The Investment Proclamation No. 1180/2020 (‘Investment Proclamation’), which has repealed and replaced the Investment Proclamation No. 769/2012 (as amended) (‘repealed Investment Proclamation’), is promulgated by the Ethiopian Parliament. The Investment Proclamation has come into effect as of 2nd of April 2020.
This legal brief tries to highlight the salient features of the Investment Proclamation. It has two parts. Part I deals with the rationales of the Investment Proclamation, the definitions that are widened, its scope of application, the investment objectives and the listing used to determine the investment areas, the registration, renewal, suspension and revocation of investment permits.
Rationales of the Investment Proclamation: - As can be seen from the news platform managed by the Investment Commission (http://www.businessnegarit.com), and the preamble of the Investment Proclamation the rationales that necessitated its enactment are:
- The modernization of the legal, regulatory and administrative framework of Ethiopia’s investment regime and investment policy framework;
- The alignment of the investment regime with national development goals and the recent reforms in policy direction and priorities;
- The revisiting and revision of the sectoral restrictions imposed on foreign investment, including on Ethiopian Diasporas with foreign nationalities;
- The establishment of a more user-friendly investment regime by moving from a ‘positive’ to ‘negative’ listing approach to identification of sectors and activities those are open to foreign investors;
- The adoption of best practice investment promotion, facilitation and aftercare services and efficient investment administration system, including One-Stop-Services;
- The devising a faster and more transparent investor grievance handling mechanism; and
- The alignment of the investment regime with the country’s commitment under African the Continental Free Trade Area (AfCFTA) and the plans to join the World Trade Organization (WTO).
Definition of Investment: - The definition of “investment”, as stated under Article 2 (1) of the Investment Proclamation, is broadened to include the acquisition, in whole or in part, of an existing enterprise.
Definition of Public Enterprise: - In the Investment Proclamation “Public Enterprise” is qualified so as it relates only to enterprises wholly owned by the government (Federal Government or a Regional State Administration) as opposed to the repealed Investment Proclamation that used to include partially owned enterprises as Public Enterprise.
Scope of Application: - The provision of Article 3 has made the scope of its application very clear so as the Investment Proclamation is applicable to “all investments carried out in Ethiopia except to investments in the prospecting, exploration and development of minerals and petroleum”.
Delegated Power:- The provision of Article 4 of the Investment Proclamation has given “Delegated Powers” to the Ethiopian Civil Aviation Authority, the Ethiopian Energy Authority and the Ethiopian Communications Authority so as they will be able to issue, renew, amend, substitute, replace and cancel new, expanded or upgraded investment permits in the areas of air transport services, the generation and transmission or distribution of electric power, and the provision of communications services, respectively, representing the Commission. These institutions are also required “to coordinate with the Commission in undertaking studies identifying sectoral potentials, and sector specific investment development strategies, and engage in investment promotion works.”
Investment Objectives: - The provision of Article 5 of the Investment Proclamation that lists out the “Investment Objectives” of the Ethiopian Government has added “exploiting and developing of natural, cultural and other resources of the country” and “encouraging socially and environmentally responsible investments” as its investment objectives.
Negative Listing Approach: -The provision of Article 6 of the Investment Proclamation has introduced dramatic change to the areas of investment. Accordingly, subject to the few limitations introduced by the Investment Proclamation, any investor is allowed to engage in any area of investment except where it is contrary to law, moral, public health and security. Except for areas of investment to be reserved for joint investment with the Government, for domestic investors, and for joint investment with domestic investors which is to be specified by Regulations to be issued by the Council of Ministers’, from time to time, all areas of investment are open for foreign investors. As of today, no such Regulations is issued and hence the one issued as per the repealed Investment Proclamation will remain in effect until replaced by another Regulations.
Applicable Laws: - Article 8 (3) of the Investment Proclamation provides that “any enterprise registered in Ethiopia having been established abroad shall be governed by the Commercial Code of Ethiopia and other laws applicable to enterprises.
Exemptions from the Minimum Capital Requirements:- The list of exemption on which the minimum capital requirement specified for foreign investors is further expanded by the provision of Article 9 (4) (a) and (b) of the Investment Proclamation, so as no such capital requirement be applicable in case of investment by “person elected as members of board of directors following the change of a private limited company to share company” and in case where “a foreign investor buys the entity of an existing enterprise owned by a foreign investor or the share therein.”
Registration period of the Foreign Capital: - The provision of Article 9 (5) of the Investment Proclamation has a one-year time line within which a foreign investor should get its foreign capital registered with and obtain the registration certificate from the appropriate investment organ.
Registration at the Commission: - As per the provision of Article 10 (1) (e) of the Investment Proclamation, an investor seeking to expand or upgrade an existing investment and where the investor wishes to enjoy the investment incentives is required to be registered with the Commission. The provision of Article 10 (3), has transferred the mandate of giving of approval from the Ministry of Trade and Industry to the Commission in case where a foreign investor seeks to buy an existing enterprise in order to operate it in its current state or buy shares of an existing enterprise. The provision of Article 10 (4) has prohibited holding of domestic and foreign investment permits simultaneously.
Renewal of Investment Permit: -The provision of Article 11 (1) of the Investment Proclamation, has explicitly exempted investors not to renew their investment permit after they obtain business. In addition, the provision of Article 11 (3) and 11 (4) has loosened the cancellation of the investment permit without any precondition where the investor fails to commence operations within two years from the date of the issuance of the permit. Accordingly, in case where the investor fails to commence implementation of his project within two years of being issued the permit or has delayed the completion of the project by two years from the time that will be agreed with the appropriate investment organ, its investment permit will be revoked, unless the investor comes with convincing and sufficient cause prompting the delay in the commencement or completion of the project. In such case the Commission to renew the investment permits beyond the two years period.
Obligations of the Commission: - The provisions of Article 10 (3) and 12 of the Investment Proclamation, respectively, obliges the Commission not to deny or delay the approval for the approval of the buying of an existing enterprise or its shares or the transfer of investment project under implementation, without sufficient cause.
Suspension of Investment Permit:- The provision of Article 13 (1) of the Investment Proclamation lists in detail the reasons that entails the suspension of the investment permit under its Article 13 (1) (a) to (e) and its Article 13 (2) gives one year period for the investor to take corrective measures to rectify the reasons that led to the suspension of the investment permit.
Revocation of Investment Permit: - Similarly, the provision of Article 13 (3) (a) to (d) of the Investment Proclamation has listed in detail the reasons that might led to the revocation of the investment permit including failure to rectify the reasons for the suspension of the permit.
The provision of Article 13 (7) of the Investment Proclamation has limited not issuing of new investment permit before the lapse of one year since the date of revocation to foreign investors as opposed to the repealed Investment Proclamation which used to extend to “an investor”, which includes domestic and foreign investors. In addition, Article 13 (8) states that the administrative measures of suspension or revocation of investment permit will not affect the right of the government to bring a criminal action against the culprit.
Published on April 25th 2020
| File | Description | File size |
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 INVESTMENT-PROCLAMATION PROCLAMATION NO. 1180_2020.pdf | 1131 kB |