Month: August 2021

By Mahlet Mesganaw
Email: mahlet@dmethiolawyers.com

Introduction

Historically, under the Civil Code of Ethiopia in 1960, under Article 390, a foreigner is not allowed to own an immovable property in Ethiopia. However when investments are increasing by foreigners in Ethiopia, there arises a need provide incentive. Thus as part of the investment incentive together with income tax waivers, the Ethiopian government allows foreigners to own immovable property. A brief look on the subject matter is made here below.

The Shift

The 1960 Civil Code of Ethiopia on Article 390 clearly state that foreigners may not own immovable property situated in Ethiopia except in accordance with an Imperial Order. Such a stance has not been changed when the Imperial Era came out with an investment Proclamation No 242/1966. Similarly the Dergue regime’s investment Proclamation No 17/1990 did not change the situation. Neither the Transitional Government of Ethiopia Proclamation No 15/1992. Investment Proclamation No 37/1996 incorporated no specific law regarding ownership of immovable by foreigners as well. The first investment proclamation to introduce the shift was Investment Proclamation No 280/2002. Under Article 38 of the Proclamation, it states that notwithstanding the provisions of Article 390-393 of the Civil Code, a foreign national taken for domestic investor or a foreign investor is granted the right to own a dwelling house and other immovable property requisite for his investment. This right of ownership of an immovable covers those investors who have invested prior to the issuance of the proclamation. Then similar provisions allowing foreign investors ownership right of immovable has been included in Investment Proclamation No 769/2012 and the latest Investment Proclamation No 1180/2020 and its Regulation No 474/2020. We shall see who is eligible for ownership of immovable property next.

Who is Eligible

To own an immovable property in Ethiopia as a foreigner, the foreigner has to be a foreign national who invested in Ethiopia or a foreign national considered as domestic investor.“Foreign Investor” is defined under the latest investment proclamation as a person who has invested foreign capital in Ethiopia as a foreign national or as an enterprise in which a foreign national has an ownership stake or as an enterprise incorporated outside of Ethiopia by any investor. A foreign national will be considered as domestic investor by application made by the foreign investor. A foreign national or foreign enterprise will be treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia and issued with permit. A foreign national or foreign enterprise accorded a domestic investor investment permit as per laws which were in effect when the permit was issued will be considered as a domestic investor. Thus foreign nationals who brought capital to Ethiopia as an investor and foreign nationals considered as domestic investors shall have the right to own immovable property. What constitutes an immovable property will be dealt next.

Immovable Property

A foreign investor or a foreign national treated as domestic investor will have the right to own immovable property necessary for his investment. Immovable property as used in this provision does not include land. The reason land is excluded is because of the FDRE Constitution. Under Article 40 Sub Article 3 of the Constitution, the ownership right of land in Ethiopia is assigned to the Nations, Nationalities and Peoples of Ethiopia. A foreign investor or a foreign national treated as domestic investor who owns large investment may be allowed to own one dwelling house. Article 17 of the Investment Regulation No 474/2020 state that a foreign investor or foreign national considered as a domestic investor may own a dwelling house if he has invested a minimum of USD10 million. Comparing the latest proclamation with the earlier investment proclamations show strict conditions are set in this latest investment proclamation for ownership of dwelling house. For instance the previous investment proclamations namely Investment Proclamation No 769/2012 and 280/2002 provide that foreign investors or a foreign national treated as a domestic investor has the right to own a dwelling house and other immovable property requisite for his investment. There was no capital requirement for owning dwelling house.

Conclusion

In compliance with the economic progress and the size of the foreign investment in Ethiopia, the Ethiopian government has continuously amending its investment laws to meet the needs of foreign investors to reside and operate their commercial activities. Ethiopian Investment law as an investment incentive rendering ownership right of immovable for foreign investors will encourage investment, but requiring huge investment to own dwelling house may discourage the same.

Lydia kedir –Legal Assistance – at Dagnachew and Mahlet Law Office
Email: info@dmethiolawyers.com

Introduction

Ethiopian use customary dispute resolution mechanisms to resolving disputes in civil and criminal matters in the past years. Such dispute resolutions are led by community elders. These elders act like mediator in dispute resolution. The aim is to restore peaceful relationship between the parties. And to maintain future peaceful relationship by avoiding revenge. Formal law in Ethiopia recognizing some alternative dispute resolutions mechanism such as arbitration and conciliation were adopted under the Civil Code of Ethiopia and now separately under Proclamation No 1237/2021. Similarly the new Federal Court Establishment Proclamation No 1234/2021( hereafter the Proclamation) incorporated Court Annexed Mediation(CAM). A look on the steps Ethiopia took in formalizing Alternative Dispute Resolutions(ADR) and in particular CAM shall be made here below.

Steps Taken

Ethiopia took important step towards the development of ADR. For instance in 2020-2021 Ethiopia adopted New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, enacted Arbitration and Conciliation Proclamation and incorporated CAM under its Federal Court Establishment Proclamation No 1234/2021. Before the enactment of Proclamation No 1234/2021, the courts do not have legislative mandate to use CAM to resolve dispute.

What is Mediation?

Black’s Law Dictionary define Mediation as “a method of nonbinding dispute resolution involving a neutral third party who tries to help the disputing parties reach a mutually agreeable solution.” The most important aspect of the definition is that mediation is nonbinding. The pertinent legislation i.e. Federal Court Establishment Proclamation No 1234/2021 doesn’t define the word mediation. The Proclamation only state the court annexed mediation procedure, principle of mediation, fees, and who is mediator. However from the essence of the Proclamation, court annexed mediation can be defined as ‘the conflicting parties voluntary participate in the process of court annexed mediation and parties resolve their disputes with mediator, the approved agreement have binding power like decision of the court”

What is CAM?

CAM is a voluntary process of mediating disputing parties who presented their cases to court at an early stage of the litigation process. CAM is conducted under the auspices of the court whereby the officers of the court serve as mediators. Thus in CAM the mediation services are provided by the court as a part and parcel of the same judicial system. The agreed terms and approved settlement agreement in CAM shall be like a court decision and executed automatically. Ethiopian courts provide mediation settlements as the status of executable document.

Who is Mediator in CAM?

Pursuant to Article 47 of Proclamation, three cumulative requirements are set to be a mediator in CAM. The mediator need to have bachelor degree in law and with at least five years of experience in the field of law. He/she should be a person who has taken training in mediation. And finally the mediator has to be a person who fulfilled the criteria which is set by Federal Supreme Court. However, there is a possibility of including non legal EXPERIENCED professionals in areas related to their profession, as mediators.

Types of Cases

As per article 45 (1) of Proclamation, mainly civil cases are referred to CAM. It is clear that criminal matters are not subject to mediation. From civil matters, the directive to be issued by the Federal Supreme Court, shall determine which civil matters are included and excluded. Other jurisdictions like Bahrain for example, by amending their criminal procedure laws, they are including breach of trust crimes, petty theft, issuing a bounced cheque and other misdemeanors to be subject to mediation. CAM shall be instituted for cases falling under the jurisdiction of Federal First Instance courts and Federal High Courts only.

Principles of Mediation

Proclamation No 1234/2021 doesn’t define in detail the CAM’s involved parties rights and duties. For instance request of removal of mediator or when and how a judge involve in the mediation process are not listed in detail. The Proclamation tries to briefly specify the principles of mediation. The parties are free and equal. Communication of the parties in mediation shall be confidential and such communication shall not be admissible as evidence in the process of litigation. Hence additional rights of the parties, the removal of the mediator, the role of the mediator and how the judge involves in the case should be included in the directive the Federal Supreme Court will issue in the future.

Unsuccessful CAM and Fees

Where the parties have failed to resolve their dispute through CAM, the court proceedings shall be initiated automatically. However, if the mediation proceeding is interrupted due to absence of the other party, the mediator shall report to the court by specifying the reason for the interruption and the court proceedings shall be initiated after the absent party paid appropriate fee. Fees for mediators shall be fixed by the upcoming directive of the Federal Supreme Court. Such directive will sort out how much is paid when an employee of the court serves as mediator, a non-legal professional is involved or when mediator is selected by the parties.

Conclusion

Ethiopia recognized CAM as formal law in 2021. Such recognition is step forward for the speedy resolution of litigation in courts. CAM is recognized by law and its full implementation awaits directive of the Federal Supreme Court. CAM is added to the ADR instrument available for litigating parties in the Federal Ethiopian Court system. This is in addition to private conciliation or arbitration procedures already there in the legal system. Making sure of implementation of CAM, private conciliation or arbitration will make the legal system of Ethiopia far more better.

By Lydia Kedir
Position: Legal Assistant at DMLO
Introduction
Minimum capital requirement (MCR) is the capital that must be deposited by investor before starting business operations. The deposited amount can be withdrawn soon after the company is formed. MCR is another concern often mentioned in relation to investment codes that regulate flow of foreign investment. In recent years, many governments have stopped requiring new businesses to deposit minimum investment capital in banks or with notaries before they can begin operations. A brief look into the experiences of African counterparts that highly attract foreign direct investment (FDI) such as Rwanda and Tunisia will be made first. Based on those experiences, a brief discussion into the investment MCR of Ethiopia shall be made and a brief conclusion will follow.

1.1. Rwanda
Rwanda is land locked country. However such factor does not limit the attractiveness of the country for investment. Recently Rwanda created favorable condition for foreign investor. Seeking to attract more FDI, the government of Rwanda enacted a new investment code. The aim is to attract investor. The code provides tax breaks and other incentives to investors. Beside that, Rwanda has no minimum investment capital requirement. There is no statutory limit to foreign investor. In Rwanda there is no difference between foreign and domestic investor. Foreign investors have right to own and establish business enterprises in all sector. Rwandan laws’ provide equal treatment for local and foreign investor with regard to business operation.

Rwanda does not set minimum investment capital requirement. Hence foreign investors can start their business in Rwanda with the capital the investor wishes to invest. Rwanda provides equal opportunity to foreign investor with high capital and low capital. There is no discrimination between them. Due to these factors, investors in Rwanda are creating better employment opportunities, transfer of knowledge, skill and technology. Moreover the investment atmosphere of Rwanda is generating significant effect on the social and economic development of the country.

However rather than focusing on putting hurdles at the entry level in investment, Rwanda put criteria for investment projects evaluation. These evaluations include engaging in non trading activity, creation of quality jobs, transfer of skills and knowledge, use of local raw materials, potential for export, potential to create backward and forward linkages, and innovation and creativity.

After evaluating the investment projects, Rwanda provides investment permit for the investor. This strategy or criteria has been very successful for Rwanda. The country is also impressively ranked in the Doing business 2020 report published by the World Bank, ranking 38th out of 190 economies in terms of ease of doing business and this made Rwanda the highest ranked country in Africa.

1.2.Tunisia
Tunisia government is working on with the objectives of raising the country’s economy through foreign direct investment. Government of Tunisia attracts foreign investor to the country by reforming policies and enacting a new laws. Government of Tunisia considers the investment and business climate will be attractive by reforming and enacting laws. To mention few areas of reform include bankruptcy law, investment code and public private partnership.

Moreover Tunisian government adopted laws that allow starting investment and business more easily. The law in Tunisia does not require a minimum capital requirement, if a company being created is in the form of a Limited Liability Company or a Single Member Liability Company. For a Limited Company, a minimum capital requirement of no less than 5,000 TND is required. The capital requirement will grow to 50,000 TND if the Limited Company does make a public invitation. The minimum capital requirement must be divided in membership shares whose nominal value may not be less than 1 TND. Tunisia renders equal treatment for local and foreign investor. Both of them have the same right and can engage on any business activity. This improvement is booster to portfolio investments and helped country progress in World Bank’s Doing Business 2020 report. Tunisia ranked 78 out of 190 countries. Nevertheless, there are still huge bureaucratic problem to investment. State owned enterprises are major player in Tunisian economy. However relatively, Tunisia attract foreign investors.

1.3. Ethiopia
MCR is one of the vital preconditions for an admission/entry of a foreign investment in Ethiopia. Such requirement is solely applicable to foreign investors. Minimum investment capital requirement is a regulatory instrument that set the who can invest in the country depending on specific policy goals of country. In the Ethiopian context, MCR is put in place particularly to achieve the promises contemplated by the investment legislation.

Article 9 of the Investment Proclamation No 1180/2020 set the amount of MCR. Any foreign investor, to be given the permission to invest in Ethiopia, is obliged to allocate a minimum capital of USD 200,000 for a single project. If the foreigner is investing together with a domestic investor, the minimum capital requirement will reduce by 50k and becomes USD 150,000. A foreign investor investing in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing works, is required to invest minimum capital of USD 100,000. If the investment is made together with a domestic investor, then the minimum capital will reduce to USD 50,000.

There are few exceptions. When a foreign investor is re-investing his profit or dividend obtained from his pre-existing company in Ethiopia, the investor will not be required to invest the minimum capital. Similarly, minimum capital requirement will not apply when a foreign investor buys the entirety of an existing company owned by a foreign investor or the shares therein. Another exception is when a foreigner is appointed a board member in a share company that is converted from a private limited company.

The minimum capital requirement need to be registered. Any foreign investor bringing investment capital into the country shall have such capital registered by appropriate investment organ within one year and obtain a certificate of registration. This enables the investor for remittance at a later stage.

Not only this recent investment proclamation but also the previous investment proclamation of Ethiopia namely Investment Proclamation No 769/2012 (as amended) also incorporate minimum capital requirement for foreign investors.

Different African countries reformed their investment laws to excluding minimum investment capital requirement. Ethiopia enacted a new investment law in 2020. However, still the MCR is incorporated. The country does not provide the opportunity for foreign investor who wanted to test the business investment environment with capital less than USD 200,000 or USD 100,000, or USD 50,000. So long as the investment area is open for foreign investment, the MCR should have been avoided. The equal business treatment of a foreign investor with that of a domestic investor is a huge attraction point in Rwanda and Tunisia. Similarly Ethiopia should avoid what seems to be a discriminatory treatment of foreign investors in doing business in Ethiopia. Entry level hurdles and obstacles to business need to be reformed. This will attract FDI. Any amount of FDI should be invited into the country. Specially small and medium FDI’s will grow into big investments in the country. More so, small and medium FDI’s attract the big ones, by showing them that doing business in Ethiopia is possible, attractive and profitable. Huge investment attraction like Dubai, for instance, allows all types of FDI’s, including structuring zones, so that anyone who wants to invest and do business can do so. The Dubai government earns its share from charging in thousands of dollars on issuing permits and licences and their renewals.

Minimum capital set out in the Commercial Code of Ethiopia Proclamation No 1243/2021 for a single member private limited company or private limited company or share company should equally serve foreign investors initial investment capital requirement. The MCR in the Investment Proclamation is discriminatory and need to be revisited.

Due to the fact that Ethiopia is fixed on setting MCR, foreign investor may look away and invest in other countries. Specially those big or small investors who wants to start business small, will be discouraged at entry level.

Ethiopia ranked 159 among 190 countries in the ease of doing business according to World Bank annual ratings. The rank of Ethiopia remained unchanged at 159 in 2019 from 159 in 2018. To change the rank, Ethiopia should repeal the statutory requirement of MCR.

Conclusion
Minimum investment capital requirements is set to regulate the flow of foreign investor into a country. Ethiopia use minimum investment capital requirements as preconditions for entry of an investment into the country. Having minimum investment capital requirement highly affect the flow of FDI. Foreign investor who wish to invest less, lack access to invest in Ethiopia. Because of this unfavorable legislative condition, Ethiopia will lose many investment opportunities. In order to improve the investment climate, attract more FDI and tackle unemployment challenges, Ethiopia should create favorable condition for foreign investor at entry level. Excluding of MCR may improve the investment climate and attract more FDI.