The Revised Investment Law
Investment is, without doubt, one of the primary engines of growth in all economies. The challenge for many countries, particularly low-income economies, however, is how to attract quality investment in sufficient quantity. Ideally, the most viable and sustainable option is to rely on domestic investment and the domestic private sector to kick-start and sustain the process of growth and economic development. Unfortunately, not all countries have the savings capacity or a strong private sector that could propel a dynamic investment-growth nexus. Hence the need to rely on foreign savings and attract Foreign Direct Investment (FDI). FDI is expected to inject into the host country not only the capital needed to initiate investment projects but also bring with it technology, technical know-how, management skills and global marketing networks. These elements make attracting FDI a natural point of departure for countries such as Ethiopia, seeking to achieve high-level growth and implement a robust export-led industrialization strategy.
However, attracting quality FDI and retaining it is neither easy nor straightforward, as is often assumed. It requires, among other things, a favorable macro policy environment, specific policies and institutions aimed at attracting investment, and clearly defined laws and regulations that are transparent, predictable and easy to implement. The existing investment regime issued in 2012 (Investment Proclamation No. 769/2012) lacks these essential features. Thus, during 2019, Ethiopia initiated major reforms in investment laws and regulations radically changing the focus, scope and level of openness of the investment regime.
In January 2020, the Ethiopian parliament approved the revised investment laws, marking a major shift in the country’s policy direction towards investment, particularly foreign investment.
What was the rationale for revising the investment laws?
- To modernize the legal, regulatory and administrative framework of Ethiopia’s investment regime and investment policy framework;
- To align the investment regime with national development goals and the recent reforms in policy direction and priorities;
- To revisit and revise the sectoral restrictions imposed on foreign investment, including on Ethiopian Diasporas with foreign nationalities;
- To establish a more user-friendly investment regime by moving from a ‘positive’ to ‘negative’ listing approach to identification of sectors and activities that are open to foreign investors;
- To adopt best practice investment promotion, facilitation and aftercare services and efficient investment administration system, including One-Stop-Services; and
- To devise a faster and more transparent investor grievance handling mechanism.
- To align the investment regime with the country’s commitment under African the Continental Free Trade Area (AfCFTA) and the plans to join the World Trade Organization (WTO).