Ethiopia opens commercial sectors to foreign investors in bid to boost economy

The Ethiopian government has enacted a pivotal policy shift, opening previously protected commercial sectors to foreign investment. This strategic move, articulated in a directive chaired by Prime Minister Abiy Ahmed, aims to invigorate the nation’s productivity and competitive stance in the global market.

The directive, which was released last month, reminded that the government had developed a policy to protect specific trading sectors from competition from foreign investment. The purpose of this policy was to support the growth of domestic investors, both qualitatively and quantitatively, and their integration into the global trade value chain. Ultimately, it aimed to shift them towards value-added investments.

The preamble of the directive, issued by the Ethiopian Investment Board and chaired by Prime Minister Abiy Ahmed, stated that the policy objective has not been met on the scale anticipated. This is due to the long period of time since policy implementation began, and because the protected sectors have faced complaints about service reach, quality, efficiency, and an increasing trend of illegal practices.

Another concern mentioned is the lack of fair competition practices in the restricted business areas.

To address these challenges, a new approach is required. This approach aims to reorganize the national policy rationale on reserving the export, import, wholesale, and retail trade sectors for domestic investors. It also promotes the gradual opening of these sectors to willing and capable foreign investors. Further liberalization measures will be based on practical appraisal of the implementation process and valuation. This approach is outlined in the Directive to Regulate Foreign Investors’ Participation in Restricted Export, Import, Wholesale and Retail Trade Investments No. 1001/2024. The directive mentions important policy changes that have been recently brought up by government representatives, such as Adanech Abiebie, Mayor of Addis Ababa, and the Prime Minister.

However, experts told Capital that due to a strong desire to join the World Trade Organization, the government will eventually open up the entire sector. The question is simply when this will happen.

Retail

Under the new law, a foreign investor may now participate in retail trade investments that were previously restricted to local investors. According to the directive, within three years, retail trade on land/building with a floor area of at least 2000 square meters should commit to establishing five supermarkets, and complete the opening of at least two.

A foreign investor looking to create a hypermarket should invest in a facility with a floor size of at least 5,000 square meters. For larger facilities, the required floor size is 10,000 square meters.

Export

In terms of the export industry, foreign investors will now oversee the management of raw coffee, khat, oilseeds, pulses, hides and skins, forest products, poultry, and livestock. According to the directive, a foreign investor wishing to export raw coffee must contractually commit to exporting at least USD 10 million worth of the commodity within the permit year and must have been sourcing at least USD 10 million worth of raw coffee annually from Ethiopia for the previous three years. For oilseeds, it is five million USD, and for khat and pulses, it is one million USD.

It is open to the livestock sector subject to prior experience and permit-linked contractual commitment. For foreign companies wishing to participate in the export trade of hides and skins, forest products, and poultry, their annual performance for the last three consecutive years must be at least USD 500,000. Additionally, they must contractually agree to attain the export of the same amount.

In accordance with the directive, a foreign investor who has never before purchased goods from Ethiopia must prove that it has a well-established market and present a purchase order contract worth at least USD 12.5 million for raw coffee, at least USD 7.5 million for oilseeds, USD 1.5 million for khat and pulses, and at least USD 750,000 for poultry, hides and skins, and forest products. The minimum amount required for other export trade products covered by the directive is USD 500,000.

Nonetheless, experts in the trade industry and others working in the export market have doubts about the recent approval.

They said that all items that may be exported are exported and that it can have an impact on the current local exporter.

According to an expert in the export business, “the government has unquestionably meticulously analyzed the advantages and disadvantages of opening these sectors to foreigners, albeit with certain conditions,” making this move a significant milestone.

“The prosperity of our country ultimately depends on progression, the sale of agricultural goods throughout the world, and strong foreign exchange revenue that are essential to our aspirations for development,” an exporter said.

“But I have doubts about whether this tactical adjustment can significantly increase our foreign exchange profits,” he added, posing the questions of what significant contributions foreign companies can make and what aspects of Ethiopian exports the foreign exporters neglected to address.

The exporting of oil seeds and pulses, where practically all exportable volumes are shipped annually, was mentioned by an exporter who has been in the company for about 25 years and is one of the main contributors of hard currency.He continues, “I think a more promising approach would involve concerted efforts by the government to expand agricultural lands, thereby boosting the productivity of exportable commodities. It seems unlikely that Ethiopian exporters lack the capacity to fully utilize available export volumes.”

“A revolution in agriculture is desperately needed,” experts underline that increased output will unavoidably result in more exports and, as a result, larger foreign currency revenues, essentially closing the current foreign exchange imbalance our country faces.

Import

As per the new directive, with the exception of fertilizer and petroleum import trade, a manufacturer, an agent of a manufacturer, an existing manufacturing in Ethiopia exporting 50 percent of its goods, or an investor committed to importing at least USD 10 million worth of commodities yearly should be involved in the import industry.

The new law further states that any foreign investor may participate in wholesale trade investments, with the exception of fertilizer imports.

It further states that the Ministry of Trade and Regional Integration, the Ministry of Industry, the Ministry of Revenue, the Ministry of Agriculture, the Customs Commission, the National Bank of Ethiopia, and other organizations chosen by the Board would form a permanent joint committee.

The committee meets to determine whether the initiatives carried out in accordance with this Directive are accomplishing the intended goals, to take prompt action where required, and to oversee the whole implementation process.

The post Ethiopia opens commercial sectors to foreign investors in bid to boost economy appeared first on Capital Newspaper.

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