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This publication is available at https://www.gov.uk/government/publications/overseas-business-risk-ethiopia/overseas-business-risk-ethiopia
See below for information on key security and political risks which UK businesses may face when operating in Ethiopia.
1. Political Overview
Ethiopia continues to be a relative ‘island of stability’ in the volatile Horn of Africa, helping to enjoy impressive economic growth over the past decade.
Ethiopia is a federal democratic republic with its separate regions demarcated on ethnic lines. The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) has held power since it overthrew the Derg military regime in 1991. The EPRDF established the current constitution in 1994 and held the first multiparty election in 1995. National elections last took place in May 2015, and are due to next take place in 2020.
Prime Minister Abiy Ahmed was appointed in April 2018 after his predecessor, PM Hailemariam Desalegn, resigned. It is not yet clear how PM Abiy Ahmed will lead Ethiopia, but under PM Hailemariam Desalegn, the government was less centralised than it was under the late PM Meles Zenawi. There was a greater role for collective decision-making in cabinet, and a more prominent role for parliament in scrutinising the government’s performance.
There is, however, insecurity in parts of Ethiopia, including the Somali Region, particularly in the Ogaden, and the border between the Somali Region and the Oromia Region. Over the past two years Ethiopia has had two State of Emergencies: the first between October 2016 – August 2017, the current one was announced in February 2018. The State of Emergencies were a response to a series of public protests, many of which resulted in violence and damage to buildings and livelihoods.
In the western Gambella and Benishangul-Gumuz Regions, competition over land and other resources can lead to occasional inter-communal clashes. Information on political risk, including political demonstrations, is available in the FCO Travel Advice.
2. Economic Analysis
Ethiopia is now among the fastest growing economies in the world averaging about 10% growth in the last decade. Since 2003 the Ethiopian economy has more than tripled in size and average per capita incomes have more than doubled. Growth has been broad based and, unlike in much of Africa, has not been driven by natural resources or extractives. According to the IMF, Ethiopia’s GDP growth was 9% in 2016/17 and is projected to grow by 8.5% in 2017/18. Over the medium term growth is expected to converge to 8%, supported by strong private investment, continuing investment in infrastructure, and improving productivity as FDI and export-oriented industries expand. Despite strong growth Ethiopia remains very poor. GNI per capita was only $660 in 2016; in internationally comparable Purchasing Power Parity (PPP) measures this is around half of the average of sub-Saharan African countries.
Ethiopia’s rapid economic growth over the last decade was driven by substantial public investment in infrastructure, which has been financed largely through on-budget public infrastructure investment as well as external concessional and non-concessional debt financing, often through state-owned enterprises. However, as the debt burden increases and the Government increasingly acknowledges potential efficiency gains from different financing and delivery channels, the model is shifting, creating opportunity for investment. A new PPP framework is has recently been approved by parliament with transport and energy the initial focus sectors. The Corbetti Geothermal deal, signed in December 2017 is the first independent power producer (IPP) deal in the country.
Ethiopia’s exports remain highly dependent on primary agricultural commodities such as coffee, oilseeds and pulses and livestock products, which are very sensitive to terms-of-trade shocks. Recognising the need to diversify, the Government is seeking to become the light manufacturing hub of Africa. The second Growth and Transformation Plan (GTP II) sets out the Government’s aim to generate 2 million jobs in the manufacturing sector by 2020. The Government’s strategy to achieve this is anchored around an ambitious plan for a network of industrial and agro-industrial parks. Plans for supporting infrastructure (e.g. transport and energy) are equally ambitious. Manufacturing exports are growing at an encouraging pace, but from a low base.
Ethiopia obtained its first sovereign credit rating in 2014, ahead of its first international bond issuance in December 2014. Ethiopia was rated as ‘B’ by Fitch Ratings and B1 by Moody’s. These ratings have been affirmed regularly since, most recently in February 2018 by Moody’s and December 2017 by Fitch. The ratings reflect very strong growth potential supported by rising foreign direct investment (FDI), large infrastructure investment and broadening access to credit, balanced by contingent liabilities and external risks related to rapid debt-financed investment and external vulnerability risks related to a structural shortage of US dollars for the private sector.
A key constraint facing investors is the lack of availability of foreign exchange. The current account has persistently been in deficit due to the heavy import requirements of the major infrastructure projects under Ethiopia’s second “Growth and Transformation Plan” (GTP II). This improved slightly in 2016/17 due to policy actions taken by the Government aimed at reducing external imbalances and ensuring debt sustainability. In October 2017, the National Bank of Ethiopia (NBE) devalued the birr by 15% to improve competitiveness and substantially tightened monetary policy-broadly in line with advice from the IMF. The interest rate floors on time and savings deposits were increased from 5 to 7% , and planned base money growth (the NBE’s main monetary policy instrument) was lowered from 22 percent to 16%. The NBE also liberalized some exchange control regulations, allowing exporters to access foreign credit and to retain up to 30% of their export proceeds in foreign currency (previously 10%), which, should lessen difficulties in procuring foreign exchange when needed for their inputs and capital imports. Inflation is currently 15.2%, considerably above the Government’s single digit target.
The cost and time of importing and exporting remains a challenge for investors in Ethiopia. Ethiopia is highly dependent on the Port of Djibouti to handle its trade flows. At present 95% of total throughput is handled through the port. Despite significant investment in infrastructure, including a railway linking Addis to Djibouti Port, Ethiopia ranks 126th out of 160 countries according to the World Bank Logistics Performance Index, which assesses the efficiency of the logistics sector. Trade volumes are only expected to grow, placing greater future pressure on logistics infrastructure.
Despite transitioning from a command economy in the 1980’s to a liberal one in the 1990’s, the Ethiopian economy still exhibits a significant degree of state intervention. The Ethiopian government maintains restrictions on international involvement in sectors such as financial services, power, telecoms and air services.
The People’s Republic of China is Ethiopia’s biggest economic partner. Chinese companies play an important role in the development of Ethiopia’s infrastructure, telecommunications, hydro-electric power generation and construction sectors. Chinese companies are also investing in the expanding industrial sector with a particular focus on manufacturing and textiles.
2.1 Bi-lateral trade with the UK
UK exports to Ethiopia are growing, albeit from a low base (by 34% from £172m in 2014 to £225m in 2016). There are opportunities to expand further in power generating machinery and equipment; engines and motors; and aeroplane parts. UK investment in Ethiopia is also increasing. According to the Ethiopian Investment Commission, the UK is the fifth largest investor in Ethiopia. Diageo has invested $339m to acquire and expand Meta brewery. Four other UK companies are also at advanced stages of gold and oil and gas exploration. In the manufacturing sector, Pittards is engaged in the production of finished leather garments for export to the EU and US, and Hela operates a garments manufacturing facility in one of Ethiopia’s industrial parks.
A Double Taxation Agreement with the UK is ratified.
3. Human Rights
Ethiopia has ratified the two key International Labour Organisation (ILO) conventions that guarantee freedom of association and the right to organise and bargain collectively. However, under the 2003 Labour Proclamation, civil servants, the military and the police are denied these rights.
The right to strike is protected by law, but the procedures involved can make it difficult for workers to engage in strike action in practice. In practice lawful industrial actions are rare in Ethiopia.
The Global Gender Gap Index, a framework for capturing the magnitude and scope of gender-based disparities and tracking progress, ranked Ethiopia 115 out of 144 countries in 2017. According to UNESCO, despite progresses made, Ethiopia’s education indicators are still poor and below Sub-Saharan averages. Ethiopia is one of the countries listed as having the worst literacy rates in the world.
Over the last few years, there have been allegations that communities in Ethiopia have been forcefully moved from their land, sometimes in connection with potential commercial investments. Many of these allegations are focused on Ethiopia’s outer/peripheral regions. Separate, but related to the land issue, is the Ethiopian government’s voluntary Commune Development Programme, where communities are given the option of moving to new areas to improve their access to key services, such as health and education. HMG has not found evidence of systematic or widespread human rights abuses but does have some concerns, including about the quality of public services in some locations, the grievance redress mechanisms and the speed, scale and sequencing of implementation. If you or your company are thinking of investing in Ethiopia, you should ensure that a full social and environmental impact assessment is undertaken before you commit to any land related investment.
4. Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. Please refer to The Bribery Act 2010 for more information on UK bribery standards.
In 2017, Ethiopia ranked 107 out of 180 countries in the Transparency International’s corruption perception Index (CPI), showing a slight, yet continued improvement from the rank of 111 in 2013. This indicates that corruption remains a problem in Ethiopia, though international investors are consistent in reporting that they are not faced with demands for bribes.
One area where corruption still continues unabated in Ethiopia is land allocation. In Ethiopia land is public property. Individuals, companies and other organisations have only the right to use the land. The increase in the value of land in Addis Ababa, ambiguities between the rules and regulations for leasing land and lack of efficient land administration system have increased the incentive for corruption; and made it difficult to ensure transparent and accountable land administration.
Other major reported cases of corruption include bribing government employees to evade taxes, win public procurement contracts and establish and run illegal internet telephone services - an area where the public company Ethiopian Telecom has the exclusive right to provide these services. The registration of the assets and financial interests of federal officials began in December 2010 in accordance with the 2009 Proclamation for the Disclosure and Registration of Assets of government officials, employees and constituencies. Though the particulars of the registration and how the process will pan out are yet to be seen, many believe it is a step in the right direction to prevent and control corruption.
Visit the Business Anti-Corruption portal page, providing more advice and guidance about corruption in Ethiopia and some basic but effective procedures you can put in place to protect your company. The UK’s development body DFID have also produced an anti-corruption strategy for Ethiopia.
5. Terrorism Threat
The threat from terrorism in Ethiopia is substantial, meaning an attack is a strong possibility. The primary risk to foreigners is being caught up in the collateral of an attack and not through being directly targeted, although this may remain a possibility.
Attacks could be indiscriminate including places frequented by foreigners. You should be vigilant at all times, especially in crowded areas and public places like transport hubs, hotels, restaurants, bars and places of worship and during major gatherings like religious or sporting events.
There is also a threat of kidnapping, particularly in the Eastern Somali region close to the border with Somalia. Please consult our terrorism advice for further details.
6. Protective Security Advice
Petty theft and mugging is common and continues to rise. Take particular care when visiting crowded public places, especially at night. Be aware of the risk of pick-pocketing, and bag and jewellery snatching including from vehicles stopped at traffic lights in Addis Ababa.
The Entoto hills has seen some violent attacks against individuals by group committing thefts and robberies and consideration should be given to only walking in these areas in groups to reduce the risk.
Further information on personal security advice can be obtained on the FCO Travel Advice to Ethiopia.
7. Intellectual Property
The legal and institutional framework for the protection of intellectual property rights in Ethiopia is adequate although the country’s record on implementation and enforcement of the rules is less clear. The Ethiopian Intellectual Property Office (EIPO) was established in 2003.
Intellectual property legislation in Ethiopia includes the Patent Proclamation and Implementing Regulations, (issued in 1995, covering Patents, Utility Models and industrial designs); the Trademarks Registration Directive issued in 1986; and the Copyright and Related Rights Proclamation issued in 2004. Ethiopia has also ratified the WIPO Convention since 1998, and is a signatory of the Nairobi Treaty (Olympic Symbol) since 1982. Some prominent international hotel names are used by local business people in Ethiopia with the trademark infringement either condoned or ignored by EIPO. Illegal copying of artistic works and software is also widespread, with intermittent and often inadequate measures taken by the government and EIPO to prosecute and punish offenders.
Ethiopia has applied to join the WTO, though it is unlikely that accession will take place in the near future. Accession will require amendments to the existing intellectual property rules and regulations to bring them into conformity with the WTO Trade Related Intellectual Property (TRIPS) agreement. Once a WTO member, Ethiopia is also expected to tighten its relatively lax intellectual property right enforcement regime in line with WTO standards.
Read the information provided on protecting your Intellectual Property.
8. Organised Crime
Bole international airport, in Addis Ababa, Ethiopia, has been used as an entry point for illicit drugs into East Africa, due to frequent commercial flights from Asia and the Middle East. The Ethiopian government, in collaboration with the United Nations Office on Drugs and Crime (UNODC), is implementing a project against trafficking in the airport of Addis Ababa and capacity building training programmes for police, customs and immigration officers to improve law enforcement to counter organized crime.
A series of measures have also been taken by the government of Ethiopia to prevent and control money laundering. The Ethiopian criminal code has been amended to criminalize money laundering; the Prevention and Suppression of Money Laundering and Financing of Terrorism Proclamation was enacted by Parliament; and the Ethiopian Financial intelligence Agency has been established. Read the information provided on our Organised Crime page.