Doing business in Ethiopia
The Ethiopian Government welcomes foreign investment. Foreign Direct Investment (FDI) has gathered pace over the past years and there have been improvements in the business climate.
The most promising sectors for foreign investment are: agriculture, manufacturing, ICT, mining, energy, tourism and construction. FDI is barred for a limited number of sectors, a.o. banking, shipping and transportation, media, transmission and supply of electrical energy. Check out the website of the Ethiopian Investment Commission for more information.
Ethiopia has a large domestic market with a population of about 95 million. The population is young and growing. Ethiopia has a varied climate which allows production of temperate and (sub-tropical) crops. The labor costs are low and the air links are good; Ethiopian Airlines is rapidly expanding its list of destinations. Investments in logistics will make business easier, with e.g. the railroad connecting Addis Ababa to Djibouti (expected to be ready in 2016).
Doing business index
In 2014, Ethiopia fell 3 places to 132 (out of 189 countries) in the World Banks’s Doing Business 2015 report. The rank is defined by the procedures to start a business, the access to credit and the across border trading – all of which are not in Ethiopia’s favor on the World Bank ranking system. When it comes to construction permits, access to electricity and enforcement of contracts, Ethiopia scores well.
The communications infrastructure is operated by the state. All telephone and internet services are handled by the Ethiopian Telecommunications Corporation (ETC), a monopoly operator. Land is a public property in Ethiopia. Private land ownership is excluded but Ethiopia makes land available, also to foreign investors, on a long-term lease basis. Costs of road transport are relatively high, which makes that transport of imports and exports by road (mostly via Djibouti) is rather expensive.
NL-ETH double taxation treaty
Ethiopia has signed a bilateral investment protection treaty with the Netherlands in 1993. On August 10th, 2012, Ethiopia and the Netherlands signed a double taxation avoidance treaty in Addis Ababa. In august 2014 the amendment to the treaty was signed, but yet to come into force. The tax treaty can be found here.
Ethiopian Investment Commission
As the one-stop-shop for investors, the Ethiopian Investment Commission (EIC) will help you in getting started. Services provided are the issuance of investment permits, business licenses, construction permits, work permits and registration of companies. In addition, the EIC can facilitate acquisition of land and utilities, processing of loans and residence permit applications, environmental impact assessment and issuance of tax identification numbers. Check out the website of the Ethiopian Investment Commission for more information.
Registering a company
There are several requirements when registering your company, see the website of the Ethiopian Investment Commission for more information: Minimal capital of USD 200.000 per project, or USD 150.00 in case of a partnership with a domestic investor. Lower requirements account for investments made in areas of architectural, engineering works or related technical consultancy services, technical testing and analysis and publishing work (100,000 USD) where the ownership is fully foreign owned. Where the investment is to be made jointly with domestic partner(s) the minimum capital required for the foreign investor is 50,000 USD.
Company registration in Ethiopia is possible through three modalities: the registration of a new local venture, a branch company or and investment to be made by business organization incorporated in Ethiopia. The required documents for registration differ accordingly.
For a new local venture, the foreign investor applicant is required to submit the following documents:
- Signed application form;
- Name clearance from the EIC when creating a new company;
- A copy of the agent’s attorney;
- A copy of memorandum and articles of association;
- Copy of each shareholders identity card or certificate of domestic investor status;
- Tax identification number;
- Authenticated office lease agreement;
- A bank statement, showing that the company’s capital to be contributed in cash is deposited in the bank account and proper documents for the contribution in kind (non-shared companies);
- A bank statement showing that at least one quarter of par value of the subscribed shares of the company are deposited in the bank account (shared companies).
Business support instruments
Dutch business support instruments have been highly regarded by the Ethiopian Government and, in the past ten years, over 60 investors have successfully started a joint venture with a local company with the support of the business support programs.
Netherlands Enterprise Agency
Many of the Dutch business support instruments are being managed by the Netherlands Enterprise Agency (RVO). It is the central organ of the Netherlands Government responsible for promoting the international presence of Dutch companies in foreign markets and for supporting private sector development in emerging markets. It is the one-stop-shop for Dutch investors wanting to go abroad, providing information and services, one of them being financial support for activities contributing to sustainable private sector development in emerging markets. RVO can inform you on the available and appropriate instruments for your business. Their website provides information on the various instruments.
Dutch Good Growth Fund
The Dutch Good Growth Fund (DGGF) is aimed at supporting SME’s in emerging markets and developing countries by facilitating financing for development-based local investments and exports. It consists of three parts (‘tracks’).
From 1 July 2014, applications by Dutch SME’s contributing towards employment opportunities, expanding local production capacity and the transfer of knowledge in the developing country (so called ‘track 1’), may be submitted to RVO. The Netherlands Enterprise Agency is responsible for this track, and can be contacted for further information.
The DGGF also provides finance to local SME’s in emerging markets and developing countries, via intermediary funds. More information on this will be provided if and when an intermediary fund for Ethiopia is selected. This ‘track 2’ is managed by PriceWaterhouseCoopers and Triple Jump.
Lastly, track 3 of the DGGF finances exports relevant for the development of Dutch SME’s to emerging markets and developing countries.