As per the power vested unto it by the provision of Article 55 (1) of the Investment Proclamation No. 1180/2020, the Council of Ministers of the Federal Democratic Republic of Ethiopia has issued Investment Regulation No. 474/2020 (hereinafter cited as the Investment Regulation), which came into effect as of September 2nd, 2020. The major changes that are introduced by the Investment Regulation are highlighted hereunder.
Enforcing the Negative Listing Approach of the Investment Proclamation: -The provision of Article 6 of the Investment Proclamation had mandated the Council of Ministers to specify areas of investment to be reserved for joint investment with the Government, for domestic investors, and joint investment with domestic investors. Accordingly, Article 3 of the Investment Regulation has listed out the Investment Areas Reserved for Joint Investment with the Government, while Article 4 enumerates the Investment Areas Reserved for Domestic Investors, and finally, Article 5 shows the Investment Areas Reserved for Joint Investment with Domestic Investors.
Article 6 of the Investment Regulation by stating that “investment areas that are not listed under Articles 3, 4 and 5 are open to foreign investors” has enforced the negative listing approach that was introduced by the Investment Proclamation.
Areas Allowed for Joint Investment with Government: - Article 3 of the Investment Regulation has listed five investment areas in which an investor (which includes both domestic and foreign) can jointly invest only with the Government of Ethiopia. These are manufacturing of weapons, ammunition, and explosives used as weapons or to make weapons; import and export of electrical energy, international air transport services; bus rapid transit, and postal services excluding courier services.
Areas Allowed Only for Domestic Investors: - Article 4 of the Investment Regulation has listed thirty-two investment areas that are exclusively reserved for domestic investors. Most of these exclusions were introduced by the partially repealed Investment Regulation No. 270/2012 (as amended) and by other specific laws. Some of the major investment areas that are open only for domestic investors are banking, insurance, wholesale trade of petroleum and petroleum products (excluding wholesale of electronic commerce), retail trade (excluding the retail of own products), import trade (excluding liquefied petroleum and bitumen) and export trade of raw coffee, khat, oilseeds, pulses, minerals, hide and skin, etc. Construction and drilling services below grade 1 and non-star designated national cuisine restaurant services are also reserved only for domestic investors. Similarly, maintenance and repair services, including aircraft maintenance and overhaul services as well as aircraft ground handling and related services are reserved only for domestic investors. Finally, lottery and sports betting as well as private employment agency services (excluding employment services for seafarers and other similar professionals that require high expertise and international experience and network) are reserved only for domestic investors.
Investment Areas Reserved for Joint Investment between Foreign and Domestic Investors: - Article 5 (1) of the Investment Regulation has listed seven investment areas that are open only for joint investment by foreign and domestic investors. Accordingly, freight forwarding and shipping agency services; domestic air transport services; cross-country public transport services using buses with a seating capacity of more than 45 passengers; urban mass transport service with large carrying capacity; advertisement and promotion services; audiovisual services, motion picture, and video recording, production, and distribution and accounting and auditing services are allowed for joint investment.
However, Article 5 (2) of the Investment Regulation has limited, a foreign investor who invests in the listed seven areas with a domestic investor not to hold more than 49% of the share capital of the enterprise, they are going to establish for such joint investment.
Application and Rejection Procedures: - the Investment Regulation gives the option of applying for the services of the Investment Commission by filling out a paper-based form as well as an online application form. The Investment Regulation also obliges applicants to present “a copy of bio-pages of valid passport”. The Investment Commission is obliged to accept or reject the applications submitted to it within 3 (three) working days from the date of application and in case of rejection the Commission is obliged to give in writing the reason for rejection. Besides, any transfer of investment permit or change to its content is required to be approved by the Investment Commission as per Article 10 (5) of the Investment Regulation.
Acquisition of Existing Enterprise or its Shares by Foreign Investor: - Article 11 has put in place a detailed legal requirement that needs to be observed where a foreign investor seeks to buy an existing enterprise or its shares. Accordingly, it is required to submit its application to the Investment Commission and the Commission will check whether the investment area of the existing enterprise is open for foreign investment or not, whether the minimum capital requirement is met by a foreign investor or not, and whether other legal requirements are fulfilled or not. The foreign investor wishing to buy the existing enterprise or its shares is also required adduce the necessary clearance from the Ministry of Trade and Industry and the Ministry of Revenues. Finally, the Commission is required to give its approval or rejection decision within (three) working days from the date of application and in case of approval, the Commission is required to replace the business license or register the share transfer right away.
Suspension and Revocation of Investment Permit: - Article 13 of the Investment Regulation requires the Investment Commission to give written notice for the holder of investment permit and the suspension will take effect only where the holder fails to remedy the defects that are outlined in the warning letter within 60 (sixty) working days from the date of the letter by the Investment Commission. Similarly, Article 14 of the Investment Regulation obliges the Investment Commission to give written notice stating the reasons for the impending revocation measure and it is only where the holder of the investment permit fails to respond to such written notice within 15 (fifteen) working days or where the response is found to be unsatisfactory, that the Investment Commission can revoke the investment permit.
Condition for Owning of Dwelling House by Foreign Investor: - as per Article 17 of the Investment Regulation a foreign investor or a foreign national wishing to be treated as a domestic investor may own a dwelling house in Ethiopia where it invests a minimum of USD 10,000,000 (ten million).
One-Stop-Services: - Article 18 (1) of the Investment Regulation mandates the Investment Commission to give the following one-stop-services: registration of articles and memorandum of association and their amendments; registration, amendment, replacement, and cancellation of trade names, business names, commercial registration certificate, business license, and work permit for expats; and handling of requests of investment incentives. Also, Article 18 (2) requires the pertinent government agencies to provide the following services by setting up their respective desks at the Investment Commission. These services are the issuance of tax identification number, residence permit, construction permit, and approval and issuance of a certificate for environmental impact assessment studies. Finally, the provision of Article 18 (3) of the Investment Regulation requires the appropriate investment organ to provide support to investors in respect of their request to obtain land, loan, water, electricity, telecom services for their investment and visa and residence permits for the investors and their family.
Training and Transfer of Knowledge and Skill to Ethiopian Employees: - Article 19 (1) of the Investment Regulation requires an investor employing foreigners on permanent positions to replace them by Ethiopians within stipulated time by providing the needed on-the-job training and by facilitating the transfer of knowledge. Article 19 (2) of the Investment Regulation states that within 3 (three) months from the date of issuance of business license, the investor is required to submit to the Investment Commission a statement that details the type and schedule of the training and thereafter a quarterly implementation report of the training program, that should show the details that are stated under Article 19 (3) of the Investment Regulation.
Partial Applicability of the Existing Investment Regulation: - Article 21 of the Investment Regulation has kept the partial applicability of the provisions of the Investment Areas Reserved for Domestic Investors Council of Ministers Regulation No. 270/2012 (as amended by Regulation No. 312/2014) relating to “investment incentives”. These provisions are Articles 5 to 15 of Regulation No. 270/2012 (as amended) that are provided under Part Two: Investment Incentives.
Please see the attached Investment Regulation for further details.
You can also get the details of the major changes that are introduced by the Investment Proclamation from the legal resources that are published unto this website by following the following links:
Posted on September 13, 2020
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 Investment-Regulation-No.-474_2020.pdf | 3152 kB |