Million Alemu Legal Services

The Ethiopian Investment Board (EIB), as per the power bestowed onto it by the Investment Regulation No. 474/2020 has promulgated Directive to Regulate Foreign Investors’ Participation in Restricted Export, Import, Wholesale and Retail Trade Investments (‘Directive No. 1001/2024’), marking a significant and dynamic shift in the nation's regulation of foreign investor participation within specific trade sectors. Directive No. 1001/2024 outlines the conditions under which foreign companies can participate in previously restricted areas like export, import, wholesale, and retail trade. This move marks a calculated effort to balance the potential benefits of foreign investment with continued support for domestic businesses and consumer protection.

Directive No. 1001/2024 focus on three-pronged strategy to control foreign investor participation in industries subject to trade restrictions. First of all, it provides a comprehensive list of export, import, wholesale, and retail trade investment opportunities that are normally exclusive to domestic investors. Second, Directive No. 1001/2024 specifies the requirements that foreign investors must meet to participate in certain restricted regions. Finally, it describes the functions of pertinent government agencies, including how they facilitate and control the participation of foreign investors in certain industries.

Directive No. 1001/2024 further details the specific conditions under which foreign investors may engage in export, import, wholesale, and retail trade sectors.

Export: Foreign companies or individual investors can now export coffee, oilseeds, hides and skins, and other specified products, but upon fulfilling the requirements that are listed out by Directive No. 1001/2024. Foreign investors need to show a proven track record in the industry or established market connections to secure the chance. Additionally, they must commit to exporting a minimum amount annually. Livestock exports, however, remain unrestricted.

Criteria for foreign investors seeking to engage in the export trade, these criteria differ based on the specific commodity involved:

1. Coffee: Foreign investors must have procured an average of at least $10 million worth of raw coffee annually for the last three consecutive years and contractually agree to export at least $10 million worth of coffee within the permit year.

2. Oilseeds: Foreign investors must have procured an average of at least $5 million worth of oilseeds annually for the last three consecutive years and contractually agree to export at least $5 million worth of oilseeds within the permit year.

3. Khat and Pulses: Foreign investors must have procured an average of at least $1 million worth of khat and pulses annually for the last three consecutive years and contractually agree to export at least $1 million worth of each commodity within the permit year.

4. Hides and Skins, Forest Products, and Poultry: Foreign investors must demonstrate an annual performance of at least $500,000 for the last three consecutive years and contractually agree to export at least $500,000 worth of each commodity within the permit year.

5. Livestock: No prior experience or permit-linked contractual commitments are required for foreign investors engaging in the export trade of livestock.

6. New Investors: Foreign investors with no prior history of procuring from Ethiopia must demonstrate an established market and submit a purchase order contract meeting specific value thresholds for each commodity category.

7. Other Export Trade Products: Similarly, new investors must submit purchase order contracts meeting specific value thresholds for other export trade products covered by the directive.

8. Foreign Manufacturing Enterprises: Foreign manufacturing enterprises using raw materials imported from Ethiopia or procured domestically must declare such facts and provide sufficient proof of the process to be eligible for export trade activities.

Import: Most sectors, excluding fertilizers and petroleum products, are now welcoming foreign participation. However, obtaining a permit hinges on demonstrating experience, strong capacity, or a well-established market connection in the chosen import area.

Foreign wholesales: foreigners can now participate in wholesaling any product they import or source domestically. This paves the way for building robust distribution networks within Ethiopia. But contributing to the country's modernization efforts is key. Investors must establish modern marketing infrastructure and provide streamlined logistics services.

Retails: While traditionally restricted, the retail sector is gradually opening for foreign investors. However, participation comes with specific commitments. Investors need to dedicate a minimum retail floor space and pledge to open a set number of supermarkets or hypermarkets. Recognizing the challenges for smaller foreign players, the directive offers a separate provision for single-brand retail stores, potentially allowing for more diverse participation.

Directive No. 1001/2024 goes beyond simply outlining opportunities.  It establishes a framework for collaboration among various government bodies. And it assigns clear responsibilities to designated government bodies, including the development of a transparent and modern national marketing system for exports, the reinforcement of import duty and tax collection mechanisms, and the implementation of measures to curb anti-competitive practices within wholesale and retail sectors.

A permanent Joint Committee comprised of representatives from key government ministries will oversee the overall implementation of Directive No. 1001/2024.  This Joint Committee will assess the effectiveness of Directive No. 1001/2024 and make necessary adjustments to ensure it achieves its intended objectives.

The potential benefits of Directive No. 1001/2024 would be: 

·         Increased foreign investment;

·         Growth in export proceed;

·         Modernization of trade infrastructure; and

·         Increased competition that benefits consumers.

Conclusion

In conclusion, Directive No. 1001/2024 represents a strategic progress in Ethiopia's approach to foreign investor participation within restricted trade sectors. By establishing clear conditions and delineated responsibilities for both foreign investors and relevant government bodies, Directive No. 1001/2024 strives to foster a balanced and sustainable investment environment. This measured approach aims to cultivate economic growth while addressing the limitations identified within the existing policy framework.

Disclaimer

This legal update is for informational purposes only and does not constitute legal advice. Million Alemu legal Services doesn’t assume any responsibility for any action taken based on this legal advice. Should you need any legal advice in this regard, Million Alemu Legal Services is your trusted partner to help and guide you. Feel free to contact us at عنوان البريد الإلكتروني هذا محمي من روبوتات السبام. يجب عليك تفعيل الجافاسكربت لرؤيته..

Compiled by Mahlet Dejene and Yideg Sale -Legal Associates at Million Alemu Law Office