Ethiopia

Market Overview

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Country overview
  • Name - Federal Democratic Republic of Ethiopia
  • Capital city - Addis Ababa
  • Population (2021) - 120,283 million (World Bank)
  • Languages spoken (three most widely spoken) - Amharic, Afan Oromo, Somali
  • Neighbouring countries - Somalia, Kenya, South Sudan, Sudan, Eritrea, Djibouti
Economy
  • GDP – USD111.27 billion (2022) (World Bank)
  • Net inflow of FDI (2021) – USD 4.26 billion (World Investment Report)
  • Top three exports by value (2022) – gold, coffee, live animals, oil seeds, flowers. (Trading Economics)
  • Top three import sources (2022) – China, Saudi Arabia and United States. (Trading Economics)
  • Top three export destinations (2022) – Switzerland, Somalia and China. (Trading Economics)
  • Currency - Ethiopian Birr (ETB) – 1 USD = 545.8 ETB as at August 2, 2023

1. Current Economic Conditions

1 Recent legislation reforms

Since 2018, Ethiopia has undergone several holistic policy and legislative reforms. In light of this, several laws that have aimed at easing doing business have been enacted. The enactment of the new Commercial Code; Movable Property Security Rights Proclamation; Public-Private-Partnership Proclamation; Capital Market Proclamation; the revision of different investment regulations and the Ethiopian Civil Societies Proclamation, as well as the ratification of the New York Convention are among many others.

1.1 New Capital Market Law

The Ethiopian Government passed the Capital Markets Proclamation No. 1248/2021 to set up a local capital market with a clear set aim of developing the national economy through mobilizing capital, promoting financial innovation, and sharing investment risks. The Government has also set up a project team that has been working to draft proper directives for approval by the Board of Directors of the Capital Market Authority to supply detailed guidance and requirements to enable the effective implementation of the Capital Market Proclamation.

Last January, the Ethiopia Capital Market Authority (ECMA) disclosed that it has finalized preparations to start operation within the coming two years.

1.2 Public Enterprises Privatization Law

According to this 2020 Proclamation, privatization is a transaction that results in either the sale of assets or share capital of a public enterprise in full or in part to private ownership and control. The Proclamation considers extensively pre-privatization activities, public enterprise restructuring, and other activities before privatization. Essentially, the Proclamation provides for the procedure of conversion of a public enterprise to a share company, valuation of public enterprises, and issues relating to post-privatization

1.3 Telecom and Mobile Money Liberalization

Under the new investment law, the telecom sector has been liberalized for foreign participation. Following such liberalization, the Ethiopian Communications Authority issued a bid for a license to engage in the telecom sector. Safaricom Consortium has won the bid and successfully launched in the Ethiopian market. Further, a second bid for a license to enter into the Ethiopian telecom market has been issued. The government has also decided to sell 49% of its stake in its ownership of Ethio- telecom, a government-owned telecom

1.4 New Investment Law

On 30 January 2020, Ethiopia enacted a New Investment Proclamation. The major development in this new investment law is the shift from the positive listing of areas allowed for foreign investors to a negative listing which is broader. The government has also opened up previously closed sectors to foreign investment. In addition to this, these legislations lay down procedures for handling investors’ grievances and for resolving investor–state disputes, principally through domestic institutions.

1.5 Revision of the 1960 Commercial Code

Revising the old Commercial Code that has been in effect since 1960 has brought one of the major legislative changes.  In this new Code liability limited partnership (LLP) has been recognized as one form of business organization.

1.6 Ratification of the 1958 New York Convention

Ethiopia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2020. The Convention applies to arbitration agreements and arbitral awards made only after Ethiopia acceded to the Convention.

2. Business vehicles/structures for doing business

Introduction

Business can be set up in the form of sole proprietorship, business organisations incorporated in Ethiopia (a one member private limited company, a private limited company, a share company or partnerships), branch of a foreign company, public enterprises, and cooperative societies. Partnerships are associations of persons whose liability is unlimited (except limited partners in limited partnerships and partners of limited liability partnership). Limited liability companies could take the form of a one member private limited company, a share company or a private limited company.

Presence of Foreign Entities

Incorporating a subsidiary company and opening a branch of a foreign company are the main vehicles for foreign entities to trade in Ethiopia. Foreign companies may also promote their business in Ethiopia by opening a commercial representative office. A branch of a foreign company is treated as an extension of its parent foreign company. In contrast, a subsidiary of a foreign company is treated as separate from its parent company.

Foreign investors that come to operate in Ethiopia by winning international bids can also set up a project office to perform a specific contract.

Registration requirements and level of protection offered to share-holders of the various business vehicles

Companies

A one member private limited company is a limited liability business organisation incorporated by a unilateral declaration of a single shareholder. This form of legal entity was recognized for the first in 2021 by the Revised Commercial Code of Ethiopia.

A share company and a private limited company are associations of capital formally established by the signing of a memorandum of association and articles of association.

A private limited company and a share company require a minimum of two and five shareholders respectively. The maximum number of shareholders in a private limited company cannot exceed 50.

Once shareholders have signed the memorandum and articles of association before a public notary and the same are deposited in the commercial register, the company becomes a legal person. After registration, obtaining a business license is necessary to start business operations.

Companies are legal persons whose liabilities are met by their assets only. Shareholders of companies are liable only to the extent of their contributions.

Private limited companies are not subject to detailed regulations when compared to a share company, which the law regulates strictly. A private limited company is more of a family company while a share company is a public company. A share company is required to have a board of directors and auditor/s and it should also conduct a general meeting of shareholders at least once a year. A private limited company is not required to have an auditor unless the number of its shareholders exceeds 10 or its total assets exceeds 10 million Ethiopian Birr.

A private limited company cannot issue transferable securities like bonds, debentures, while a share company can issue transferable securities.

Branch of Foreign Entities

Foreign incorporated companies can register a branch in Ethiopia to undertake business activities.

The requirements for registering a branch of a foreign company include the submission of:

  • notarised and authenticated minutes of a resolution passed by an authorised organ of a foreign business organisation authorising the opening of a branch in Ethiopia
  • Certificate of incorporation of a foreign parent company
  • Copies of memorandum and articles of association or similar documents of the business organisation.

There are four types of partnership recognised under Ethiopian law. These are limited liability partnership, general partnership, limited partnership and joint venture. Partnerships should be formed by a partnership agreement and registration is a prerequisite for a partnership to obtain legal personality. However, these requirements do not apply to joint ventures, which have no legal personality.

Sole Proprietor

A sole proprietor is a person who conducts a business in his/her own name with unlimited liability. For a sole proprietor to operate a business, he/she has to obtain a commercial registration certificate and a business license.

Trade Representative Office (TRO)

Foreign investors who are not interested in trading activities can register a commercial representative (liaison) office and appoint a commercial representative to undertake pro - motional activities in Ethiopia.

Before starting its operation, the commercial representative should be registered with the Ministry of Trade and Regional Integration and get a certificate of commercial representative. To secure the certificate, among other things, a minimum of USD100,000 has to be brought into Ethiopia, which is expected to cover salaries and operational expenditures of the office for a year. After the issuance of a valid certificate, a commercial representative can promote the products and services of the principal foreign company, study projects that will enable the principal to make investments in Ethiopia and to promote export products of Ethiopia in the country of origin of the principal company.

Registration requirements

Registration is a requirement for companies to do businesses in Ethiopia. Operating a business without obtaining a business license entails administrative and criminal liabilities.

Business rights and regulatory environment

Licenses and regulatory

Requirements to trade

Various kinds of permits, registrations and licenses are required to operate business in Ethiopia. These include investment permit, business license, commercial and tax registrations. No person may carry out a commercial activity without obtaining a valid business license.

Anti-money laundering, anti-bribery and corruption

The Prevention and Suppression of Money-Laundering and Financing of Terrorism Proclamation No. 780/2013, the Criminal Code of 2004, Prevention and Suppression of Terrorism Crimes Proclamation No.1176/2020, Corruption Crimes Proclamation No. 881/2015, Revised Anti-Corruption Special Procedure and Rules of Evidence (Amendment) Proclamation No. 882/2015, Financial Intelligence Centre Establishment Council of Ministers Regulation No. 171/2009, Revised Federal Ethics and Anti-Corruption Commission Establishment (Amendment) Proclamation No. 883/2015 and the National Payment System Proclamation No. 718/2011 are major laws that regulate crimes related to money laundering, bribery and corruption in Ethiopia.

Competition

The Trade Competition and Consumers' Protection Proclamation No. 813/2013 aims to promote competitive practices in the local market, and eliminate or prevent anti-competitive and unfair trade practices. It also regulates anti-competitive practices such as price-fixing, collusive tendering, market and consumer segregation, refusals to deal to sell or render services, practices intended to eliminate competitors, and practices regarded as abuse of dominance.  The threshold for a merger notification is 30 million ETB.

Regarding mergers, the law requires the consent of shareholders and the amendment of memorandum and articles of associations for mergers to take place. Two or more firms may merge, either by taking over or by the formation of a new firm. A decision to merge shall be taken by each of the firms concerned. Special meetings of shareholders of different classes or meetings of debenture holders shall approve the taking over or being taken over. The claims and liabilities of the firms that have been merged shall pass to the firm taking over as a result of the merger.

Consumer protection

The Trade Competition and Consumers' Protection Proclamation No. 813/2013 established the Trade Competition and Consumer Protection Authority. However, Trade Competition and Consumer Protection Authority was dissolved and its mandates has been transferred to the Ministry of Trade and Regional Integration since September 2021. Under this Proclamation, consumers have the right to be provided with accurate information on the quality and type of goods or services, and to claim for remedies in relation to problems associated with such transactions.

Data protection and privacy

Ethiopia does not have a comprehensive law, which is specifically designed to regulate privacy and data protection issues. However, there are a set of rules contained in various pieces of legislation that guarantee the right to privacy in an indirect fashion.

Environmental law

The law provides that all investors have an obligation to observe social and environmental sustainability values including environmental protection standards and social inclusion objectives in carrying out their investment projects. The specific laws on environmental protection in Ethiopia are the Environmental Pollution Control Proclamation No. 300/2002 and the Environmental Impact Assessment Proclamation No. 299/2002. Proclamation No.300/2002 imposes obligations on companies to prevent environmental pollution in the course of their operations and penalizes failure to do so.

Intellectual property (IP)

Ethiopia acceded to the Convention establishing the World Intellectual Property Organisation (WIPO) in 1998. The Ethiopian Constitution of 1995 provides the foundation for protection of intellectual property rights. Additionally, the Inventions, Minor Inventions and Industrial Designs Proclamation No. 123/1995, the Copyright and Neighbouring Rights Proclamation No. 410/2004 (as amended by Proclamation No. 872/2014) and Trademark Registration and Protection Proclamation No. 501/2006 are in place to protect intellectual property rights.

Land rights

The Constitution of Ethiopia provides that ownership of land belongs to the state and the nations, nationalities and peoples of Ethiopia. The Constitution similarly provides that the Government will ensure the right of private investors to use land on a lease holding basis.

The Urban Land Lease Proclamation of 2011 gives investors the right to use of land on leasehold for periods of 15 years up to 99 years. The land cannot be mortgaged or sold, but the lease value of the land and the fixed assets thereon may be mortgaged or transferred to third parties. Regional governments and municipal administrations are authorised to allocate rural and urban land on rent lease in accordance with their respective laws.

Employment and labour relations

Currently, the principal legislations that regulate private employment relationships in Ethiopia include the Labour Proclamation (Proc. No. 1156/2019), the 1960 Ethiopian Civil Code) and the Private Enterprise Employees Social Security Proclamation (Proc. No. 715/2011), as amended. These sets of law are complemented by different decisions of the Cassation Division of the Federal Supreme Court.

Ethiopian labour law classifies employment relationships into managerial and non-managerial employment. The Labour Proclamation No. 1156/2019 governs non-managerial employees, and the Ethiopian Civil Code applies to managerial employees. The Proclamation defines ‘Managerial Employee’ as an employee who, by law or delegation, of the employer, is vested with powers to lay down and execute management policies, and depending on the type of activities of the undertaking, with or without the aforementioned powers, an employee who is vested with power to hire, transfer, suspend, layoff, dismiss, or assign employees, and includes a legal service head who recommend measures to be taken by the employer regarding such managerial issues, using his independent judgement, in the interest of employer.

Employment of foreign nationals

Under Ethiopian law, employers can employ expatriates only for positions that could not be filled by Ethiopian nationals. Foreign employers may, however, employ expatriates for top management positions without any restriction.

Corporate governance

Laws governing corporate governance

The Ethiopian Commercial Code of 2021, the Banking Business Proclamation No. 592/2009, Bank Corporate Governance Directives No. SBB/62/2015, the Insurance Business Proclamation No. 746/2012 and the Commercial Registration and Business Licensing Proclamation No. 980/2016 are the principal sources on corporate governance.

Banking and finance

The Commercial Code of 1960 (Book IV), the National Bank of Ethiopia Establishment Proclamation No. 591/2008, the Banking Business Proclamation No. 592/2008 (as amended), the Insurance Business Proclamation No. 746/2012, the Capital Goods Leasing Business Proclamation No. 103/1998 (as amended), the Registration and Supervision of Capital Goods and Capital Goods Leasing Agreement Regulation No. 309/2014, the Micro-Financing Business Proclamation No. 626/2009, and different directives of the National Bank of Ethiopia regulate the financial services sector in Ethiopia.

Financial services are reserved for Ethiopian nationals and foreign nationals of Ethiopian origin. Foreign financial institutions are not allowed to operate in Ethiopia and foreign nationals and companies are prohibited from owning shares of local financial institutions.

A foreign company may open a local bank account through its subsidiary or branch or representative offices duly registered in Ethiopia.

Foreign exchange regulations

Ethiopia has a number of exchange control directives issued by the national bank of Ethiopia at various times. All capital brought in and invested in Ethiopia should be registered by the Ethiopian Investment Commission and the National Bank of Ethiopia. Technology transfer agreements should also be registered with the Ethiopian Investment Commission to avoid difficulties during repatriation.

It is very important to comply with the requirements set forth above as subsequent requests for repatriation of profits and dividends and other payments depend in large part upon compliance with this requirement.

Foreign investors having business in Ethiopia have the right to repatriation of profits and dividends accruing from their investments, principal and interest due on foreign loans, payments related to technology transfer, payments related to collaboration agreements, capital gains proceeds from transfer of shares or transfer of partial ownership to a domestic investor, proceeds from the sale or liquidation of the business and compensation paid to an investor under the investment laws.

Private equity

The law requires that foreign investors should obtain approval from the Ethiopian Investment Commission in order to acquire shares of existing companies. The approval of the Ministry of Trade and Regional Integration (the successor of Trade Competition and Consumers Protection Authority on merger related issues) is also a requirement.

Tax, duties and tariffs

The principal taxes currently in place are corporate income tax, value added tax (VAT), customs duties and excise taxes.  A number of final withholding taxes are imposed on income such as income from employment, dividend, and royalties.

Ethiopia follows a classical corporate income taxation system in which tax is imposed both at corporate and shareholder level. Corporate income tax rate is 30% and dividend tax rate is 10%. All entities (except those currently enjoying income tax holidays) that carry on business or trade are subject to corporate tax. A business or a trade is defined as any industrial, commercial, professional or vocational activity or any other activity recognised as trade by the Commercial Code of Ethiopia and carried on by any person for profit.

Partnerships are treated as entities for tax purposes and are therefore subject to corporate income tax.

Distribution of dividends is subject to 10% withholding tax at the time of declaration of dividends by companies. Companies are liable for withholding of dividend tax regardless of whether they distribute dividends or not unless they transfer the dividends declared to increase their capital within the time limit set down in directives issued by the Tax Authorities.

Interest on bank deposits is subject to 5% withholding tax, which is final. Interest paid on loan from foreign lender recognised as a financial institution by the National Bank of Ethiopia is subject to a 10% withholding tax, which again is final. The borrower in Ethiopia must withhold the 10% tax on a foreign loan in order to obtain deduction of the interest in Ethiopia.

The withholding tax rates may be reduced by the provisions of an applicable double taxation treaty for non-resident shareholders but these reductions are subject to taxpayers meeting beneficial ownership limitations. Ethiopia has ratified double taxation treaties with countries like UK, France, Israel, Romania, Russia, Turkey, South Africa, Tunisia, Algeria, Yemen and Czech Republic.

Capital gains tax applies to transfers of shares, bonds and buildings held for business purposes. The capital gains tax rate on transfer of shares or bonds is 30% of the gain. The capital gains tax on transfer of buildings held for businesses is 15% of the gain.

VAT is chargeable on the supply of goods or services by registered suppliers. Suppliers are normally required to register for VAT if their annual turnover of supply exceeds one Million Ethiopian Birr. Some supplies are exempted from the VAT. These include financial services, educational, health and transportation services. Some supplies, most notably exports and international transport services, are zero-rated under the VAT regime of Ethiopia.

Import duties are payable on imports by all persons and entities which have no duty-free privileges. The rate of customs duties ranges from 0% to 35%. Other taxes may also be imposed on imports: Excise duties on selected goods (e.g., tobacco); surtax on many imports; value added tax (15%) and an advance payment of corporate tax (3%).

Most export products and services from Ethiopia are free from export tariffs. However, some exports from Ethiopia such as raw hides and skins are subject to export duties.

Ethiopian investment and tax laws grant tax incentives in the form of duty free privileges for imports, income tax holidays, and in some cases income tax deductions. The tax incentives depend on the type, size and location of investments.

 Charities and societies

The major law that governs civil society organizations (CSOs) in Ethiopia is the Civil Society Organisations Proclamation No. 1113/2019 (the ‘Proclamation’). There are major aspects and significant developments of this law as compared to the previous law and regime which placed excessive restrictions.

Mining and energy

Ethiopian Constitution Provides for State form of land and resource tenure. The fast-growing mining sector, primarily as a result of the foreign direct investment, in Ethiopia, has necessitated the revision of antiquated mining laws that were in place. Currently, there are a number of laws that govern mining operations, petroleum operations, and transaction in precious minerals. The laws that currently regulate the industry include: Mining Operations Proclamation No. 678/2010; Mining Operation (Amendment) Proclamation No. 816/2013; Petroleum Operations Proclamation No. 295/1996; Mining Operations Regulation No. 423/2018 and Transaction of Precious Minerals Proclamation No. 651/2009. The laws regulate the requirements and procedures for acquiring the different licenses (Reconnaissance, Exploration and Mining) that are required to undertake various activities associated with mining and minerals. The rights and duties that these licenses carry are also dealt with under these laws. These laws task, among others, the FDRE Ministry of Mines and Petroleum and the respective regional bodies to license and supervise entities that are involved in the mining industry.

Investments in the Ethiopian energy sector are regulated principally by the Energy Proclamation No. 810/2013 (as amended by Proclamation No 1085/2018), the Energy Regulation No. 447/ 2019, Geothermal Resources Development Proclamation No. 981/2016 (as amended by Proclamation No. 1204/2020) and Regulations No. 453/2019, EEA Directive No. 418/2020 and Ethiopian Energy Authority Establishment Regulation No. 308/2013.

Pursuant to the Investment Proclamation No. 1180/2020, the business of generation of electricity as well as off- grid transmission and distribution are open to foreign investors either to carry out the investment in a solely foreign- owned entity or through a joint venture with a local company or the government.

Real estate and conveyancing

Ethiopia's current investment policy not only encourages foreign investment in the real estate sector but it is 100% free and suitable for foreigners to enter into the sector. Nonetheless, there are no duty free privileges or any other incentives provided by the government to the sector.

Legal framework

The 1960 Civil Code of Ethiopia, Urban Land Lease Holding Proclamation No. 721/2011, Investment Proclamation No. 1180/2020, Ethiopian Building Proclamation No. 624/2009, Building Regulation No. 243/2011 and the Building Directive, are the principal laws that govern land and real estate matters in Ethiopia.

However, Real estate is one of the under regulated sectors in Ethiopia. Since there is no single law that specifically applies to the sector, there exists a huge gap in laws that govern the area. A draft proclamation that provides for Real Estate Development, marketing and valuation has been in the in the pipeline for quite some time now.

The Urban Land Lease Holding Proclamation of 2011 gives investors the right to use of land on leasehold for periods of 15 years up to 99 years. The period of urban land lease is currently 99 years for residential purposes and 60 years for land acquired for commercial purposes. The land cannot be mortgaged or sold, but the lease value of the land and the fixed assets thereon may be mortgaged or transferred to third parties. Regional governments and municipal administrations are authorised to allocate rural and urban land to investors on lease in accordance with their respective laws.

Requirements

An investor who wants to develop real estate in Ethiopia must first secure an investment permit from the Ethiopian Investment Commission provided that it fulfils all requirements such as proof of a minimum capital of USD200,000 for a wholly foreign owned investment and USD150,000 for a joint investment of foreign and domestic investors, and payment of registration and permit fees. Any foreign real estate developer may acquire land in Ethiopia through lease from the government or a private contract. An investor who acquires land under a lease has to enter into a land lease agreement with the Government. Once the necessary permits and certificates have been acquired, an investor must then apply for and be issued with a construction permit from the competent office, on presentation of documents such as the proposed building plan and a land lease certificate.

Exiting an investment

Disposal of investment

Shareholders can dispose their shares in companies through direct sale to willing third party purchasers. There is also a possibility under the Ethiopian Commercial Code for companies to redeem their own shares.

Shareholders may also agree to contractually provide for call options in company bylaws or shareholders/investment agreement in accordance with which the sale or purchase of shares can be enforced under specified conditions.

Listing

There is no stock exchange market in Ethiopia.  The Capital Market Proclamation No. 1248/2021 was came in to force in July 2021. This Proclamation established Ethiopian Capital Market Authority with a mandate to regulate secondary market in Ethiopia. There are ongoing activities to establish securities exchange in Ethiopia.

Stock acquisition, asset acquisition and business acquisition

The Ethiopian Investment Commission must approve the acquisition of shares of existing companies by foreign investors and the Ethiopian Trade Competition, and Consumer Protection Authority should approve an acquisition of share interests in existing companies in Ethiopia.  Ministry of Revenue should issue tax clearance to the existing company before the acquisition of shares.

Investment protection

In Ethiopia, no investment can be expropriated or nationalised by the government except for public interest and then, only in conformity with the requirements of the law. The Constitution of Ethiopia protects private property. The Investment Proclamation also provides investment guarantees against measures of expropriation and nationalisation. In the event of expropriation or nationalisation, adequate compensation has to be paid in advance.

Ethiopia is a member of the World Bank affiliated Multilateral Investment Guarantee Agency (MIGA), which issues guarantees to investors against non-commercial risks such as expropriation. Moreover, Ethiopia has also concluded bilateral investment promotion and protection agreements with various countries. Ethiopia has also signed (but not ratified yet) the Convention on Settlement of Investment Disputes between States and nationals of other states. Ethiopia acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the New York Convention entered into force in Ethiopia as of 22 November 2020.

Firm overview

Mehrteab & Getu Advocates LLP (“MLA) is a leading full-service law firm in Addis Ababa. MLA is staffed with high-calibre lawyers who are accomplished in their fields of expertise as well as support staff which include legal assistants and other office personnel.

Practice areas

  • Arbitration and litigation
  • Aviation
  • Banking and finance
  • Charities and societies
  • Contract negotiation and drafting
  • Corporate and commercial
  • Employment and immigration
  • Hospitality and leisure
  • Intellectual property
  • Investment
  • Mergers and acquisitions
  • Mining and energy
  • Private equity
  • Real estate and conveyancing
  • Sovereign debt
  • Tax

Website

www.mehrteableul.com

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News & Developments

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Press Releases

Dablo Law Firm Joins LEX Africa as the Exclusive Ethiopian Member

Addis Ababa, Ethiopia – 5 March 2025   – Dablo Law Firm, one of Ethiopia’s premier full-service law firms, has officially joined LEX Africa, the continent’s largest and longest-standing legal alliance. This strategic move strengthens Ethiopia’s representation in LEX Africa’s expansive network of leading independent law firms across 30 African countries. Founded in 1993, LEX Africa is a Band 1 ranked legal alliance that provides cross-border and local African legal solutions to businesses, investors, and organizations operating across diverse sectors. The addition of Dablo Law Firm further enhances LEX Africa’s ability to offer world-class legal expertise across Africa. LEX Africa Chairperson Pieter Steyn says, "We are delighted and honoured to welcome Dablo Law Firm to LEX Africa.  Ethiopia is a key African jurisdiction and DABLO law firm expands our Pan African Team and presence to cover 30 African countries. We look forward to working together with our new Ethiopian colleagues". Commenting on the firm’s admission to LEX Africa, Managing Partner Dawit Kidane said: "Joining LEX Africa is a significant milestone for Dablo Law Firm and a testament to our commitment to delivering high-quality legal services with a Pan-African perspective. As Ethiopia continues to attract international investment, being part of LEX Africa allows us to offer clients seamless access to top-tier legal expertise across the continent." Deputy Managing Partner Addisu Hailegebrel added: We are honored to become LEX Africa’s exclusive Ethiopian member. This alliance not only expands our reach but also enables us to collaborate with some of Africa’s most respected law firms. Our clients will benefit from enhanced cross-border legal capabilities, and we look forward to contributing to the alliance’s continued success."* Deputy Managing Partner Bruk Geremew also commented, saying: “Becoming part of LEX Africa is a pivotal moment for our firm and the broader Ethiopian legal market. This alliance allows us to connect with Africa’s top legal minds, share knowledge, and enhance the services we offer to our clients—both local and international. As Ethiopia’s economy continues to evolve, having access to a trusted Pan-African legal network ensures that we remain at the forefront of delivering innovative, business-driven legal solutions.” DABLO Law Firm specializes in a broad range of legal areas, including corporate and commercial law, investment law, litigation and dispute resolution, employment law, real estate and construction law, intellectual property, banking and finance, regulatory compliance, tax and customs, NGO and civil society law, gaming and entertainment law, and public-private partnerships (PPP). With a strong understanding of Ethiopia’s evolving legal and business landscape, the firm is well-positioned to support both local and international clients navigating the country’s dynamic investment climate.   For media inquiries, please contact: Dawit Kidane [email protected] +251938888887  
DABLO LAW FIRM LLP - March 4 2025
Press Releases

DABLO Law Firm Announces Promotion of Iyasu to Head of Consultancy and Compliance Department

DABLO Law Firm is pleased to announce the promotion of Mr. Iyasu Teketel to the position of Head of the Consultancy and Compliance Department.This decision reflects the firm’s confidence in Iyasu’s exceptional abilities, dedication, and proven track record of performance. In a statement, the Managing Partner of DABLO Law Firm, Mr. Dawit Kidane, expressed his enthusiasm for Iyasu’s new role, stating, “Iyasu’s extensive experience and outstanding contributions to the firm make him the ideal candidate for this position. His dedication and contribution have been instrumental to our success, and we are confident that he will lead the Consultancy and Compliance Department to new heights.” Iyasu’s promotion comes as a testament to his hard work, expertise, and commitment to the firm’s mission. His leadership is expected to further strengthen the Consultancy and Compliance Department, driving innovation and excellence in the firm’s operations. The firm also took the opportunity to acknowledge the remarkable contributions of Mr. Fitsum, the former Head of the Consultancy and Compliance Department. Mr. Dawit Kidane added, “We extend our heartfelt gratitude to Fitsum for his exceptional leadership and pivotal role in our firm’s achievements. We are pleased to share that Fitsum will continue to contribute to DABLO in another capacity, details of which will be communicated soon.” DABLO Law Firm invites its colleagues, partners, and clients to join in congratulating Iyasu on this well-deserved promotion and in expressing gratitude to Fitsum for his invaluable service. The firm remains committed to fostering talent and leadership within its ranks, ensuring continued growth and success in the legal and consultancy sectors.  
DABLO LAW FIRM LLP - February 20 2025
economy

Ethiopia’s Foreign Exchange Overhaul: A New Era of Market-Based Currency Policies

Introduction Ethiopia has embarked on a new era of economic policy, marked by currency devaluation and a significant revamp of the foreign currency exchange regime.The National Bank of Ethiopia (NBE) has revised its long-standing practice of fixing and controlling the exchange rate, opting for a market-based exchange regime. It has introduced a new Foreign Exchange Directive (FXD/01/2024) on July 29, 2024, which repealed all the previous sporadic directives governing the foreign exchange regime and consolidated the applicable rules into a single directive. This move is the fourth and by far the most radical currency devaluation measure taken by the government since the fall of the Derg regime in 1991.  DABLO has examined the content of the new Directive, and here are the key legal changes brought by the Directive. Market-Based Exchange Regime: The role of the NBE has been reduced to monitoring the overall operation while the foreign exchange regime is to be governed by the market. Banks are allowed to freely set exchange rates and trade currencies with their customers and among themselves.[1] The NBE will compile an Indicative Daily Exchange Rate based on reports of daily exchange rates used by the banks. This rate will serve as a reference to set exchange rates but is by no means binding on the banks, as they are free to negotiate the market rate. Banks are required to report their daily foreign exchange rates to the NBE using a predetermined format.[2] The directive has introduced a two-tier structure for spot foreign exchange markets. The first tier is the wholesale or inter-bank forex market, where authorized banks engage in foreign currency transactions with one another.[3] The second tier is the retail forex market, where authorized banks or foreign exchange dealers conduct transactions with their customers. In this market, banks are permitted to negotiate buying and selling rates freely with their customers, allowing for greater flexibility in pricing based on market conditions and customer agreements. Currency Surrender: One of the most notable changes in the Directive is the elimination of the requirement for commercial banks and exporters to surrender their export earnings to the NBE. This change aims to give exporters greater flexibility in managing their finances. Exporters are now permitted to retain 50% of their export earnings in foreign currency, up from the previous 40%.[4] Exporters are permitted to use the foreign currency solely for their own purposes and may retain it in their retention account indefinitely.[5] Import Restrictions and Currency Allocation: The Directive lifts the previously imposed import restriction on 38 product categories while maintaining the restriction on capital account outflows. It is interesting to note that while the Directive uncategorical lifts the restriction on the 38 product categories, a letter written by the Ministry of Finance on July 30, 2024, maintained the restriction imposed on imports of fully assembled automobiles that run on fuel and three-wheel vehicles. The Directive also removes the rules governing banks’ allocation and distribution of foreign exchange, which was previously managed through a waiting list system for various import categories. Engagement of Non-Bank Actors: The Directive paves the way for non-bank actors to engage in foreign currency transactions at market rates. These entities must obtain prior authorization or a license from the NBE.[6]  Accordingly, on October 2, 2024 the National Bank has announced that five companies who applied for licenses and fulfilled the minimum requirements set by the Bank have been granted licenses to operate as Independent Foreign Exchange Bureaus. Franco Valuta Imports: Although the directive initially lifted restrictions on Franco valuta imports[7],  the Ministry of Finance has reinstated the ban on imports that do not utilize foreign exchange from the banking system. In a letter sent to the Customs Commission and the National Bank of Ethiopia on November 8, 2024, the Ministry announced its decision to reimpose the restriction. As a result, the Franco valuta ban has been reinstated just three months after it was lifted by the directive. Foreign Currency Accounts: The directive significantly relaxes the regulations governing foreign currency accounts for foreign institutions, foreign direct investment (FDI) companies, international organizations, embassies, foreign NGOs,[8] and the Ethiopian diaspora.[9] It permits the opening of three types of foreign currency accounts: Foreign Currency (FCY) Accounts for Foreign Entities, FCY Accounts for Residents and Non-Resident Ethiopians, and Retention Accounts for exporters of goods and services. Foreign entities are now allowed to maintain multiple accounts across different financial institutions, unlike the previous times where they were allowed to maintain a single foreign currency account.[10] Additionally, foreign nationals employed by these entities can fully utilize their accounts without being required to surrender any portion of their foreign currency earnings. For Ethiopians, both resident and non-resident, the directive broadens the scope of foreign currency accounts, enabling them to receive funds from international remittance service providers, salaries, rental income, and other legitimate sources. These accounts can also be used to make payments for foreign services, further enhancing financial flexibility. Repatriation of Capital: To enhance Ethiopia’s appeal as a destination for foreign direct investment, the directive establishes clear and streamlined procedures for the repatriation of capital and earnings. It explicitly recognizes the rights of foreign investors to transfer funds abroad in convertible currency, ensuring ease of capital movement. Under this directive, foreign investors can repatriate profits and dividends earned from their investments, proceeds from the sale or liquidation of an enterprise, and funds obtained from the transfer of shares or ownership in a business.[11] Additionally, investors who are unable to commence operations are entitled to reclaim their initial investment, while profits from portfolio investments in equity or debt securities can also be repatriated. Eased Rules for External Loans and Supplier Credit: The directive introduces significant reforms to enhance financial flexibility and investment opportunities. It removes the previous interest rate ceiling on foreign borrowings, allowing banks and companies to negotiate competitive financing terms with external creditors freely. Additionally, it expands the list of eligible entities that can access foreign loan, now construction companies can now access supplier credit to import machinery. However, to maintain regulatory oversight and financial stability, all loan agreements with external creditors must be registered and approved by the National Bank of Ethiopia (NBE). [12] Foreign Investments in Security Market: The Directive opens the Ethiopian Securities Market to foreign investments, paving the way for international participation and investment. However, its implementation is to be governed by specific regulatory requirements established by the National Bank of Ethiopia and the Ethiopian Capital Market Authority (ECMA).[13] Special Privileges for Companies in Special Economic Zones: Under the Directive, Companies operating in Special Economic Zones (SEZ) are granted special foreign exchange privileges, including the ability to retain 100% of their foreign exchange earnings. [14] Limits on Foreign Currency: The rules governing the amount of foreign cash travelers could carry while traveling to and from the country have been relaxed.[15] The Directive also stipulates specific time limits for holding and converting foreign currency for individuals entering the country. Off-Shore Accounts: The Directive also allows the opening of off-shore accounts for Strategic Foreign Direct Investment projects.[16] Projects with special significance and contribution in terms of size, job creation, import substitute, foreign exchange inflows, technology transfer, or sector-specific impact could be allowed by NBE’s Executive Management to own off-shore accounts. Sanction: The Directive imposes a sanction of USD 2,500.00 (two thousand five hundred US Dollars) per violation on banks and other licensed entities for any violation of the Directive. In addition, NBE has also been given the discretion to impose further sanctions. Conclusion In conclusion, the introduction of the Foreign Exchange Directive (FXD/01/2024) represents a transformative shift in Ethiopia’s economic landscape, signaling a move towards greater market flexibility and financial openness. By removing restrictions on foreign exchange and creating a more liberalized environment for both domestic and foreign investors, the directive aims to foster economic growth, attract foreign direct investment, and improve financial stability. While the transition to a market-based exchange rate system and other key reforms offers significant opportunities, ongoing regulatory adjustments, such as the reimposition of the Franco valuta import ban, highlight the complex balancing act the government faces in managing the country's economic interests. As Ethiopia continues to adapt to these changes, the ultimate success of these reforms will depend on how effectively they are implemented and their ability to generate sustainable growth in the evolving global economy. Footnotes [1] Article 4, The Foreign Exchange Directive No. FXD/01/2024 (herein under FXD 01/2024) [2] Article 5, Id. [3] Article 4.3, Id. [4] Article 6.2, Id. [5] Previously, the directive permitted exporters to retain 50% of their foreign currency earnings for only one month, after which they were required to sell it to commercial banks at a freely negotiated rate. However, as of November 14, 2024, the National Bank of Ethiopia has revised this policy, allowing exporters to retain the 50% indefinitely, providing greater flexibility in managing their foreign exchange holdings. [6] Article 4.2, FXD 01/2024. [7] The importation of goods for which foreign exchange from the domestic banking system is not payable. [8] Article 13, FXD 01/2024. [9] Article 14, Id. [10] Article 13.2.1, Id. [11] Article 16.2, Id. [12] Article 17.1, Id. [13] Article 20, Id. [14] Article 21.3, Id. [15] Article 22.7, Id. [16] Article 19, Id.
DABLO LAW FIRM LLP - February 20 2025
economy

Ethiopia’s New Special Economic Zone Proclamation: A Catalyst for Investment and Economic Growth

I. Introduction Ethiopia has recently enacted the Special Economic Zone (SEZ) Proclamation No. 1322/2024, marking a pivotal legislative milestone designed to bolster investment opportunities and drive economic growth. The proclamation provides a refined definition of SEZs, characterizing them as designated areas under the oversight of the Ethiopian Investment Board. These zones are equipped with customs control mechanisms, business-friendly policies, streamlined trade facilitation, robust infrastructure, and attractive tax incentives. The framework encompasses a diverse range of investment zones, including industrial parks, free trade zones, and agricultural hubs, positioning Ethiopia as a competitive destination for both domestic and foreign investors.[1] The legislation is designed to stimulate private sector engagement, attract foreign direct investment (FDI), and generate employment opportunities. By fostering export growth, promoting import substitution, and integrating Ethiopia into global value chains, the proclamation aims to position the country as a key player in the international economy. Additionally, it introduces a comprehensive policy framework for economic reforms within Special Economic Zones (SEZs), aimed at enhancing the business climate and boosting competitiveness. The legislation also establishes a robust regulatory framework to govern the operation, management, and oversight of these zones, ensuring transparency, efficiency, and sustainable development. This strategic initiative underscores Ethiopia's commitment to driving economic transformation and creating a more dynamic and investor-friendly environment. II. Key Provisions of the SEZ Proclamation The SEZ Proclamation introduces a structured approach to the establishment, operation, and governance of special economic zones in Ethiopia. Some of its core features include: Designation of SEZs: The law provides clear criteria for designating and developing SEZs, including industrial parks, free trade zones, logistics hubs, and service-oriented economic zones.[2] Regulatory Oversight: A dedicated regulatory authority is established to oversee SEZ operations, ensuring compliance with national economic policies, the primary body being the Ethiopian Investment board[3] of the Ethiopian Investment Commission. Other Regulatory bodies such as the National Bank of Ethiopia (NBE) and the Ministry of Trade and Regional Integration (MoTRI) will also be involved as per their scope and authority of regulation. Investment Incentives: In addition to incentives provided in the Investment Incentives Regulation Number 517/2022, businesses operating in SEZs benefit from tax, import and export exemptions within the SEZ, customs duty waivers, relaxed foreign exchange regulations, zero rated VAT and exemptions from other indirect taxes, and duty-free construction material and capital goods importation into SEZs and more. Further, it also provides non-fiscal incentives such as exemption from expropriation (excluding for the reason of public interest), work permits, remittance and opening of foreign currency accounts.[4] Simplified Business Environment: The law introduces streamlined procedures for business registration, licensing, and dispute resolution within SEZs.[5] Infrastructure and Private Sector Involvement: The proclamation encourages private sector participation in SEZ development and management through public-private partnerships (PPPs) as well as domestic and foreign private investors. Involved Entities: The law introduces SEZ Enterprise[6], SEZ developers[7], SEZ Sub-developers[8] and the SEZ operators[9] as individuals contributing to the design, construction, operation, ownership and maintenance of the SEZ. III. Comparison with the Previous Legal Framework Prior to the enactment of the SEZ Proclamation, Ethiopia’s industrial and economic zones were primarily governed by the Industrial Parks Proclamation No. 886/2015 and various sectoral regulations including the Industrial Parks Regulation Number 417/2017. The new SEZ law introduces several key changes: Scope and Classification: The previous framework focused primarily on industrial parks in federal regions, whereas the new law expands the scope to include free trade zones[10], logistics parks[11], and service hubs within the territory of Ethiopia offering a more diversified economic model. Regulatory Structure: The old framework lacked a centralized authority for economic zones beyond industrial parks, whereas the new law establishes a dedicated regulatory body to oversee all SEZs. The Ethiopian Investment Board[12], with cooperation of the NBE, MoTRI and the Ministry of Labour and Skills will oversee the entry, operation and exit of SEZs. Investment Incentives: While the Industrial Parks Proclamation provided tax incentives, the new SEZ law enhances these benefits by introducing more flexible foreign exchange rules[13] and broader tax relief measures[14] in addition to non-fiscal incentives. Business Operations and Facilitation: The new law simplifies administrative procedures for investors, reducing bureaucratic hurdles and enhancing ease of doing business within SEZs by introducing one-stop services within the SEZs.[15] IV. Implications and Future Prospects The SEZ Proclamation is expected to attract increased foreign direct investment and enhance Ethiopia’s global trade competitiveness. By offering a more structured and investor-friendly environment, the law aligns with Ethiopia’s broader economic liberalization agenda. With effective implementation, infrastructure development, and coordination among relevant stakeholders, the law is bound to achieve its economic objectives. V. Conclusion Ethiopia’s adoption of the SEZ Proclamation No. 1322/2024 marks a progressive shift in its economic policy framework. By addressing limitations in the previous regulatory regime and expanding the scope of economic zones, the law lays a solid foundation for sustainable economic growth. Investors and businesses should closely monitor regulatory developments and implementation strategies to maximize the opportunities presented by Ethiopia’s evolving SEZ framework. Footnotes [1] Article 2(1), Special Economic Zone Proclamation No. 1322/2024. [2] Articles 5 –12,Id. [3] Article 13 and 2 (41), Id. [4] Articles 57 and 58, Id. [5] Article 14(1) (x) Id. [6] Article 2(17) Id [7] Article 2(14) Id. [8] Article 2(15) Id. [9] Article 2(16) Id. [10] Article 2(5) Id. [11] Article 2(9) Id. [12] Article 2(41), Article 13 Id [13] Article 34 (3), (4) Id. [14] Article 57 – 58, Id. [15] Article 14 (1) (x) Id.
DABLO LAW FIRM LLP - February 20 2025