10 REASONS TO INVEST IN ETHIOPIA
1. Stable economic environment
- Comprehensive development strategy
- Stable macro-economic condition
- Among top five fastest growing economies in the world
- Double digit economic growth averaging 10-11 per cent per year during the last ten years
- Safe and secure working and living environment
- Low level of corruption
2. Liberalised economy
- Major economic sectors are open for investment and marketing
- Remittance out of Ethiopia from invested capital ( dividends and interest) is permitted
- 100 percent ownership of investment is permitted with the following minimum initial investment:
• USD 200,000- sole foreign investment
• USD 150,000- where the foreign investor is in a joint venture with domestic partner
• USD 100,000- for engineering consultancy works and publishing business where the ownership is fully owned
• USD 50,000 where the investment is to be made jointly with domestic partner(s).
• A foreign investor reinvesting his profits or dividends generated from existing enterprise is not required to allocate a minimum capital.
3. Strong investment guarantees
- The constitution and the investment code of the country.
- Signatory to Multilateral Investment Guarantee Agency (MIGA), a World Bank affiliated Convention on the Settlement of Investment Disputes between States and National of Other Countries (ICID) and World Intellectual Property Organization (WIPO)
4. Investment incentives 4.1.Fiscal incentives
- Customs Import Duty – 100% exemption on all imports of investment capital goods and construction materials necessary for the establishment of new enterprises or for the expansion and upgrading of existing ones; including spare parts worth up to 15% of the imported investment on capital goods; plus exemption for import of raw materials needed for the production of export goods.
- Export Customs Duty – products and services developed in Ethiopia are exempt from export tax.
- Income tax ‘holiday’ – an income tax holiday between 2 and 7 years (variable depending on area of investment, location and volume of export) is available to income derived from new manufacturing and agro-industrial investment, or agriculture investment and information and communication
technology (ICT) development.
4.2 Non-fiscal incentive
All exporters’ investors who invest to produce export products are allowed to import machinery and equipment necessary for their investment projects through suppliers credit.
4.3 Loss carry forward
Businesses that have suffered losses during this ‘holiday’ can carry them forward for half the exemption period, once that exemption has expired.
4.4. Export incentives
4.4.1 Fiscal incentives
– With the exception of semi-processed hides and skins (export tax rate is 150 percent), no export tax is levied on export products of the country.
– Any investor who exports or supplies to an exporter (production or service input of at least 60 percent of the products or services) shall be entitled to income tax exemption for 2 years in addition to the income tax exemption.
– Duty Drawback Scheme: duty paid at the airport of entry and locally, on raw materials used in the production of commodities is refunded, 100 percent, upon the exportation of the processed commodity.
– Voucher System: A voucher book is a printed document to be used for recording balance of duty payable on raw materials imported for use in the production of goods for external market. The beneficiaries of the voucher are also exporters.
– Bonded Factory and Manufacturing Warehouse: Producers wholly engaged in exporting their products who are not eligible to use the Voucher Scheme can obtain a license that enables them to operate such factory or warehouse.
4.4.2. Non-fiscal incentives
– Exporters are allowed to retain and deposit in a bank up to 20 percent of their foreign exchange earnings for future use in the operation of their enterprises and no export price control is imposed by the National Bank of Ethiopia.
– Franco Valuta import of raw materials are allowed for enterprise engaged in export processing; and
– Exporters can benefit from the export credit guarantee scheme, which is presently in place in order to ensure an exporter receives payment for goods shipped overseas in the event that the customer defaults, reducing the risk of operators’ business and allowing it to keep its price competitive.
4.5. Others
– Availability of Loans for Investors – agriculture, agro-processing and manufacturing industries, preferably export focused, can obtain 70% of their investment capital requirement from the development bank of Ethiopia with a very reasonable interest rate.
– Availability of land at industrial zones for investors that have interest to invest in government priority sectors.
– The registration of businesses and the issuance of the export trade license is highly simplified and provision of one-stop shopping is in place at the Ethiopian Investment Commission.
5. Conductive tax environment
– Corporate income tax (tax on profit) is 30%
– Excise tax is levied (10 % up to 100 %) on selected local or imported products
– Turnover tax at 2% on goods sold and services rendered locally, 2% on contractors, grain mills, tractors and combine harvesters; and 10% on other sectors by those who are not registered for VAT and whose value of annual taxable transaction is less than 500 thousand Birr.
– Customs duty on unexempted imports ranges from 0 to 35%
– Income tax ranges from 10 to 35% on monthly income of Ethiopian Birr 150 and above
– Withholding tax is payable on imports at 2 % of cost, insurance and freight
VAT is paid at a rate of 15% of the value of every taxable transaction by a registered person and all imports of goods and services other than those exempted like import of petrol, gold to be transferred to the National Bank of Ethiopia, for prescription drugs, educational services etc.
– Dividend tax (on income derived from dividends from a share company or withdrawals of profits from a private limited company) at 10%
– Royalty tax (on income derived from technology and intellectual property rights) at 5%
– Capital gains tax – Share of companies 30%; business, factory or office buildings 15%; residences 0%
– Rental income tax (on annual rental income) between 0 and 35% dependent on level of rental income
– Stamp duty – Leasing 0.5% of value; registering title to property 2% of value; contract of employment 1% of salary; bonds 1% of value etc
6. Investment opportunities
– Agriculture – Ethiopia is known as a home of organically grown agricultural products. It has ample arable land, diverse agro-ecological zones, good rainfall and irrigation potential. New private investment is encouraged in the production and processing of agricultural crops such as coffee (the country's single most important cash crop), tea, sugar, flowers, fruits and vegetables, wheat,
maize, beans, peas, lentils, soya beans, chickpeas etc., starch production, oil crops such as rapeseed, linseed, groundnuts, sunflower, sesame, maize, niger seed and cotton seed, as well as investment opportunities for introducing modern commercial livestock breeding and processing into the largest livestock population in Africa (cattle, sheep and goats), plus significant freshwater fishery and apiculture resources. Investment is also required in the provision of agricultural support services such as pest and disease control, agricultural machinery and cold storage.
_ Textiles - opportunities for production and processing of cotton, as well as producing and finishing textile fabrics and garment production.
– Leather and leather products – opportunities for investment in tanning to finishing: manufacture of luggage items, handbags, saddle and harness items, footwear and garments.
– Horticulture – cut flowers, roses, fruits and vegetable are fast-growing export businesses, with great potential for private investment.
– Energy production – a huge unexploited hydropower potential as well as thermal, wind and solar energy production opportunity. Foreign investors can participate in generating, off grid transmission and distribution of electricity.
– Mining – as a result of the conductive fiscal and legislative environment, the country is now enjoying the participation of both foreign and local investors in exploration and mining. The country is endowed with metallic, industrial, construction and precious minerals. Exploration is also on going for oil and gas deposits.
– Construction – manufacturing of cement, ceramics, gypsum, marble, granite, and limestone, lime, etc. as well as participation in the real-estate development and leasing of construction equipment.
– Tourism – untapped tourism potential that ranges from historic, natural and cultural attractions providing ample opportunities for investment in star designated hotel and resort, lodges (including eco-lodges), international restaurants and setting up tour operators.
– Privatisation – state-owned enterprises are open for privatisation mainly in the leather, shoes, textiles, mining, food & beverage industries, transport and construction, agri-services, hotels & tourism and pharmaceutical industries.
7. Strong market with excellent market access
– Strong internal market with a population of 84.8 (2012/2013) million which is the second largest in Africa.
– The large and fast-growing domestic market offers good prospects for investment in and the development of consumer good industries such as food, beverages, tobacco, plastic products, soap and detergents, glass and ceramics, chemical and chemical products, drugs and pharmaceuticals, paper and paper products as well as electrical and electronic products.
– Located in the ‘Horn of Africa’ at the crossroads between Africa, the Middle East and Asia, Ethiopia offers a strategic market access.
– Membership of the Common Market for Eastern and Southern Africa (COMESA) embracing 19 countries with a population of about 400 million. Ethiopia enjoys the benefits of preferential tariff rates on exports to these countries.
– Ethiopia is an ACP member (African, Caribbean and Pacific Group) and accession to the WTO is under negotiation.
– Ethiopia also enjoys Duty Free and Quota Free (DFQF) privilege extended by, among others, USA – Africa Growth and Opportunity ACT (AGOA), EU – Everything But Arms (EBA), China –‘0 Tariff’ privilege and India - DFQF.
– Investors engaged in the export sector of Ethiopia will have competitive edge in these markets.
8. Strong natural resource base
– Good rainfall, rich soils and favorable temperature range. Climate is identified by the UN and ICC as 'exceptional', offering ”an excellent environment for various agricultural activities”
– Unexploited mineral deposits, specifically gold, tantalum, platinum, nickel, potash and soda ash.
– More than 513,000 square kilometers of arable land (45%) and about 34,200 square kilometers of irrigable land (3%).
– Diverse natural, historical and cultural tourist attraction with wide area of opportunity for development.
– More than 45,000 MW hydropower, 10,000 MW wind energy and 5000 MW geothermal energy potential.
– Both urban and rural land is available for investment on leasehold basis. Lease right over land can be transferred, mortgaged or sub-leased together with on- build facilities. Leaseholders have the right to use urban land for up to 60-90 years in Addis Ababa and in a town designated as of the grade of Addis Ababa, and up to 70-99 years in other regional urban centers. The period of lease may also be renewed. Any lease-hold possessor may transfer or undertake a surety on his rights of lease-hold; and may also use it as a capital contribution to the amount of the lease payment the investor has made. Lease price payment may be made wholly at the signing of the lease contract or periodically with bank compound interest on the unpaid balance. The minimum price of urban land is determined prior to its possession on auction or through negotiation. As development tool, developing industrial zones has been considered to help sustain the development of the economy by targeting local and foreign direct investments, enhancing competitiveness, and facilitating export-led growth. Through the industrial zone development program, the Government of Ethiopia intends to create favorable condition for private sector investment in priority industries in the capital and in selected regional government main cities. The average raft estimated costs of land in industrial zones designated range from regional city to regional city
9. Trainable and cheap labor
– Ethiopia has a young, trainable and disciplined labor force.
– Private universities and colleges flourishing in Addis and regional cities.
– 31 Government universities which provide regular, continuing and distance education in the federal and all regional states. By policy of the government, the universities have intake scheme of 70 percent in science streams and 30 percent in non-science streams on a regular program.
– Ample opportunity to meet the demand of skilled manpower in the technical and vocational field due to the expansion of Technical and Vocational Education and Training (TVET) college.
– Average private sector wage 100-200 USD per month, with graduate salaries at between 135-185 USD per month.
– Expatriate employees permitted in senior positions, with prior consent from the Ethiopian Investment Commission (where employer is sole or major owner or shareholder of enterprise). Expatriate experts are also permitted, as long as the investor trains their replacement within a designated time period.
– Good standards of spoken and written English.
10. Good infrastructure standards
– Air Transport – the Ethiopian Airlines (EA), African world class airline, connects the country with over 84 destinations worldwide. EAL reaches to more than 49 destinations in Africa, USA and Canada and many European 13 destinations including, London, Paris, Hague, Brussels and Rome, Vienna etc and 22 Gulf, Middle East and Asia destinations including China and India in Asia and Dubai, Tel Aviv and Jeddah/ Riyadh in the Middle East . It provides both passenger and cargo flights in its domestic and international flights. EAL has an outstanding safety record. Its modern air cargo terminal is furnished with cold storage to handle perishable products and operates in over 40 cargo operations spread across Africa, Europe, Asia and the Middle East via its hub- Addis Ababa, and another cargo hub at Liege. Ethiopia has 3 international and 18 domestic airports.
– Road transport – Investment in road infrastructure is given a high priority. The total road network is about 52,227 km by 2012/13 of which 37.3 percent are federal roads and the remaining 62.7 percent are rural roads with an annual growth rate of 10.7 percent. The asphalt road constitutes 37 percent and gravel road 63 percent. The road network is expected to reach 64,500 km. by the end of 2014/2015. The road network links Addis Ababa to various parts of Ethiopia and neighbouring countries.