Addis Ababa, Ethiopia (30 April 2022)
Following the 2018 change in administration, the Ethiopian government undertook some reform measures in the economic arena, one of which was the revision of the investment law. As a result, Investment Proclamation No. 1180/2020 was issued, repealing the previous one. The adoption of Investment Regulation No. 474/2020 soon followed replacing its preceding counterpart.
The rationale for the reform includes the need to strengthen the private sector’s role in the economy; modernize the investment administration system by consolidating relevant laws and increase inward investment by addressing investment-related challenges, and establish effective and transparent grievance handling procedures for investors.
Five areas of the new investment law stand out. These are:
- Liberalization of many areas of investment that was previously either monopolized by the Government or reserved exclusively for domestic investors in Ethiopia. Now there are four classifications of investment areas:
- The first category areas are those exclusively reserved for joint investment between private investors and the Government and make it possible for a State to be actively involved in the implementation of its policies. This comprises postal (except courier) services and international air transport services.
- The second group includes those open only for domestic investors, such as financial services and legal services, as well as wholesale and retail businesses (with some exceptions)
- In the third are those reserved only for joint investment between domestic investors and foreign investors, which encompass logistics, domestic air transport, audiovisual services, and accounting and auditing services.
- The last category of investment areas include those fully open for foreign investors. Any investment area that does not fall in the three other categories is regarded as open for foreign investors
- The negative list approach to liberalization, which is a means of determining areas of investment that are open for foreign investors. Authorities list the sectors or subsectors that are closed (prohibited) or restricted (allowing only minority foreign ownership, requiring special authorization from foreign investors, and so forth). This approach has the merit of being simple to use.
- Comprehensive investors’ grievance handling procedures: This is intended mainly to provide the framework for a potential investor to contest any decision of an investment organ that fully or partially rejects its application to make an investment. If properly utilized, this can help the Government forestall the escalation of complaints into costly
investor–State disputes, thereby preventing waste of public resources. From investors’ perspective, the grievance handling mechanism can be essential to obtain resolutions for their complaints in the early stages without incurring huge expenses.
- A system for investor-State dispute settlement, but a cautious approach to investor-State arbitration: The previous law did not have a provision for investor-State dispute settlement (ISDS). This procedure applies once all the above procedures for handling investors’ grievances have been followed and the matter has escalated into a dispute. If a dispute between an investor and the Government cannot be resolved through negotiation or consultation, in principle, it must be submitted to the competent Ethiopian court. Arbitration can be used as an alternative to resolving a dispute between a foreign investor and the Government if there is a specific agreement to this effect.
- Mandatory investors’ corporate social responsibility (CSR), which requires that investors comply with environmental laws, respect Ethiopian cultures and values and integrate local communities in their investments. Effective supervision of the conduct of investors and their impact on society is also important to ensure that they carry out their CSR, thereby contributing to sustainable development. It is equally vital to encourage investors to engage in CSR activities voluntarily without breaching legal requirements, preferably by exceeding their legal CSR commitments.
The opinions expresses here in the post "5 Features of the New Investment Proclamation and Regulation Laws of Ethiopia" are those of the individua's contributor(s) and do not necessarily reflect the views of Business Info Ethiopia , BIE Intelligence PLC, its publisher, editor, or any of its other contributors.