ethiopia by providing a minimum capital of US$200,000.

A foreign national investing with an Ethiopian must have a minimum capital of US$150,000. Starting from this minimum capital, a foreign entrepreneur can invest in all companies, with the exception of those intended exclusively for domestic investors.

Openness to foreign investment

According to Article 6(3) of the Proclamation, one of the investment sectors open to foreigners is joint investment with the Government of Ethiopia. 

Another business sector open to foreign investors is joint investment with local investors. All companies outside the businesses reserved for local investors are also open to participation by foreign investors. Thus, foreigners are not allowed to participate in areas of investment that are exclusively reserved for Ethiopian investors. In addition, foreign investors are allowed to invest either independently or jointly with the government and domestic investors in selected sectors.

Types of businesses reserved for joint investment with the government

• Manufacture of weapons, ammunition and explosives used as weapons or manufacture of weapons
• Import and export of electronic energy
• International air transportation
• Bus Rapid Transit
• Postal service, excluding courier service

Companies intended exclusively for local investors 

• Banking, insurance and microfinance business, excluding capital goods financing business
• Transmission and distribution of electricity through the integrated national grid
• Primary and secondary level medical care
• Wholesale of petroleum, petroleum products, wholesale of self-produced products in Ethiopia, excluding e-commerce wholesalers
• Retail trade, excluding retail e-commerce as provided for by relevant legislation, of own-produced products manufactured in Ethiopia
• Import trade, excluding liquefied petroleum gas and bitumen
• Export trade of raw coffee, chat, oil seeds, pulses, minerals, hides and skins, natural wood products, chicken, livestock including pack animals for market
• Services for the construction and drilling of wells below ground level,
• Services of hotels, lodges, sanatoriums, motels, boarding houses and guest houses, with the exception of those with star status
• Restaurants, cafes, coffee shops, bars, nightclubs, catering services, with the exception of restaurant service of national cuisine, marked with a star
• Travel agency, sale of tourist tickets and auxiliary trade services
• Tour operator activities
• Operating lease of equipment, machinery and vehicles, with the exception of industrial heavy equipment, machinery and specialized vehicles
• Transport services, with the exception of the following types:
  1. Railway transport
  2. Rope transport
  3. Freight transport with a carrying capacity of more than 25 tons
  4. Transport services intended for joint investments with state or domestic investors
• Production of local traditional medicines
• Production of bakery and confectionery products for the domestic market
• Grinding mills
• Hairdressing and beauty salon services
• Tailoring except garment factories
• Maintenance and repair services, including aircraft maintenance and repair (MRO), but excluding repair and maintenance of heavy industrial machinery and medical equipment
• Ground handling of aircraft and other related services
• Sawmilling, wood production and assembly of semi-finished wood products
• Media services
• Customs clearance service
• Production of bricks and blocks
• Career jobs
• Lotteries and sports betting
• Laundry services, with the exception of those provided on an industrial scale
• Translation secretarial services
• Security services
• Brokerage services
• Attorney and legal advice 
• Private employment agency services, with the exception of employment services for seafarers and other similar specialists, which require special knowledge, international experience and connections.

Companies intended exclusively for co-investment with Ethiopian and foreign investors

• Forwarding and agency services
• Domestic air transportation
• Cross-country public transport services using buses with a capacity of more than 45 passengers
• Urban public transport with large carrying capacity
• Advertising and promotional services
• Audiovisual services, film and video production and distribution
• Accounting and auditing services

Foreign investors investing jointly with local investors in the above enterprises are not permitted to own more than 49% of the authorized capital of the investment enterprise.

Features of doing business

Opening a business in Ethiopia will be difficult for foreign citizens due to the following nuances:

• A limited liability company must appoint at least one chief executive officer at the time of incorporation. If you are a foreigner, the CEO will need to obtain a work and residence permit.
• The business and legal infrastructure is underdeveloped. You can often get conflicting information from different government agencies.
• Before company registration is completed, the company must obtain physical office space, sign a lease, and obtain government approval.
• Foreign companies established in Ethiopia will be required to have all company documents translated into Amharic and legalized by the Ethiopian Embassy in their country of residence.
• Companies registered in Ethiopia are subject to a corporate tax rate of 30%, value added tax (VAT) of 15%, capital gains tax of up to 30%. Individuals are also subject to a higher income tax rate of 35%.
• Access to foreign currency in Ethiopia is limited.
• There are no international banks in Ethiopia, so foreign entrepreneurs and investors are forced to turn to affordable local banks for banking services, which have poor quality of service.
• Although there are no foreign exchange restrictions in Ethiopia, shortages of foreign exchange can make it extremely difficult to repatriate funds outside of Ethiopia.
• Lack of quality infrastructure facilities coupled with inadequate technological readiness limits the proper utilization of resources and skills in the country to conduct business at the global level.
• Due to strict foreign exchange controls, the Ministry of Commerce, through local banks, has the right to limit traders in the volume of permitted imports and exports of products. In addition, the local currency (birr) is not freely convertible.