Economy in Ethiopia:
Ethiopia is one of the fastest-growing economies in Africa, with significant progress in sectors such as agriculture, manufacturing, and services. Under Prime Minister Abiy Ahmed, the country has embarked on ambitious reforms to liberalize the economy, attract foreign investment, and promote industrialization. Despite facing challenges such as political instability and infrastructure deficits, Ethiopia remains a key player in the region due to its large population and strategic location.

Agriculture is a cornerstone of the Ethiopian economy, employing a majority of the population. Key exports include coffee, horticultural products, and livestock. Ethiopia is also making strides in industrialization through the development of industrial parks and investment in manufacturing and textiles.

Ethiopia is a member of the African Union (AU) and the Intergovernmental Authority on Development (IGAD), enhancing its role in regional trade. The country’s efforts to improve infrastructure, including the construction of the Grand Ethiopian Renaissance Dam (GERD), are crucial for its economic growth.

Facts and Figures:

• Official Name: Federal Democratic Republic of Ethiopia
• Capital City: Addis Ababa
• Languages: Amharic (official), Oromo, Somali, Tigrinya, and others
• Population: 120 Million (2022)

SWOT Analysis

Strengths:

• Rapid economic growth and large population
• Strategic location in the Horn of Africa
• Rich agricultural resources and biodiversity
• Membership in regional organizations like AU and IGAD

Weaknesses:

• Political instability and ethnic tensions
• Underdeveloped infrastructure
• High levels of poverty and unemployment
• Bureaucratic hurdles and regulatory challenges

Opportunities:

• Investment in infrastructure development, including roads, energy, and railways
• Expansion of the manufacturing sector
• Growth in tourism, leveraging Ethiopia’s historical and cultural heritage
• Development of the mining sector

Threats:

• Political and economic instability in the region
• Vulnerability to climate change affecting agriculture
• Corruption and bureaucratic inefficiencies
• Health challenges, including the prevalence of diseases like malaria and HIV/AIDS

Potential Industries in Ethiopia

Healthcare Industry:
Ethiopia’s healthcare sector is expanding, driven by increasing demand for services and products to treat chronic diseases like HIV/AIDS, malaria, and tuberculosis. There are opportunities for European companies to supply pharmaceutical products and medical technology. Local production of medical consumables and equipment is also becoming important.

Investment Opportunities:

• Supplying pharmaceutical products and medical technologies
• Establishing local manufacturing facilities for medical consumables
• Partnering with local healthcare providers to improve service delivery
• Investing in telemedicine and digital health solutions

Construction Industry:
Ethiopia is focusing on improving its infrastructure, with significant investments planned for road construction, energy projects, and urban development. European companies can participate by supplying construction machinery, tools, building materials, and consulting services.

Investment Opportunities:

• Supplying construction machinery, tools, and building materials
• Participating in large-scale infrastructure projects
• Offering consultancy services for construction supervision and project management
• Engaging in private sector construction projects

Energy Industry:
Ethiopia’s energy sector needs significant investment to meet the growing demand for electricity. Hydropower projects, including the GERD, dominate the landscape, but there are also opportunities in solar and other renewable energy sources. European suppliers, project developers, and consultants find Ethiopia’s energy market attractive.

Investment Opportunities:

• Developing hydropower and solar energy projects
• Supplying and installing off-grid solar solutions
• Providing technical consultancy for energy projects
• Investing in energy storage and distribution systems

Water and Environment:
Population growth and urbanization are driving the need for investments in water and wastewater management. European companies can offer technical components and consulting expertise to address these challenges. Stricter environmental regulations require industries to invest in wastewater treatment and waste management solutions.

Investment Opportunities:

• Developing and supplying water and wastewater treatment solutions
• Offering consulting services for environmental management
• Investing in waste management and recycling facilities
• Partnering with local governments on sustainable urban development projects

Agriculture:
Ethiopia’s agriculture sector requires more investment to meet domestic and export demands. Key areas include coffee, horticulture, and livestock. There are opportunities to improve agricultural productivity and value addition through modern technologies and practices.

Investment Opportunities:

• Investing in modern agricultural technologies and practices
• Developing commercial farming operations for export crops
• Establishing processing facilities for agricultural products
• Partnering with local farmers to improve yield and sustainability

Market Access

Legal Framework, Founding, Investing

Legal System:
Ethiopia’s legal system is influenced by civil law and customary law. The country has undertaken significant reforms to improve the business environment, including modernizing its legal framework to attract foreign investment.

Legal Disputes:
Companies should consider arbitration in legal disputes. An arbitration award can be obtained locally under the Arbitration Act, based on the UNCITRAL Model Law. Alternatively, arbitration awards obtained abroad can be recognized and enforced in Ethiopia under the New York Convention of 1958. Companies can also file claims in Ethiopian courts, with the Commercial Court handling commercial disputes.

International Organizations
Ethiopia is a member of:

• African Union (AU)
• African, Caribbean and Pacific Group of States (ACP countries)
• Intergovernmental Authority on Development (IGAD)
• Common Market for Eastern and Southern Africa (COMESA)
• United Nations (UN)
• World Trade Organization (WTO)
• Multilateral Investment Guarantee Agency (MIGA)
• World Intellectual Property Organization (WIPO)
• African Regional Intellectual Property Organization (ARIPO)

International Agreements and Bilateral Treaties
Ethiopia is part of several international treaties, including:

• New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
• African Continental Free Trade Area Agreement (AfCFTA)
• ICSID Convention on the Settlement of Investment Disputes

Bilateral agreements between Ethiopia and Europe include:

• Double Taxation Agreement
• Investment Protection and Promotion Agreement

Setting up a Company in Ethiopia:
Company formation is regulated by the Commercial Code and Investment Proclamation, and is done through the Ethiopian Investment Commission (EIC) platform. After formation, companies must be registered in the Commercial Register. The process takes around 30 days, though longer times may be expected.

Establishment Requirements for Selected Legal Forms:

• Private Company Limited by Shares: No minimum capital, max 50 shareholders, limited liability, electronic formation, registry registration required.
• Public Company Limited by Shares: Minimum capital of 50 million ETB, at least 5 founders, limited liability, electronic formation, registry registration required.
• Branch: No minimum capital, registration of parent company documents, appointment of local representatives, registry registration required.

Investing in Ethiopia:
The Investment Proclamation governs investments, with the Ethiopian Investment Commission (EIC) serving as the responsible authority. EIC offers a one-stop center for handling bureaucratic steps. Foreign investment is allowed in most areas, but there are restrictions on land purchases and hiring foreign workers. Corporate tax is 30%, with branches of foreign companies taxed at 37.5%. VAT is 15%, and various withholding taxes apply.

Import Duties:
Ethiopia, as part of COMESA, has preferential trade agreements within the region. Import duties vary depending on the type of goods. The regular VAT rate is 15%, and excise duties apply to harmful and luxury goods. Customs clearance fee is 3.5%, with an additional 2% infrastructure fee.

Companies in industrial parks and SEZs receive customs and tax relief. The EU-Ethiopia bilateral free trade agreement concluded in June 2023, pending ratification, will further facilitate trade.

Custom Declaration:
Customs declarations are made electronically via the Ethiopian Electronic Single Window System. Only approved customs agents can access this system, and importers can apply for a license. Declarations must be submitted within 21 days of goods arriving in Ethiopia. The SCT system in COMESA simplifies customs clearance, and companies can apply for AEO status for expedited processes.

Standards for Imported Goods:
Almost all goods must meet standards set by the Ethiopian Standards Agency (ESA), with verification through the PVoC program. SGS is the contact for exports from Europe. Non-compliant goods are not released by customs. Certain products, such as animals, plants, and used vehicles, are exempt from PVoC but are checked upon arrival.

Trade Barriers:
Import permits or licenses are required for some goods, including agricultural products, mineral oil products, pharmaceuticals, and chemicals. Import bans exist for counterfeit goods, harmful cosmetics, certain chemicals, plastic bags, used tires, and cars older than eight years.

Labor Market and Wages:
Regular employment is estimated at 10% of the population. Companies compete for a small pool of highly qualified workers, offering good retirement and medical benefits to attract and retain talent. The qualification of young professionals to meet the needs of the economy is a major challenge.

Development Projects and Tenders:
International donors, particularly the World Bank and African Development Bank, support many development projects in Ethiopia. These projects often result in international tenders for consulting, delivery, and construction services.

Prepared by: Vincent Oluoch Odhiambo