Market Context

Ethiopia is the second most populous nation in Africa, with an estimated population of nearly 130 million. The population is highly diverse, consisting of nearly 80 ethnic groups. Ethiopia is a federal republic, comprising 12 regional states and two chartered cities.

Ethiopia’s economy is largely based on service and agriculture, which accounted for 40% and 32% respectively, of the gross domestic product (GDP) in 2023. The industry sector accounted for 28% of GDP. For several years, Ethiopia has experienced a trade deficit, a consequence of its relatively small export base, both in volume and value, coupled with a substantial demand for imports.

While the Ethiopian economy enjoyed a period of growth for almost two decades, it has recently been impacted by a series of significant challenges, including civil war, security, the COVID-19 pandemic, drought, as well as macroeconomic and debt vulnerabilities.

Market Liberalisation Trends

Ethiopia is one of the last “frontier markets”, making it a potentially attractive market opportunity for strategic investors with long-term plans.

Since 2019, Ethiopia has seen trends in market opening and sector liberalisation in key sectors, including banking, digital payment services, capital markets, telecom and public-private partnerships (PPP). The following are some of the major potential opportunities for investors looking to have a first-mover advantage in new markets.

Banking business

The banking business sector was closed to foreign investors for five decades. With the enactment of the Banking Business Proclamation No 1360/2024 (the “New Banking Law”) in December 2024, foreign investors are now allowed to invest in the banking sector. The promulgation of the New Banking Law marks a significant shift from the previous policy of protectionism. Foreign investors can now establish a subsidiary, open a branch, or acquire shares in domestic banks. The National Bank of Ethiopia (NBE) is expected to issue up to five banking business licences to foreign banks. Currently, there are 32 local banks.

The NBE is empowered to issue implementing legislation to provide for licensing conditions, including capital requirements and licence fees.

In addition to the New Banking Law, multiple legislation (including the Commercial Code of Ethiopia, Minimum Capital Requirement Directive, the Bank Corporate Governance Directive, Requirements for Persons with Significant Influence in a Bank Directive, Limitations on Investment of Banks Directive, and Related Party Transaction Directive, Licensing and Authorization of Interest-Free Banking (Islamic Banking) Directive, mobile banking and use of agents-related directives, among others) govern the banking sector.

Foreign exchange liberalisation

In July 2024, the NBE issued the Foreign Exchange Directive (FXD/01/2024) (“Forex Directive”). The Forex Directive governs various matters, including foreign exchange rate determination, retention and utilisation of foreign currency accounts, external loan, and repatriation of capital, among others.

The Ethiopian legal tender is the Ethiopian Birr (ETB). With the enactment of the Forex Directive, Ethiopia transitioned from a fixed exchange rate to a market-determined floating system. This resulted in a devaluation of ETB to USD by more than 115%.

The Forex Directive permits opening forex accounts to resident nationals and foreigners. Foreign investors are allowed to open forex capital accounts in multiple commercial banks. This is a significant departure from the previous legislation, which allowed foreign investors to open a single foreign currency capital account.

Exporters can retain 50% of their export revenue in foreign exchange. That said, investors in special economic zones can retain 100% of their export earnings in foreign exchange.

Capital markets

With the enactment of the Capital Market Proclamation No 1248/2021, the Ethiopian Capital Market Authority was established. The Ethiopian Securities Exchange has also been established as a share company in October 2023. Implementing legislation governing capital market service providers, public offering and issuance of securities and over-the-counter market activities, among others, have been issued. This has opened opportunities for foreign investors in the consultancy, credit rating and investment banking spaces.

Ethio Telecom’s offer of 10% of its ordinary shares to the public is a recent example of a company offering to sell its shares to the public in accordance with the newly enacted Public Offering and Trading of Securities Directive. We expect many more companies to prepare prospectuses upon the issuance of new shares to the public or to issue debt securities to raise capital. Furthermore, publicly held companies, including banks, insurance companies, microfinances and some real estate companies, formed through public subscription of shares before the effective date of the directive are required to have their securities registered with the Capital Market Authority until November 2025. 

Telecommunications service

Following the liberalisation of the telecom sector through Communications Service Proclamation No 1148/2019, Safaricom Telecommunications Ethiopia Plc (a Vodafone consortium) secured the first private unified telecommunications licence by paying a bid price of USD850 million in 2021. The government also has plans to issue yet another unified telecom licence.

Further, the Ethiopian government has officially declared its plans to partially privatise Ethio Telecom, the incumbent telecom service provider for the past 130 years. Foreign telecom operators seeking to gain a foothold in Ethiopia’s telecommunications market have opportunities to pursue a unified telecommunications licence or to consider share acquisition in the state-owned Ethio telecom through privatisation.

Finally, the Ethiopian Communication Authority is issuing a wide range of communications service-related licences to foreign investors. These include licences for internet service providers, value-added services, outdoor telecommunications facilities installation and maintenance, data centre and hosting services, among others. 

Digital payment services

The digital payment services sector was opened to foreign investors following the promulgation of the National Payment System (Amendment) Proclamation No 1282/2023 (Payment Proclamation). This allows foreign investors to invest in mobile money (payment instrument issuance) and payment system operator services. Safaricom’s M-Pesa became the first foreign investor to obtain a payment instrument issuers licence in 2023. Safaricom’s M-Pesa paid USD150 million for the licence. Ethio Telecom also secured a payment instrument issuer licence to launch its Telebirr mobile money service.

With respect to the payment system operators business, we anticipate major multinational operators to invest in the foreseeable future. The digital payment service liberalisation is anticipated to have a ripple effect in expanding market opportunities for value-added services, outsourcing and technology solution providers.

Joint venture with Ethiopian Investment Holdings (EIH)

EIH is a strategic investment arm of the Ethiopian federal government, established by Regulation No 487/2022, which holds major government-owned enterprises such as Ethio telecom, Ethiopian Airlines, Commercial Bank of Ethiopia, Development Bank of Ethiopia and others, (worth over USD45 billion (source: eih.et)) in its portfolio. EIH is a limited liability entity of the federal government subject to the country’s civil and commercial laws.

EIH is currently partnering with private sector investors to undertake joint investments across various sectors, including printing, transportation and logistics, power, hospitality and beyond. EIH has so far partnered with Toppan Gravity in security printing, signed a joint development agreement with Masdar and an MoU with 4th Resource Corp in renewable energy, among others.

PPP

PPP is governed by the Public Private Partnership Proclamation No 1078/2018, the Amendment Proclamation No 1283/2023, Public Private Partnership Directive No 55/2018 and Foreign Exchange Directive No FXD/01/2024.

PPP has long remained an untapped opportunity to attract foreign capital for various infrastructure and public utility projects. Project bankability issues arising from sovereign guarantees, convertibility and dividend repatriation issues, among others, have largely contributed to the lack of confidence among investors to commit to PPP projects. However, recent regulatory concessions that allow the opening of offshore accounts, currency convertibility guarantees, and a debt to equity ratio of 80:20 for PPP and other strategic projects are expected to partially address longstanding project bankability concerns raised by investors. 

While there are multiple projects in the pipeline, one of the projects so far signed is AMEA Power’s AYSHA-1 wind project to develop 300 megawatts (signed on 17 August 2024).

Export, import, wholesale and retail

A recent law titled “Directive to Regulate Foreign Investors’ Participation in Restricted Export, Import, Wholesale and Retail Trade Investments No 1001/2024” (the “Directive”) has been issued by the Ethiopian Investment Board. This law allows foreign investors to engage in export (of raw coffee, khat, oilseeds, pulses, hides and skins, forest products, poultry and livestock bought on the market), import, wholesale, and retail investment areas and outlines the conditions for participation in these sectors. These investment areas were previously reserved for domestic investors.

In the context of export trade, while the export business was generally open to foreign investors in the past, the export trade of raw coffee, khat, oil seeds, pulses, minerals, hides and skins, products of natural forests, chicken and livestock bought on the market was previously reserved for domestic investors. The Directive now allows foreign investors to engage in the export trade of these products except for minerals bought on the market.

The import trade (excluding liquefied petroleum gas and bitumen) and retail trade (except e-commerce) sectors were previously reserved for domestic investors. Except for fertilisers and petroleum, the import and retail trade businesses are now open to foreign investors.

In respect of wholesale trade, any foreign investor is allowed to engage in wholesale trade in all business sectors except fertilisers. The wholesale trade can be for the purpose of the resale of products imported from abroad using an import trade permit, or products purchased from domestic manufacturers.

There are significant capital and infrastructure-related requirements for foreign nationals/entities to be allowed to invest in these sectors. However, reputable single-brand retail businesses operating with smaller capital may be granted a retail license by the Ethiopian Investment Board without needing to meet these otherwise significant capital and infrastructure requirements.

Other Major Legislative Developments in 2024

Data Protection Law

Ethiopia did not have a unified and comprehensive legal framework governing data protection until 2024, although there have been scattered rules that directly or indirectly regulate personal data. With a view to formulating a consolidated and comprehensive law, the government recently adopted Personal Data Protection Proclamation No 1321/2024 (the “Data Proclamation”).

The Ethiopian Communications Authority is mandated under the Data Proclamation to monitor and ensure compliance of data controllers and processors with the provisions of the Data Proclamation. It is also empowered to register data controllers and/or processors.

VAT proclamation

The Value Added Tax Proclamation No 1341/2024 (VAT Proclamation), which repealed the 2002 Value Added Tax Proclamation and its amendment, was enacted in July 2024. The VAT Proclamation has expanded the scope to cover previously exempted basic utility services such as water and electricity. It also regulates “remote services” and the circumstances under which a non-resident person (when providing services to final customers/B2C sales) may be subject to registration requirements in Ethiopia.

Public Procurement Law

The Federal Public Procurement and Property Administration Proclamation No 1333/2024 (the “Proclamation”) was ratified by the Ethiopian Parliament in 2024. In a departure from previous public procurement laws, this Proclamation expands its scope to include wholly owned government enterprises. These enterprises include the Commercial Bank of Ethiopia, Ethiopian Airlines Group, and Development Bank of Ethiopia, to mention a few. The Proclamation also mandates the establishment of an electronic public procurement system by the Ministry of Finance to govern end-to-end procurement-related matters. Further, the Proclamation governs various procurement modalities, ESG requirements in public procurement and appeal mechanisms, among others.

Real Estate Law

The Ethiopian Parliament approved the Real Estate Development, Real Property Marketing and Valuation Proclamation in December 2024. The Proclamation incorporated various matters, including:

• real estate competence;
• disclosure requirements;
• contracting restrictions, such as selling units off-plan;
• a requirement to install and furnish units with mechanical, electrical, water and sanitary infrastructure;
• licensing of participants such as brokers;
• real assets valuation; and
• a dispute resolution mechanism between developers and customers.