A Sub-Sharan Exploration! The Ins and Outs of How to Navigate Doing Business in Ethiopia
By: Trevor A. Mason
Activity of any kind can be volatile in the Horn of Africa due to constant unrest, political turmoil, and armed conflicts.[1] It has also seen economic struggles that includ poverty, low gross-domestic-product (GDP), and high debt.[2] Within this region is the country of Ethiopia that has seen some of the same struggles as its East African neighbor countries.[3] Yet, Ethiopia has been seen as an “island of stability” compared to its neighbors in the region.[4] Ethiopia is Africa’s ninth largest economy and second biggest population of over one hundred million people.[5] It is also now one of the world’s fastest growing economies with an average of 10% economic growth over the last few years.[6] Part of this is thanks to a “substantial public investment in infrastructure” that has assisted in such stability in the country.[7] However, as public investments rise so does the country’s debt, causing a shift in the type of investment from public to private.[8] This opens the door for foreign investors to get in on the ground floor.
What makes Ethiopia a potentially attractive business market? For starters, Ethiopia has a strategic location near Europe and the Middle East for exports and imports.[9] Much of this revolves around agricultural commodities such as coffee, oilseeds, and livestock products.[10] Ethiopia’s major imports include: fertilizers, fuel, petroleum products, capital goods, and consumer goods.[11] The government has identified a need to diversify and seek more trade in areas such as energy.[12] This has led to initiatives such as the “Corbetti Geothermal deal, signed in December 2017 [and] is the first independent power producer (IPP) deal in the country.”[13] For a business looking to start construction projects in the country to infiltrate the energy market an understanding of construction permits is relevant. The time it takes to obtain a construction permit is on average one hundred and thirty-six days, which is lower than the average in the region and lower than most member countries across the globe who are part of the Organisation for Economic Co-operation and Development (OCED).[14] This is advantageous for companies wishing to explore the region in the energy market.
Starting a business in Ethiopia requires some knowledge of the challenges unique to the country and region. Ethiopia is ranked 159 among 190 economies in the ease of doing business with this number staying consistent since 2015.[15] This shows that compared to many other countries the processes for doing business are not as simple as other countries with robust economic markets and structures. However, this is not to deter potential investors from looking into doing business in Ethiopia. The Ethiopian government has made a commitment to boost the ease of doing business with several economic reforms.[16] This includes opening up companies that are traditionally owned and invested in by the government to private investment.[17]
The different features of Ethiopia, including “access to Europe and Middle Eastern economies, cheap and trainable labour, a stable political environment, low crime rates and one of the largest domestic markets in Africa with over 100 million people” make it a hot spot for new business.[18] So how does an investor go about registering their company? The government has recently shifted to promoting creation of business by developing the Ethiopian Investment Agency (EIA) (also known as the Ethiopian Investment Commission).[19] Different measures need to be taken depending on if you are setting up a sole proprietorship, corporation, or limited liability company. The typical time length of the registration process is twenty days.[20] Sole proprietorships are simple where you must fill out a signed application with a “project proposal (business plan) and previous business background (company profile), copy of valid passport, investment/ business visa to Licensing and Registration Department”.[21] Then, simply acquire permission to open a foreign currency account at the National Bank of Ethiopia.[22] For a “Private Limited Company (PLC)” in Ethiopia you simply follow the same steps in addition to filing a “memorandum and article of association”.[23]
For corporations, there are some differences in the process depending on if you are a foreign entity creating a branch, or creating a local organization. A foreign company looking to invent must provide a “[n]otarized legal certificate of incorporation; [n]otarized minutes of resolution passed by authorized organ of the parent company authorizing to invest in Ethiopia; [n]otarized document of its memorandum and articles of associations or similar documents of the parent company; and [n]otarized Power of attorney of the agent.”[24] Meanwhile, to create a local company you must have a “[c]opy of memorandum and articles of associations; [c]ommercial certificate; [m]inutes of resolution passed by the shareholder’s; and [n]otarized power of attorney of the agent.”[25] Looking at taxes on corporations, this number is thirty percent.[26] Altogether, the ability to create a business in Ethiopia is feasible, and the potential is there.
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[1] Abdilahi I. Abdilahi & Zhe Zhu, Discussing Opportunities and Crisis in The Horn of Africa (Hoa), 5 International Journal of Management Science and Business Administration 34, 34–35 (2019).
[2] See id. at 35–38.
[3] See id. at 34. See also Overseas Business Risk – Ethipoia, Gov.uk, https://www.gov.uk/government/publications/overseas-business-risk-ethiopia/overseas-business-risk-ethiopia (last visited Mar. 24, 2020) [hereinafter Business Risk – Ethiopia].
[4] Business Risk – Ethiopia, supra note 3.
[5] Doing Business & Company Registration in Ethiopia, East Africa Business Consultants (Nov. 30, 2018), https://eastafricabusinessconsultants.com/company-registration-in-ethiopia/ [hereinafter Company Registration in Ethiopia].
[6] See id. See also Doing Business In Ethiopia And EAC The Challenges You Need To Know, EABW (July 16, 2018), https://www.busiweek.com/doing-business-in-ethiopia-and-eac-the-challenges-you-need-to-know/ (noting 8.3% growth in 2017)[hereinafter Doing Business In Ethiopia].
[7] Doing Business In Ethiopia, supra note 6.
[8] See id.
[9] Abdilahi & Zhu, supra note 1, at 36.
[10] Id.
[11] Company Registration in Ethiopia, supra note 5.
[12] Abdilahi & Zhu, supra note 1, at 36.
[13] Id.
[14] Doing Business 2020, World Bank Group, https://www.doingbusiness.org/content/dam/doingBusiness/country/e/ethiopia/ETH.pdf (last visited Mar. 24, 2020). The OCED is an intergovernmental organization with 36 member countries around the world and seeks to stimulate economic progress and world trade. See OCED, https://www.oecd.org/about/ (last visited Mar. 24, 2020).
[15] See Ease of Doing Business in Ethiopia, Trading Economics, https://tradingeconomics.com/ethiopia/ease-of-doing-business (last visited Mar. 24, 2020).
[16] See Abdur Rahman Alfa Shaban, Ethiopia Moves to Boost Ease of Doing Business, africanews.com (Feb. 27, 2019), https://www.africanews.com/2019/02/27/ethiopia-moves-to-boost-ease-of-doing-business//.
[17] See id.
[18] Id.
[19] Set up a Business in Ethiopia, imc, https://intuitconsultancy.com/africa/ethiopia/ (last visited Mar. 25, 2020).
[20] See Company Registration in Ethiopia, supra note 5.
[21] Licensing and Registration Process in Ethiopia, Ethiopian Investment Commission, http://www.investethiopia.gov.et/investment-process/starting-a-business (last visited Mar. 25, 2020).
[22] Id.
[23] Id.
[24] Id.
[25] Id.
[26] Company Registration in Ethiopia, supra note 5.