Guarantees Against Expropriation

The constitution of the Federal Democratic Republic of Ethiopia gives protection to private property. The investment proclamation also provides investment guarantees against measures of expropriation and nationalization. Expropriation or nationalization may only occur either for public interest and in compliance with the requirement of the law. Where such expropriation are made, the government guarantees to provide adequate compensation corresponding to the prevailing market value of the property and such payment shall be effected promptly.

Other Guarantees

Ethiopia is a member of the World Bank - affiliated Multilateral Investment Guarantee Agency (MIGA) which issues guarantees against non-commercial risks to enterprises which invest in signatory countries. Ethiopia is at any time ready to conclude bilateral investment promotion and protection treaties with any country and is in fact currently concluding such agreements with a number of developed countries.

Ethiopia has also signed the World Bank treaty "the convention on settlement of investment disputes between states and nationals of other states (ICSID)".

LABOUR

Ethiopia has an abundant, hard-working, inexpensive and disciplined work force. The minimum wage for unskilled labour is Birr 120 (less than USD 20) per month. Private investors can easily find and recruit young and energetic work force at about the same rate. Hence, the cost of labour in the country is very low by any standards.

Ethiopia has also sufficient skilled and well-trained work force. Its technical and vocational training schools, engineering colleges and universities annually produce trained personnel in business, management, law engineering, economics, accounting, technical training in fairly large numbers. Furthermore, since the medium of instruction in schools of higher learning is English, members of the skilled labour force in Ethiopia speak and write English. The market price of skilled personnel in

Ethiopia is also very attractive. The salaries of fresh university graduates normally ranges between Birr 500 (less than USD 90) to Birr 800 (less than USD 140) per month depending on the level of education. Generally, the level of salary paid for skilled labour is determined by contract between the employer and the employee.

The new labour law of Ethiopia, which has been prepared in conformity with recognised international labour norms and standards, provides adequate provisions for the beginning and termination of employment without infringing the rights of investors.

MAJOR INVESTMENT INCENTIVES

In order to encourage private investment and to promote the inflow of foreign capital and technology into Ethiopia, the following incentives are granted to investors (both domestic and foreign), engaged in new enterprises and expansions in areas qualified for investment incentives.

Customs Import Duty

One hundred percent exemption from the payment of import customs duties and other taxes levied on imports is granted to all investment capital goods, such as plant, machinery, equipment, etc. as well as spare parts worth up to 15% of the value of the imported investment capital goods, provided that the imported capital goods are not produced and are not available locally in comparable quantity, quality and price.

Investment capital goods imported without the payment of import customs duties and other taxes levied on imports may be transferred to another investor enjoying similar privileges.

Exemptions from customs duties or other taxes levied on imports shall be granted for raw materials necessary for the production of the goods for export market. Taxes and duties paid on raw materials are drawn back at the time of export of finished products. The duty drawback scheme applies to all taxes at the time of importation, and those paid on local purchases.

Exemptions From Payment of Export Customs Duties

Ethiopian products (except coffee) and services destined for export, are exempted from the payment of any export tax and other taxes levied on exports.

Income Tax Holiday

Any income tax derived from an approved new investment made pursuant to Proclamation No. 37/1996 shall be exempted from the payment of income tax for periods ranging from 1 to 5 years, depending upon the priority area of investment activity and the location in which the investment is undertaken. Profit tax holiday is granted subject to Council of Ministers Regulation No. ___ as follows:

R & D Incentives

An investor is entitled to have deduction of his expenses incurred for research, improvement studies or training from his taxable income.

Exemption from the Payment of Taxes on Remittance of Capital

Any remittance made by a foreign investor from the proceeds of the sale or transfer of shares of assets upon liquidation or winding up of an enterprise is exempted from the payment of any tax.

Loss Carried Forward

Business enterprises that suffer losses during the tax holiday period can carry forward such losses following the expiry of the exemption period under the following conditions:

for investments undertaken in Addis Ababa or Nazareth, or in a locality within 15 kms of the main highway connecting the two cities and where such investments fall under pioneer or promoted activities, the loss carried forward is 3 years.

for investments undertaken in relatively underdeveloped regions such as Gambella, Benishangul and Gumz, South Omo, certain zones in Afar, Somali and other regions which will be determined by the Board and where such investments fall under pioneer and promoted activities, the loss carried forward is 5 years and 4 years respectively.

for investments undertaken in the regions other than those mentioned

above, the loss carried forward for pioneer and promoted activities are 5 years and 3 years respectively.

Depreciation

Depending upon the choice of the investor either a straight line or an accelerated method is employed for depreciation of assets based on book value.

MARKET ACCESS

Domestic Market

Ethiopia, with a population of About 57 million, provides a steady and growing domestic market, which is one of the largest in Africa.

Regional Market

Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA) agreement embracing 23 countries in Eastern and Southern Africa with a population of approximately 300 million. Exports and imports with member countries enjoy preferential tariff rates.

ACP/Lome Convention

Export products from Ethiopia to the European Union market are entitled to duty reductions or exemptions and freedom from all quota restrictions under the terms of the Lome Convention. Trade preferences include duty free entry of all industrial products and a wide range of agricultural products including fruits, vegetables, pulses, oil seeds, etc.

Generalized System of Preference (GSP)

Under the Generalized system of Preference (GSP), a wide range of Ethiopia's manufactured products are entitled to preferential duty treatment in the United States of America, Canada, Switzerland, Norway, Sweden, Finland, Austria, Japan, as well as most European Union countries. Besides, no quantitative restrictions are applicable to Ethiopian exports on any of the 3,000 -plus items currently eligible for GSP treatment.

Ethiopia's Export Performance and Future Prospects

Exports from Ethiopia have continued to be narrow with about 89 percent of total exports valued at Birr 1.62 billion in 1993/94 being shared among six products: coffee (56.8%), hides and skins (12.6%), gold (11.1%), petroleum products (4.5%), oil seeds (2.7%) and pulses (1.7%). The strategy is, therefore, to enlarge and diversify, these products through increased production of non-traditional exportable items such as manufactures and processed goods, horticultural products, fruits, mineral products and other exportable goods and services.