Legal Update

There has been an effort on the side of the Ethiopian Government to contribute to the enhancement of foreign direct investment in the country. Revising pertinent laws that assists and enhances this objective has been one noticeable effort. One of the laws is the new Investment Proclamation No. 1180/2020. Ethiopian Investment Commission (EIC) revised the investment proclamation, subsequent to consultations with the private sector representatives, that was in effect since 2012 and repealed it by the new Investment Proclamation No. 1180/2020. The new proclamation has introduced significant changes on a variety of areas. The first change is in regards to the listing approach of sectors. The new proclamation changed the sector listing approach from positive listing to a negative listing approach. The previous proclamation used to list areas that are allowed for foreign investors unlike the new one which lists areas that are not allowed for foreign investors. This change is advantageous as it opens more areas in which foreign investors could engage in. They are allowed to engage in any area except those restricted under the proclamation. Investment permit issuance renewal and cancellation used to be manual and was considered as a big gap. The new proclamation has recognized online system in which this fastens the process of issuing permit, renewals and cancellations of investments. There was no rule on dispute settlement in the previous proclamation and had the tendency of limiting the confidence of investors. The new proclamation addressed this problem by stating the option of Alternative Dispute Resolution and Court settlement.

The new investment proclamation established a Standing Council on Inter-Government Relations, apart from Ethiopian Investment Commission and Ethiopian Investment Board. The Standing Council is assumed to reduce the problem of absence of coordination between federal investment commission and regional administrative organs. A foreign capital that is brought by a foreign investor to the country is under the obligation of being registered within one year. Failure to comply with this requirement entails in losing a right to repatriate the proceeds of the investment in convertible foreign currency. Apart from the requirement set both under the repealed and new proclamation that foreign capitals brought to the country by a foreign investor to get it registered at the National Bank of Ethiopia and acquire a registration certificate from the EIC, the new proclamation has set additional requirement in mandating this capital to be registered within one year and the consequence of which is as stated above. Another important thing added by the new investment proclamation is in in regards to aftercare support given by the Ethiopian Investment Commission. Under the new proclamation, this support and monitoring will also be there once the investment has already started. The minimum capital requirement in the new investment proclamation is  $200K  if the foreign investor is investing independently or with other foreign investors;  $150K  if the foreign investor is investing jointly with a domestic investor; $100K if the foreign investor is investing independently or with other foreign investors in areas of architectural engineering works or related consultancy services; $50K – if the foreign investor is investing jointly with a domestic investor in areas of architectural engineering works or related consultancy services; and no minimum capital requirement if the foreign investor already has a venture in Ethiopia and it is re-investing the profits or dividends generated from that venture. This minimum capital requirement is the same as what was stated under the repealed proclamation.

The new Investment Regulation No. 474/2020 repealing Regulation No. 270/2012 has presented new changes to investment in Ethiopia. The negative listing approach has also been followed under this regulation unlike the previous regulation. The regulation has explicitly stated those areas reserved for joint investment with the government which are five sectors, areas reserved for domestic investors which are thirty two sectors and areas reserved for joint investment with domestic investors which are seven sectors. This implies that foreigners can engage in any sectors which are not listed under these categories. This change is assumed to be advantageous for foreign investors as it is less restrictive and will have more option to engage in various sectors.

Regarding the areas reserved for joint investment with the government, there is a possibility of having a Joint Venture with the private sector and the monopoly of the government in some sectors is removed.  The government is now allowed to have Joint Venture with foreign and domestic investors. The sector of import and export of electricity, international air transport services, bus rapid transit; and postal services has now the option of having a Joint Venture with the government. In the previous times, this was not possible as they were open only to the government. Additionally, the sector of distribution of electricity through the integrated national grid and domestic air transport services above a seating capacity of 50 passengers is now allowed for domestic investors instead of reserving it to the government as it was the case in the previous law. The possible grounds of suspension or revocation of investment permits and the specific rules and timeline that investment commission must respond to investment applications is provided under the new regulation. Also, the procedures and the necessary documents in which investors must obtain for the purpose of getting investment permit are stated in detailed manner. Predictability to investors and transparency will be ensured by setting these rules.

Ethiopia has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards/New York Convention on February 13, 2020. The ratification of this convention is vital as it helps in attaining the plan of enhancing foreign direct investment and boosts the business profile of the country. Ratifying the New York Convention means that there has to be automatic enforcement and recognition of foreign arbitral awards from the member countries of the convention. All arbitration agreements, unless amended, concluded before Ethiopia ratified the New York Convention will not be regulated under the convention. The New York Convention only applies to those agreements concluded after the ratification. The ratification of the New York Convention will have the tendency of attracting foreign investors who will use the recognition of foreign award in that country and conduct international arbitrations having their seat in Ethiopia to their own benefit. Furthermore, the ratification of this convention has the possibility of creating confidence in investing in the country on the side of investors. Recognition and enforcement of foreign arbitral awards will certainly create assurance for investors to invest in the country. The experience of Ethiopia shows that there is reciprocity in enforcing foreign awards. For the purpose of enforcing a foreign award, the country in which foreign award is granted must reciprocally enforce awards made in Ethiopia.

There were some reservations made by Ethiopia when ratifying this convention. Reciprocity was the first reservation. Ethiopia has stated that it will only apply the convention when the award is issued in signatory states. Awards will only be applied when they are issued by a signatory state. Moreover, application of the convention will only be to differences arising out of legal relationships deemed ‘commercial’ in Ethiopian law. And as stated above, there is no retrospective application of the convention. This was another reservation. The convention will not be applicable to arbitration agreements concluded after the period of ratification.


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