Following the ratification of the most recent investment proclamation, the council of ministers issued a new investment regulation in September 2020. This regulation introduces important changes made to the previous investment regulation.
One feature of the new regulation that could be considered a radical departure from the previous one would be its use of a negative listing. What this means is unlike the previous regulation it does not contain a list of investment activities that foreign/ joint domestic-foreign investors can engage in; but it rather puts forth a few investment activities reserved for domestic investors and activities to be pursued jointly with the government and leaves the rest open for everyone.
The following are the principal changes introduced in the recent Ethiopian investment regulation:
- Areas of investment for a joint venture with the government
- Areas of investment reserved for domestic investors
- Investment areas reserved for a joint venture for domestic and foreign investors
- Tax incentives
Areas of investment reserved for a joint venture with the government
The new investment regulation allows for investors to work in joint venture with the government in the following industries. The industries are:
- Manufacturing of weapon, ammunition, and explosives
- Import and export of electrical energy
- International airport services
- Bus rapid transit and
- Postal services
Investment areas reserved for domestic investors
Moreover, to protect the interest of domestic investors, the new investment regulation reserves certain areas of investment for domestic investors. As such, the areas of investment reserved for domestic investors includes but is not limited to:
- Banking, insurance, and micro-finance (except for capital good financing)
- Primary and middle-level health services
- Retail trade excluding electronics
- Tour operations and such.
Investment areas reserved for a joint venture for domestic and foreign investors
The new investment regulation, also, specifies areas of investment in which foreign investors can engage in. However, they may do so provided that they are in a joint venture with domestic investors. Furthermore, they may not have a share in the investment exceeding 49%.
These areas of investment include:
- Freight forwarding and shipping agency services
- Domestic air transport
- Cross country public transport( with more than 45 seatings)
- Urban mass transport
- Advertisement and promotion services
- Audiovisual services
- Accounting and auditing services
Among the changes introduced in the new Ethiopian investment regulation is the issuing of industry-specific incentives by concerned sectoral government bureaus. Thus, the new regulation no longer grants specific investment incentives such as income tax exemption and custom tax exemption.
Overall, the new investment regulation aims to make sure foreign investors have a wide variety of investment activities to choose from; while at the same time protecting domestic investments. It also paves the way for investors who aim to engage in previously government monopolized industries.