The World Bank Women Business and the Law awarded Mr.Dagnachew Tesfaye and Mrs. Mahlet Mesganaw with a Certificate of Appreciation 2021 for DMLO’s contributions.
By Dagnachew Tesfaye
Civil Society Organizations are administered by the Organizations of Civil Societies Proclamation No.1113/2019 (hereafter the Proclamation) done on March 12/2019 to be effective from the date of publication in the Federal Negarit Gazette. This brief article attempts to show major highlights of the Civil Society Organization Registration Proclamation. The article is divided into seven parts. Part one shall deal with definitions. Part two shall look upon types of local organization, with emphasis on two of those types. Part three and four shall deal with the requirements for registration of local and foreign civil society organizations. And part five to seven shall state the effects in terms of rights, responsibilities and income generation benefits to such registered civil organizations. A brief conclusion shall follow.
Local and Foreign Organizations
The Proclamation defines local and foreign organizations. “Local Organization” are defined as a civil society organization formed under the laws of Ethiopia by Ethiopians, foreigners resident in Ethiopia or both. Here foreigners resident in Ethiopia are granted the right to establish local organizations. On the other hand “Foreign Organization” is defined as a non-governmental organization formed under the laws of foreign countries and registered to operate in Ethiopia.
Types of Local Organizations
Two or more persons may establish Local Organization. Here on the Article 17 of the Proclamation there is a reference to ‘Indigenous Organization’. There is no definition of Indigenous Organization in the Proclamation. However, the Amharic version of Article 17, which is the prevailing one in terms of interpretation, refers indigenous organizations as ‘Local Organizations’.
There are five types of Local Organizations. These are a/ An Association b/ A Board-led Organization c/ A charitable Endowment d/ A charitable Trust and e/ A Charitable Committee. For the purpose of this article, a focus shall be made on the first two i.e. on an association and a board-led organizations.
An Association and Board-Led Organization
An Association is an organization formed by five or more members and governed by a General Assembly as the supreme decision-making body. For the purpose of this Proclamation, association shall include professional associations. The organizational chart of an association will have a General Assembly at the top and then in hierarchy Executive Committee, Manager, Auditor and other departments as may be necessary. Details regarding the structure and governance of an Association will be determined by the associations internal rules.
One the other hand a board-led organization can be formed by two or more founders. The board is the supreme organ. The Board shall have a minimum of five and a maximum of thirteen members. The first board members shall be designated by the founders. The term of service and appointment procedures for subsequent board members shall be prescribed by the rules of the organization. Here the unique nature of Board-led organization is that persons who are related by consanguinity or affinity with the officers of the organization may not be board members. The organizational chart of a board-led organization shall have a manager accountable to the Board and necessary staff as may be necessary. The particulars shall be determined by the rules of the organization.
Documents Required for Registration of Local and Foreign Organization
An application for registration by Local Organization shall be signed by the founders and should contain the following particulars: a) the minutes of the formative meeting indicating the names, addresses and citizenship of the founders; b) copy of the identity card or passport of the founders; c) the name of the organization and its logo, if it has one; d) the objectives of the organization and its intended sector of operation; e) the Region where it intends to operate; f) the rules of the organization approved by the founders; and g) the organization’s address.
On the other hand an application for registration of a foreign organization shall, in addition to the conditions mentioned from a-g above, be accompanied with the following documents: a) duly authenticated certificate of registration showing its establishment from its country of origin; b) duly authenticated resolution of its competent organ to operate in Ethiopia; c) duly authenticated power of delegation of the country representative; e) letter of recommendation from the embassy in which the charity is incorporated or in the absence of such by a competent authority in the country of origin from Ministry of Foreign Affairs of Federal Democratic Republic of Ethiopia and; f) a work plan for a minimum period of two years.
Effects in Terms of Rights
The Proclamation provides that any organization which registered upon fulfillment the registration requirements provided in the Proclamation : a/ shall have legal personality; b/ can sue, be sued and enter into contracts; c/ without prejudice to laws that require special license, can operate in the sector of its choice; d/ to own, administer and transfer movable and immovable property. However, the proceeds from the disposal of the property may not be transferred as donation for the benefit of members or to another activity which is not its mission; and the Organization which transfer property shall inform to the Agency within 15 days; e/shall have the right to engage in any lawful activity to accomplish its objectives; f/ local organizations shall have the right to operate in Ethiopia or abroad, or implement objectives having global, regional or sub regional nature; g/ can implement project activities on its own or to provide financial and technical support to other organizations; h/ may propose recommendations for the change or amendment of existing laws, policies or practices, or issuance of new laws and policies of those which have relationship with the activities they are performing. However, unless it is permitted with an other law Foreign Organizations and Local Organizations which are established by foreign citizens which are residents of Ethiopia may not engage in lobbying political parties, engage in voters education or election observations; i/ foreign organizations may implement project activities or work in partnership with Local Organizations by providing financial, technical or in kind support; j/ to the extent possible, Foreign Organizations by working in partnership with local and Governmental Organizations, can give support to build the capacity of Local Organizations; o) shall have the right to move its properties from one region to another region or city administration, unless the Project Agreement states that such properties may not be transferred because they are necessary for the sustainability of a specific project it is implementing; p) have the right to engage in any lawful business and investment activity in accordance with the relevant trade and investment laws in order to raise funds for the fulfillment its objectives. However, the profit to be obtained from such activities may not be transferred for the benefit of members; q) shall have the right to solicit, receive and utilize funds from any legal source to attain its objective; r/shall get a written approval of the Agency to open a bank account. The Agency shall respond to requests for such approval within five days from receipt of the request; s/ all financial transactions shall be performed through a bank account opened by an Organization in its name; t/ all banks have the obligation to provide the bank statement of accounts held by any Organization to the Agency when requested. w/ the Bank Account transaction can be done in the context of the Organization rules; x/ no organization may employ a foreign national who is not given work permit under the relevant laws. Notwithstanding the stipulation above, a foreign organization shall not be barred from appointing a foreign national as its country representative; y/ foreign nationals other than the country representative may only be hired if the office granting work permit verifies that the work cannot be performed by Ethiopians. z/ some provisions of the law will not apply to foreign nationals who are not salaried employees but come to Ethiopia to professionally contribute by working as volunteers for a period not exceeding one year.
As there are rights and benefits, corresponding responsibilities are laid down on the Proclamation. The responsibilities include a/ an organization shall make the necessary efforts to ensure that its activities help to bring about sustainable development, contribute to the democratization process, promote the rights and interests of its members or enhance the profession they are engaged in; b/ an organization which is established for the benefit of the general public or third parties shall ensure that its activities take into account the interests of women, Children, persons with disabilities, the elderly and others exposed to threat or vulnerable groups of the society; c/ an organization cannot engage in sectors which require additional permit by law without getting the necessary permit from the relevant government bodies; d/ in performing their duties all members, officers and employees of the Organization have the responsibility to give primacy to the Organization’s interest and take the necessary precaution to avoid conflict of interest; e/the Administrative cost of an Organization established for the benefit of the general public or that of third Parties may not exceed twenty percent of its total income. For the purpose of this provision, “Administrative Expense” shall mean expenses which are not related to the project activities of an organization but are necessary to ensure the continuity of an Organization and related to administrative activities, and shall include: salaries and benefits of administrative employees; purchase of consumables and fixed assets and repair and maintenance expenses related to administrative matters; office rent, parking fees, audit fees, advertisement expenses, bank service fees, fees for electricity, fax, water and internet services; postal and printing expenses; tax, purchase and repair of vehicles for administrative purposes, and procurement of oil and lubricants for the same; insurance costs, penalties and attorney fees. However the Agency may issue Directives regarding organizations exempted from the application of 20% administrative expense rule.
Income Generation Related Benefits
Though civil organizations are established for non-profit making endeavor, in exceptional circumstances such organizations are granted the right to generate income. The income generating activities are granted and operated in the following situations: a/ an organization which engages in income generating activities in may do so by establishing a separate business organization (company), acquiring shares in an existing company, collect public collections or operating its business as a sole proprietorship; b/shall open a separate bank account and keep separate books of account for its business in accordance with the relevant commercial and tax laws; c/ the relevant tax, commercial registration and business licensing, and investment laws shall be applicable to income generation activities under this provision; e/ the income that is generated from income generating activities will be used to cover administrative and program costs of the organization; f/ the income and resources that are acquired from income generating activities shall not be transferred or shared for the benefit of members or workers of the organization; g/ when the organizations collect public collections, they shall inform to the Agency; and h/ an organizations engaged in income generating activities based on this Article shall inform to the Agency within fifteen days.
The Civil Society Proclamation has made registration of civil society organizations easier. The Proclamation incorporated several benefits of registration. Income generation benefit is one of the major benefits. Employment of foreigners shall follow work permit procedures. However foreign citizens are allowed to occupy the position of country representatives. Other foreign nationals can serve up to one year non-salaried professional volunteer position. The Proclamation is a game changer for civil society organisations in a positive way.
By Dagnachew Tesfaye
The Investment Regulation No.474/2020 (hereafter the Regulation) was enacted following the Investment Proclamation No 1180/2020. It was done on the 2nd day of September 2020, to be effective on the date of publication in the Federal Negarit Gazette.
The Regulation is divided into eight parts that cover investment areas, investment permit, acquisition of existing enterprise and transfer of investment projects under implementation, procedure for suspension and revocation of investment permits, registration of technology transfer and collaboration agreements, condition for owning a dwelling house, provision of one-stop service, training and transfer of knowledge and skill to Ethiopian employees and repealed and inapplicable laws.
Any foreign investor can investment in investment areas that are not listed and reserved for a) joint investment with the Government, b)investment areas reserved for domestic investors, and c) investment areas reserved for joint investment with domestic and foreign investors.
This approach is a major shift from the previous investment regulation. The previous investment regulation lists down exhaustively areas of investment open for foreign investors. Foreign investors could not invest outside the listed investment areas. Now foreign investors can invest in all other areas of investment except those reserved for the joint investment with government and joint investment with domestic investors or areas of investment reserved for domestic investors.
“Domestic Investor” has been defined under the Investment Proclamation No 1180/2020 as an Ethiopian National; or an Enterprise incorporated Ethiopia and wholly owned by Ethiopian National; or the Government; or a Public Enterprise; or a cooperative society established as per the relevant law; or a Foreign National or Foreign Enterprise treated as domestic investor as per the relevant law or international treaty ratified by Ethiopia; pr an Enterprise incorporated in Ethiopia jointly between any of the investors specified above; or a Foreign National or Foreign Enterprise accorded a domestic investor investment permit as per laws which were in effect when the permit was issued and continues to operate in Ethiopia, provided that this applies only in respect of investments that are operational at the time of enactment of this Proclamation; or descendant of a foreign national that is accorded investment permit provided that this applies only in respect of investments specified in the same Sub-article;
On the other hand, on the same Investment Proclamation a ''Foreign Investor” has been defined as a Foreign National; or an Enterprise in which a Foreign National has an ownership stake; or an Enterprise incorporated outside of Ethiopia by any investor; or an Enterprise established jointly by any of the investors mentioned above ; or an Ethiopian permanently residing abroad and preferring treatment as a Foreign investor;
Areas of investment open for any investor to invest JOINTLY with the Government are: manufacturing of weapons, ammunition and explosives used as weapons or to make weapons, import and export of electrical energy, international air transport services, bus rapid transit services and postal services excluding courier services.
Investment areas RESERVED for DOMESTIC investors include banking, insurance, microfinance excluding capital goods finance business, transmission and distribution of electrical energy through integrated national grid system, primary and middle level health services, wholesale trade, petroleum, petroleum products, wholesale of own products produced in Ethiopia, excluding wholesale of electronic commerce; retail trade excluding retail of own products produced in Ethiopia, import trade excluding liqudified petroleum gas and bitumen, export trade of raw coffee, khat, oil seeds, pulses, minerals, hides and skins, products of natural forest, chicken and livestock including pack animals brought on the market; construction and drilling services below Grade 1, hotel, lodge, resort, motel, guesthouse, pension services excluding those that are star-designated, restaurant, tearoom, coffee shops, bars, nightclubs and catering services excluding star designated national cuisine restaurant services, travel agency, travel ticket sales and trade auxiliary services, tour operation, operating lease of equipment, machinery and vehicles, excluding industry specific heavy equipment, machinery and specialized vehicles; transport services excluding railway transport, cable-car transport, cold-chain transport, freight transport having a capacity of more than 25 tons and transport services reserved for joint investment with the government or domestic investors; making indigenous traditional medicines, producing bakery products and pastries for domestic market, grinding mills, barbershops and beauty salon services, smithery and tailoring except by garment factories, maintenance and repair services including aircraft maintenance repair and overhaul(MRO), but excluding repair and maintenance of heavy industry machinery and medical equipment, aircraft ground handling and other related services, saw milling, timber manufacturing and assembling of semi-finished wood products; medical services, customs clearance service, brick and block manufacturing, quarrying, lottery and sports betting, laundry services excluding those provided on industrial scale, translation and secretarial services, security services, brokerage services, attorney and legal consultancy services, and private employment agency services excluding such services for employment of seafarers and other similar professionals that require high expertise and international experience and network.
Lastly investment areas reserved for JOINT investment with domestic and foreign investors are feight forwarding and shipping agency services, domestic air transport services, cross country public transport services using buses with a seating capacity of more than 45 passengers, urban mass transport service with large carrying capacity, advertisement and promotion services, audiovisual services such as motion picture and video recording, production and distribution and finally accounting and auditing servises.
However a foreign investor jointly investing with a domestic investor on the above listed businesses cannot own more than 49% of the share capital of the newly formed joint investment company.
Therefore, except areas of investment reserved for joint investment with the Government, or investment areas reserved for domestic investors, or investment areas reserved for joint investment with domestic and foreign investors, the rest are open to foreign investors to invest.
By Dagnachew Tesfaye
Ethiopia has adopted a new investment law. The Proclamation is called the Investment Proclamation No.1180/2020(hereafter the Proclamation). It was done on April 2,2020 to be effective on the date of publication in the Federal Negarit Gazettee.
Purposes of the Proclamation: The major purposes of the proclamation are to increase the role of private sector investment in all sectors of the economy, to create fast track economic framework, to increase export performance, expand employment opportunity, to increase and diversify foreign investment inflow and transfer technology, skill and knowledge, to link foreign and domestic investments in broader areas, to promote equitable distribution of investments among the regions of Ethiopia, to leverage foreign capital to promote the competitiveness of domestic investors, to put in place an efficient system to implement the National Investment Objectives and such system to be transparent, predictable, and efficient for investment attraction, retention and expansion.
In the Proclamation, 'Investment' has been defined as expenditure of capital in cash or in kind or in both by an investor to establish a new enterprise or to acquire in part or in all, to expand or upgrade an existing enterprise. 'Capital' is also defined as local or foreign currency, negotiable instrument, machinery or equipment, building, working capital, property right, intellectual property right or other tangible or intangible business assets. 'Investor' is defined as a domestic or foreign investor who has invested capital in Ethiopia. 'Domestic investors' are defined to include among others a foreign national or foreign enterprise treated as domestic investor as pr the Ethiopian law or international treaty Ethiopia has ratified or a foreign national or foreign enterprise accorded a domestic investor investment permit earlier and continues to operate in Ethiopia and descendants of a foreign nationals. 'Export- oriented non-equity based foreign enterprise collaboration' is defined as a collaboration formed by a contractual agreement between a domestic investor and foreign enterprise in which the foreign enterprise provides among others guaranteed external market access, know-how of production of products for export, export business management know-how, export marketing know how and strategies for the supply of raw materials and intermediate inputs needed for export products.
Scope of the Investment Proclamation: The scope of application of the investment proclamation is in all investment sectors in Ethiopia except prospecting, exploration and development of minerals and petroleum.
Powers of EIC: The Ethiopian Investment Commission(here after Commission) is assigned the power to issue, renew, amendment, substitution, replacement and cancellation of investment permits, the issuance of investment permits and the expansion or upgrading permits for wholly foreign owned investments or joint investments by domestic and foreign investors, foreign nationals who are treated as domestic investors and investment areas that are eligible for incentives by a domestic investor. Sectors of investment in air transport services, the generation or transmission or distribution of electric power and the provision of communication services shall be carried out by the Ethiopian Civil Aviation Authority, the Ethiopian Energy Authority and the Ethiopian Communication Authority respectively representing the Commission. These later Authorities shall submit to the Ethiopian Investment Commission a quarterly report regarding services they rendered through delegated powers, and further study potential sector specific investment strategies and engage in investment promotion works. Regional investment organs shall administer investments, that are outside the scope of the Commission or Authorities mentioned above.
Areas of Investment: Areas of investment open to an investor as a principle are any area of investment that are not contrary to law, moral, public health or security. Except areas of investment reserved for joint investment with the government or domestic investors and for joint investment with domestic investors, all other areas of investment shall be open to foreign investors. The list of areas of investments by joint investment with the government or domestic investors, or joint investment with domestic investors or areas of investment open for foreign investors may be revised from time to time by the EIC Board.
Joint Investment with the Government or PPP: The government body assigned to receive interested private investors proposals in areas of joint investment with the government, as public-private partnership, shall be the Public Enterprises Holding Administration. The Agency shall follow procedures under the law and upon approval, designate a public enterprise or establish a new project company to invest as partner in the joint investment.
Forms of Enterprises: Investments may be carried out in the form of sole proprietorship, enterprises established in Ethiopia or abroad, public enterprises established with the relevant law and cooperative societies formed in accordance withe the relevant law. Any investment enterprise established abroad and registered in Ethiopia and all other enterprises registered in Ethiopia shall be governed by the Commercial Code of Ethiopia.
Minimum Capital Requirement: A foreign investor to be allowed to invest shall be required to allocate a minimum capital of USD 200,000.00(Two Hundred Thousand USD) for a single investment project. Where the foreign investor jointly invests with a domestic investor, the minimum capital requirement shall be USD 150,000.00(One Hundred Fifty Thousand). However, if the investment areas is in architectural or engineering works or related technical consultancy services, technical testing and analysis or in publishing works, the minimum capital investment shall be USD 100,000.00(One Hundred Thousand) or USD 50,000.00(Fifty Thousand) if the investment is made jointly with a domestic investor. The minimum capital requirement shall not apply to foreign investors re-investing his profits or dividends generated from his existing enterprise in any investment area open for foreign investors or persons elected as members of board of directors following the change of a private limited company to share company or a foreign investor buying the entirety of an existing enterprise owned by a foreign investor or the shares therein. Any foreign investor bringing investment capital into Ethiopia, need to registered it within one year and the obtain a certificate of registration. Such copy of certificate shall be sent to the National Bank of Ethiopia by the appropriate investment organ.
Investment Permit: foreign investors, domestic and foreign investors investing jointly, investors investing as domestic investors, domestic investors who invest in areas eligible for incentives and who seek to be beneficiary of such incentive and an investor seeking to expand or upgrade an existing investment which is eligible for incentives and the investor seeks to be beneficiary of such incentive shall obtain investment permit. However, a foreign national of Ethiopian origin treated as a domestic investor shall have the right to invest without acquiring investment permit in areas not eligible for incentives or in areas eligible for incentives by waiving his right to claim incentives. Also a foreign investor seeking to buy an existing enterprise in order to operate it in its current state or to buy shares of an existing enterprise shall obtain prior approval from the EIC. The Commission shall not deny or delay the approval without sufficient cause. Nevertheless, no investor is allowed to hold domestic and foreign investor permits simultaneously.
An investment permit is subject for renewal annually until the investor commences marketing his products or services. Once a business licence is acquired, the shall be no need to renew investment permit. The renewal request should be sough within one month after the end of a period of one year for which the permit was valid. Unless the investment organ is convinced of a sufficient cause for delay in commencing or completion of the investment project, the investment permit will be revoked within two years.
Transfer of investment project in the implementation phase: an investor wishing to transfer to another investor a project which is under implementation shall submit his request to the investment organ and obtain approval. The investment organ shall not deny or delay the approval without sufficient cause.
Any investor who is issued an investment permit shall submit a quarterly progress report and provide information concerning his investment whenever requested.
Technology Transfer Agreement: Any investor concluding a technology transfer agreement shall register such agreement with the EIC. Unregistered technology transfer agreement shall have no legal recognition with the EIC.
Collaboration Agreement: Any domestic investor who concludes, in respect of export, a collaboration agreement with a foreign enterprise who does not contribute capital shall have the agreement registered with EIC. A collaboration agreement that is not registered shall have no legal recognition with the EIC.
Investment Incentives: areas of investments, types and amount of investment incentives shall be determined by regulation.
Immovable Property Ownership: a foreign investor or a foreign national treated as domestic investor shall have the right to own immovable property necessary for his investment. Whereas, if such an investor who owns large investment may be allowed to own one dwelling house. The details of the later part shall be decided by a regulation. Immovable property as used in this provisions does not include land and the ownership of immovable property shall apply to investors who invested prior to the adoption of this proclamation.
Expropriation: the government may expropriate any investment for public interest, in conformity with requirements of the law, on a non-discriminatory basis, with adequate compensation corresponding to the prevailing market value paid in advance.
Remittance of Funds: a foreign investor shall have the right in respect of his investment to remit in convertible currency at the prevailing exchange rate on the date of transfer profits and dividends, principal and interest payments on external loans, payments related to technology transfer agreements, payments related to collaboration agreements, proceeds from the transfer of shares or conferral of partial or total ownership of an enterprise to another investor, proceeds from sale, capital reduction or liquidation of an enterprise and compensation paid on expropriation. Expats employed for investments carried out pursuant to this Proclamation whose permanent residence is outside of Ethiopia may remit their salaries accruing from their employment. However, a domestic investor investing jointly with foreign investor shall not be allowed to remit funds earned from the investment out of Ethiopia.
External Loan: An investor may acquires a loan from outside of Ethiopia for his investment and operate a foreign currency account in a bank in Ethiopia for the purpose of its investment following the directives of the National Bank of Ethiopia (NBE).
Expat employment : an investor may employ duly qualified foreigners for his investment in positions of higher management positions including chief executive officer, chief operation officer and chief finance officers as necessary, supervision, trainers and other technical professions. However, foreigners may be employed only when it can be ascertained that Ethiopians possessing similar qualification or experience required by the sector are not available.
Work Permits of Expats: The work permit of top management foreign workers shall be renewed without being required to comply with the conditions specified in this article in respect of other foreign workers. A work permit may be issued for a cohabiting spouse of any investor and a foreign worker employed. A work permit for employment in certain positions may be issued for up to three years and renewed every year. However an investor who employs foreigners shall be responsible for replacing within a limited period of time such foreign workers by Ethiopians by arranging and providing the necessary training. Renewal of work permit shall be done after ascertaining the non-availability of Ethiopian workers with similar qualification and of the concrete measure taken by the investor to train Ethiopian replacements. Where it is ascertained that a foreign worker is no longer required for the position he is employed, the EIC may decide not to renew or to cancel the work permit.
Visa Services: EIC or a delegated investment organ may facilitate the processing of visa application of foreigners coming into Ethiopia for investment purposes and that of the families (spouses, children and parents) of investors undertaking investments in Ethiopia. Visa may be issued to an investor intending to enter into Ethiopia, from a country that is not his home country, for investment purposes based on a support letter the EIC may offer. An owner or shareholder of an investment under this proclamation may be issued a five-year multiple visa based on the confirmation by the EIC. The general manager, board member or top management of an investment enterprise in Ethiopia and the Parent or holding company of the Enterprise may be issued a three year multiple entry visa based on confirmation by EIC. No single stay of any foreigner entering Ethiopia using multiple entry visa may exceed 90(Ninety) days.
One Stop Service: EIC or regional investment organs shall provide one-stop services to investors by coordinating relevant agencies and synchronize their daily functions.
Complaint Procedure in EIC: Any grievance shall be resolved using speedy, equitable and efficient procedure. Any investor who has grievance shall have the right to submit it to the appropriate investment organ. Such grievance shall follow the administrative chain and get final administrative decision. A written copy of the administrative decision shall be given to investor within 7(Seven) working days from the date from the date of the decision. If the investor has a grievance against the final administrative decision of EIC, then he can submit a complaint to EIC Board within 30(thirty) working days from the date the investor becomes aware of such decision. Then the Board shall give its decision within 90(Ninety) working days from the date of submission of the Complaint and a written Board decision will be given to the investor within 7(seven) working day.
Complaint procedure against Executive Bodies: An investor shall have the right to submit a complaint to the EIC against final administrative decision of any federal government executive body where such decision significantly affects the investment. The Federal executive body shall give to investor within 7(seven) working days a written copy of the final decision. The investor then has 30(thirty) working days to submit the final administrative decision to EIC. EIC shall engage with the government body and propose a recommended solution in writing within 30(thirty) days from the submission of the complaint. A written copy of the proposed solution shall be given to the investor within 7(seven) working days from the date the recommended solution is tabled. Still the investor may file a complaint to EIC Board against the EIC's recommended solution, or the the solution is not accepted by the government body. The complaint to the Board should be presented within 30(thirty) working days from the date the investor is notified of the recommended solution or learns that the government body rejected the recommended solution. The Board shall then give its decision within 90(Ninety) working days. Any Federal government body has a duty to comply with and execute in accordance with the decision of the Board.
Dispute Settlement: without prejudice to the right of access to justice through a competent body with judicial power, any dispute between an investor and the Government involving investments effected pursuant to this Proclamation will be resolved through consultation or negotiation. The Federal government may agree to resolve investment disputes involving foreign investments through arbitration. Where a foreign investor chooses to submit an investment dispute to a competent body with judicial powers or arbitration, the choice shall be deemed final to the exclusion of the other.
Investment Administration Organs: The investment administration organs include the Ethiopian Investment Board, the Ethiopian Investment Commission, the Federal Government and Regional sState Administrations Investment Councils and the Investment Administration organs established pursuant to Regional laws.
Members of the Ethiopian Investment Board are 13(thirteen) including the Prime Minister as chairperson, a government official designated by the Prime Minister as Vice Chair person, EIC Commissioner and Secretary, Eight core or investment related government officials, two private sector representatives.
Council: a council for the cooperation and coordinated administration of investment between the Federal government and Regional state administrations is established by this Proclamation. Members of the Council include the Prime Minister or in his absence the Deputy Prime Minister as chairpersons, Presidents of all regions and Mayors of the Addis Ababa and Dire Dawa City Administrations, EIC Commissioner and heads of investment organs of all Regions and Addis Ababa and Dire Dawa City Administrations and other members designated by the Prime Minister as necessary.
Coordination with Regional States: the Commission shall work in close cooperation with Regional Stat Investment Administration organs and other stakeholders with a view to creating a uniform, coordinated and efficient national investment administration system. Standing regional state investment Desks shall be established.
Provision of Land: Regions shall handle land requests for investments in the manufacturing, agriculture and other sectors in an efficient manner and shall establish a transparent and predictable system for the handling of such requests. Regions shall identify and classify land to be used for investment projects, organize such land centrally under one Regional State Administration body and transfer the information to the appropriate investment organs. The EIC shall coordinate the Regional State Administration and appropriate investment organs to facilitate and follow through the efficient handling of such requests. Regions shall respond to land allocation request of an investor for manufacturing within 60(Sixty) days and 90(Ninety) days where the investment is in other sectors.
Transitory Provisions: rights and entitlements bestowed pursuant to Investment Proclamation no 769/2012 as amended and Regulations and Directives issued there under shall remain applicable in respect of investments approved prior to the coming into force of this Proclamation.
Duty to Observe: all investors have a duty to observe laws of the country and shall give due regard to social and environmental values.
“Sexual harassment” means to persuade or convince another through utterances, signs or any other manner, to submit for sexual favor without his/her consent.
“Sexual violence” means sexual harassment accompanied by force or an attempt thereof.
2. Scope of Application
3(1). Without prejudice to Sub-Article (2) of this Article, this Proclamation shall be applicable to employment relations based on a contract of employment that exist between a worker and an employer including recruitment process.
11(3). When the parties agree to have a probation period, the agreement shall be made in writing; in such a case, the probation period shall not exceed 60 working days beginning from the first date of employment.
4. Prohibited Acts
14(2)g). Conduct meeting during working hours in disregard to the time assigned by the collective agreement or without obtaining the permission of the employer; h) Commit sexual harassment or sexual violence at workplace;
i) Physically abuse anyone in a work place.
27. 1/ Unless otherwise determined by a collective agreement, a contract of employment shall be terminated without prior notice only on the following grounds :
a) Unless the reason for being late is justified by the collective agreement, work rule or contract of employment, being late for duty eight times in six months period while being warned in writing of such a problem;
27/1/b) Absence from duty for a total five days in six months period while being warned in writing of such a problem; and where the absence cannot be classified in any of the leaves provided under the Proclamation;
7. Performance test
28(2) Any loss of capacity of work referred to in SubArticle (1) (a) of this Article shall, unless otherwise provided by a collective agreement, be verified by a periodical job performance evaluation.
8. Termination without prior notice by Employee
32(1) (b) Where the workers has been a victim of sexual harassment or sexual violence by the employer or a managerial employee;
9. Severance payment
39(1)d. Where the worker resigned due to sexual harassment or sexual violence by the employer or managerial employee; or where such act was committed by a coworker and the incident was reported to the employer but the latter failed to take appropriate measure in due time;
41(2) However, where the termination is based on Article 32 (1) (b) the worker shall, in addition to severance pay, be entitled to compensation of his daily wage multiplied by ninety. This provision shall also apply to a worker covered by the relevant pension law.
11. Employee to pay compensation to Employer
45. 1/ A worker who terminates his contract of employment in disregard of the provisions of Article 31 or 35(2) of this Proclamation shall be liable to pay compensation to the employer.
2/ However, the compensation payable by the worker in accordance with Sub-Article (1) of this Article shall not exceed 30 days’ wages of the worker and be payable from the remaining payment due to the worker.
12. Deduction from Salary more than 1/3
59. 1/ The employer shall not deduct from, attach or set off the wages of the worker except where it is provided otherwise by law or collective agreement or work rules or in accordance with a court order or a written agreement of the worker concerned.
2/ Unless the worker expresses his consent in writing, the amount that may be deducted at any one time, from the worker’s wage shall in no case exceed one-third of his monthly wage.
13. Overtime Payment
68/ 1/ In addition to his normal wage, a worker who works over-time shall be entitled at least on the following rate of payments:
a) In the case of work done between 6:00 a.m. in the morning and l0:00 p.m. in the evening, at the rate of 1.5 multiplied by the ordinary hourly rate;
b) In the case of night time work between 10 p.m. in the evening and 6 a.m. in the morning, at the rate of 1.75 (one and three fourth) multiplied by the ordinary hourly rate;
14. Weekly Rest
69/4/ Notwithstanding the provisions of Sub Article (1) of this Article, where the nature of his task did not enable the worker to make use of his weekly rest day, the employer shall grant 4 working days of rest in a month.
15. Annual Leave
77(1) A worker pursuant to this Article shall be entitled to uninterrupted annual leave with pay. Such leave shall in no case be less than:
a) Sixteen (16) working days for the first year of service;
b) Sixteen (16) working days plus one working day for every additional two years’ service.
16. Paternity Leave
81/2/ A male employee shall be entitled to three consecutive days paternity leave with full pay
17. Leave for events
81/3/ A worker shall be entitled to leave without pay for up to five consecutive days in the case of exceptional and serious events. However, such leave may be granted only twice in a budget year.
18. Maternity Leave
88/3/ A pregnant worker shall be granted a period of 30 consecutive days of leave with pay of pre-natal leave and a period of 90 consecutive days of leave post- natal.
By Dagnachew Tesfaye
The Federal Supreme Court(FSC) of Ethiopia Cassation Bench on File No 173628 Volume 24 held the position that adoption agreement approval does not affect the procedure in which adoption certificate will be issued. The adoption certificate that will be issued shall contain the adoptee’s given name/s, father’s and grand father’s names. The father’s name and grandfather’s name shall come from the adoptive parent’s names and not that of the family of origin. The request by the applicants to the bench to retain the original fathers and grandfathers names of the adoptees on the adoption certificate was disregarded by the FSC Cassation court as it is contrary to the Directive No 7/2018 Section 4 Sub section 3 Article 43(3) that is issued in accordance with the Registration of Vital Events and National Identity Card Proclamation No 760/2012 Article 70(2) and its amendment Proclamation No 1049/2017.
The applicants were the birth parents and the adoptive mother suing the respondent Vital Event Registration Office. The claim of the applicants is that the Federal Court has approved their adoption agreement that allowed four children of the birth families to be the adopted children of the adoptor. Then the request of the applicants to register as it is the father’s and grand father’s name of the adopted children on the adoption certificate was met by opposition from the Vital Event Registration Office. The Office says that the adopted children’s father’s and grand father’s name will change to that of the adoptive parent and it dismissed the request of the applicants. Here the applicants sued the Office’s to be obliged to accept their request and its refusal to be dismissed.
First Instance and Appeal Courts
The suit of the applicants at the First Instance level was dismissed for lack of jurisdiction citing the reason that the claim should be presented to the special adoption bench or ask for execution of judgment based on the file the adoption agreement is approved. The applicants appealed to the Federal High Court. The High Court accepted the case and decided the case on the merits. The appellate court said that adoption certificates will not be issued unless the father and grandfather’s names of the adopted children change to that of the adoptive parent. The court dismissed the appeal of the appellant based on Proclamation No 760/2012 and its amendment Proclamation No 1049/2017 and Directive No 7/2018 Article 30 Section 4 Sub-section 3 and Article 43.
Court of the FSC Cassation Bench
The Cassation court accepted the application of the applicant in Cassation file no 173628. The bench coined the issues of the case to relate to whether the position of the appellate court decision based on Proclamation No 760/2012 and its Directive 7/2018 contradict the already court approved adoption agreement?
The Cassation bench held the position that the already court approved adoption agreement only shows the existence of an agreement only. There was no determination by the court that approved the adoption agreement on the manner of issuance of an adoption certificate as per Proclamation No 760/2012 and its Directive No 7/2018. Thus the court said based on the approved adoption agreement, a relevant government office shall make sure the requirements are met when it issues the adoption certificate. The bench concluded that doing so is not contrary to the law or the approved adoption agreement.
The Cassation court further concluded that as per Directive No 7/2018 Section 4 Sub Section 3 of Article 43, whenever the adoptive parent is a single woman, the name of the adopted child shall be the given name of the child on the adoption agreement, the father’s name shall be the father’s name of the adoptive mother and grand father’s name shall be the grand father’s name of the adoptive mother.
The Cassation bench highlighted that the procedure contained in the Directive 7/2018 Article 43(3) will not harm the best interest of the adopted child/children if implemented. Therefore, the Cassation bench upheld the appellate court decision and dismissed the applicants’ requests.
The judgment emphasizes the fact that when an adoption certificate is issued, the names of the birth parents will change to that of the adoptive parent/s. Since adoption creates a permanent family relationship, the adoptive parent/s will have precedence or priority over that of the families of origin. As a result the adopted child/children will take their given name and in addition to that their father’s name and grandfather’s name will follow the adoptive family’s name.
For further information please contact us at firstname.lastname@example.org
The Federal Supreme Court Cassation Bench on Cassation File No 193292 on August 5,2021 read on August 16,2021 rendered a binding decision on the issue of how the principle of reciprocity should be interpreted for trade mark registration and protection for foreign companies or foreigners in Ethiopia. The judgment bases itself on Trade Mark Registration and Protection Proclamation No 501/2006 Articles 3 and Article 13 and Trade Mark Registration and Protection Council of Ministers Regulation No 273/2012 Article 27 Sub-Article 2. The articles above provide the fact that foreigners shall have the same rights and obligations as Ethiopians under the Proclamation so long as the principle of reciprocity is met or in accordance with any treaty that Ethiopia is a party to. The procedure for filing opposition to registration of trademarks is also included. The bench concluded that the principle of reciprocity under Article 3 of the Proclamation should be interpreted in the following manner: ‘if a foreign country does not provide similar registration and protection of trademarks for Ethiopians as it provides for its own citizens, then those foreigners from those countries cannot ask for registration and get protection of their trademark and related rights in Ethiopia’. This interpretation of the principle of reciprocity by the Cassation Bench is a binding interpretation of the law for both the Federal and Regional Courts of Ethiopia as per Federal Court Establishment Proclamation No 1234/2020 Article 10(2) from the date the decision is rendered.
By Lydia Kedir –Legal Assistance – at Dagnachew and Mahlet Law Office
Address: Addis Ababa, Email email@example.com
Ethiopian Public Health Institute announced a new revised Directive No 803/2021. The Directive aims to provide for the prevention and control of the COVID-19 pandemic. The Directive is effective from August 19 2021. In the Directive provisions on activities that are prohibited and duties imposed are listed in detail. For instance it is prohibited for any person to shake hands with another person in the form of greetings. Wearing a mask to get public and private service and a distance of two adult strides are emphasized. Face to face education for public or private educational institutions are restricted and should be conducted by adhering to the requirements of the Directive. Public and private organizations including construction projects have a duty to provide sanitary materials and employers should make sure their employees wear masks.
Any passengers known to be infected with corona-virus are prohibited from entering the country, mixing with the general public or meeting with people in any way that may spread the virus. As a result, any international traveler except transistors, above the age of 10, who are coming through international airports of the country shall bring a certificate of negative RT PCR test done up to 120 hours or five days before arriving in Ethiopia. Passengers may not isolate himself for seven days if he has a certificate for recovery from COVID 19 within 90 days or if he has completed the COVID 19 vaccine in full and provide evidence. Passenger who comes into the country to attend a conference for an emergency or tourist, or a diplomat shall not be required to isolate himself for seven days when he is tested for COVID 19 (PCR or Antigen-based RDT test) and when the result is negative. An International traveler arriving at Bole International Airport who shows any symptoms of Covid- 19, will be monitored in accordance with the protocol enacted by Ethiopian Public Health Institute.
The Directive repealed the previous Directive No 30/2020 and incorporated revised and amended duties and prohibitions for the prevention and control of the Covid 19 pandemic. For detailed reading click the link for the full text of the Directive.
By Mahlet Mesganaw
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 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.
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.
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
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.
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.
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.
The Federal Supreme Court Cassation Bench on Cassation File No 173079 on August 5, 2020 has entered a judgment. The Cassation Bench was composed of seven judges. The judgment rendered by the Cassation bench states that judicial mortgage (Article 3044 of the Civil Code) and priority right to any other creditor shall not be created by attachment of property (Article 151 of the Civil Procedure Code) or by temporary injunction order(Article 154 of the Civil Procedure Code) given at any stage of the suit before judgment. This interpretation by the Cassation Bench is a reversal of the previous Cassation Bench interpretation given on Cassation File No 97206 decided on August 4,2014 and Cassation Bench File No 29269 decided on 26 October 2007. The Cassation Bench judgment is a biding judgment on all levels of federal and regional courts.
By Lydia Kedir
Position: Legal Assistant at DMLO
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.
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.
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.
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.
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.
By Hami Bogale(Legal Assistant) and Dagnachew Tesfaye(Partner)
Emails: firstname.lastname@example.org, email@example.com,
The 1960’s Ethiopia’s Commercial Code was one of the codes that needed a deep amendment. It governed Ethiopia’s commerce and business related field for the last five decades. In the current period, the world is introducing and establishing the newest companies in accordance with most recent technologies. These new advancements need a new governing law that could go in parallel with the current time. These, of course raised various requests from scholars and investors that the code shall be amended and altered. After various attempts the Commercial Code was reviewed by the legislators and amended.
The new Commercial Code of Ethiopia Proclamation No 1243/2021 has introduced a number of changes. Among those new introductions is a Single-Member Private Limited Company(hereafter referred to as SMPLC). SMPLC is the vital new establishment. Accordingly, under the new Commercial Code, one person can establish a company by himself/herself. Therefore a brief discussion on the formalities of establishing a SMPLC shall be discussed here-below.
The normal private limited company shall have members ranging from two to fifty in number. The SMPLC, however is established only by one person. A person can be both natural and juridical person. The law is clear on Article 539(1) that a SMPLC cannot establish another SMPLC. There is no clear prohibition against Private Limited Company or Share Company from forming SMPLC. Obviously SMPLC can be formed by a natural person. It seems that SMPLC is a form of sole proprietor whereby the SMPLC enjoys limited liability. This can be confirmed by Article 538 in that the sole proprietor is allowed to convert to SMPLC. However the sole proprietor shall remain liable jointly and severally for creditors and debts happening before the conversion to SMPLC.
A SMPLC is established by a declaration entered in front of a notary. The declaration shall be registered on the commercial registry. This is different from normal PLC formation that requires memorandum of association for its formation. However the content of the declaration is a bit different to that of the memorandum of association. One such difference is the requirement of appointing on the declaration a Property Keeper. The Property Keeper shall take over the single member PLC in case of death, absence, juridical interdiction of the Member. The property keeper should consent for the job. Once the Property Keeper consents, he cannot be a property keeper for another SMPLC.
The SMPLC once registered, shall have a different personality than the member.
Contribution and Capital
The SMPLC is established by the member having contributed in full the subscribed contribution. If the contribution is in cash, then there should be a statement stating that the full amount is paid in full. Failing to contribute in full the subscribed cash contribution shall make the member liable personally. The minimum capital should not be less than 15,000 Birr. This is similar to the minimum capital requirement for a Private Limited Company in the 1960 Commercial Code. Now the minimum capital requirement is lifted for PLC’s in the new Commercial Code. On the other hand, in- kind contribution is permissible. When it comes to in-kind contribution, the valuation has to be confirmed by an Auditor. Damage occurring due to over-valuation of the property on third parties shall make the auditor and member jointly and severally liable. However, such liability shall be barred by period of limitation after five years from the date of valuation.
In principle the member in SMPLC shall be liable to the extent of his contributions. The exceptions to this rule are detailed in Article 543, in non-exhaustive way, to include ‘doing unlawful act intentionally to harm creditors or the PLC itself; merge the Single Member PLC’s property with his personal property; fails to separate his identity from the PLC; issuing a false financial standing of the PLC to creditors; benefiting himself or others of the property of the PLC without appropriate consideration/ compensation and pay himself dividend above the legally accepted range. Committing these acts or similar other unlawful acts shall make the member jointly and severally liable with the SMPLC.
General Meeting and General Manager
The SMPLC shall have a General Meeting. The member is endowed with the power of the General Meeting of Members of a normal Private Limited Company. Any resolution as a General Meeting can be done and such resolution has to be attached to the files of the SMPLC. Similarly, the SMPLC shall have a General Manager. The General Manager can be the member himself/herself or a third party. The General Manager shall have powers and responsibilities of the any general manager in a Private Limited Company.
Dissolution of a SMPLC may follow the legal procedure of first liquidation and then dissolution. However, the law allows the SMPLC to dissolve without liquidation, if the member pays all debts of SMPLC. In such situation, the property of the SMPLC shall devolve to the member as it is. Nevertheless, in the circumstance that a creditor comes after dissolution without liquidation, then the member shall be personally liable. The period of limitation is five years from the date of knowledge of the dissolution by the creditor. However from date the property of the SMPLC passes to the member, any creditor’s claim shall be barred by ten years period of limitation.
Company law in Ethiopia used to cover only Private Limited Company and Share Company under the 1960 Commercial Code. Now under the new Commercial Code of Ethiopia 2021, an additional company is introduced namely Single Member PLC. The Single Member PLC will give options to those private limited companies, whose members are nominal or their names are included to fill the minimum number of members requirement, and the active member can convert easily to Single Member PLC. Similarly sole proprietors can now enjoy limited liability by forming a Single Member PLC. Our clients may contact our office for further legal services and advice for issues related with conversion from PLC to Single Member PLC or from sole proprietorship to Single Member PLC.
By Dagnachew Tesfaye
The African Continental Free Trade Area (‘AfCFTA’) is signed by 54 African Countries out of the 55 African countries. Eritrea being the only country not to sign. As of 15 January 2021, 36 of the 54 signatories ratified the AfCFTA Agreement.
After WTO, AfCFTA is the largest free trade area in the world based on the number of participating counties. It covers nearly 1.3 billion African people. The objective of AfCFTA is to create a single continental market for trade in goods and services and to facilitate the movement of capital and natural persons. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Africa more profitable to foreign investors.
A brief discussion of the contents of AfCFTA Agreement will be made. Then binding and completed protocols namely the protocols on trade in goods, protocols on trade in service and dispute settlement protocol shall follow. A brief discussion on protocols under negotiation namely protocols on investment, protocols on intellectual property and protocol on competition policy shall be made. Finally the positive impact of AfCFTA for attraction of foreign direct investment for Ethiopia shall be discussed.
Contents of the AfCFTA
The general objectives of AfCFTA is set in Article 3 of the Agreement. Some of the major objectives include creation of a single liberalized market for goods, services and movement of persons. In addition to that the objective is to set foundations for establishment of a continental customs union. For realizing these objectives, Article 4 provides specific objectives as follows: the progressive elimination of tariffs and non-tariff barriers to trade in goods; the progressive liberalization of trade in services; co-operation on investment, intellectual property rights, and competition policy; co-operation on all trade-related areas; cooperation on customs matters and the implementation of trade facilitation measures; the establishment of a mechanism for the settlement of disputes concerning the rights and obligations of member states; and the establishment and maintenance of an institutional framework for the implementation and administration of the AfCFTA.
The administration and organization of the AfCFTA shall consist of the Assembly, the Council of Ministers, the Committee of Senior Trade Officials and the Secretariat. The composition and decision making powers of each of the above organs are detailed in the Agreement. State Parties to AfCFTA are obliged to promptly publish in their laws publications and make available to the public and the Secretariat of the AfCFTA any trade matter covered under this Agreement.
State parties to AfCFTA shall give on a reciprocal manner, preferences that are no less favorable than those given to non-members(Third Parties) states. In the event that there arises conflict between AfCFTA and any regional agreement ( such as the Arab Maghreb Union (UMA); the Common Market for Eastern and Southern Africa (COMESA); the Community of Sahel-Saharan States (CEN-SAD); the East African Community (EAC); the Economic Community of Central African States (ECCAS); the Economic Community of West African States (ECOWAS); the Intergovernmental Authority on Development (IGAD) and the Southern African Development Community (SADC), this Agreement shall prevail.
The AfCFTA Agreement contains three completed protocols on trade in goods, trade in services, and interstate dispute settlement. So-called “Phase II” negotiations are underway in relation to protocols on investments, intellectual property rights, and competition policy. Overview of the three completed protocols and the three protocols under negotiation are made here-below.
The Completed Protocols
Trade in Goods
Trade in goods protocol apply to trade in goods between State Parties. State Parties shall provide when it comes to trade in goods the most-favored-nation-treatment to one another. Article 2(1) of the Protocol on Trade in Goods provides that “[t]he principal objective of this Protocol is to create a liberalized market for trade in goods in accordance with Article 3” of the AfCFTA Agreement. In doing so, Article 2(2) sets out various objectives, including the progressive elimination of tariffs, the progressive elimination of non-tariff barriers, and the enhanced efficiency of customs procedures, trade facilitation, and transit.
State Parties shall progressively eliminate import duties or charges having equivalent effect on goods originating from the territory of any other State Party. Similarly State Parties may regulate export duties or charges having equivalent effect on goods originating from their own territories.
An important ongoing point of negotiation revolves around the Rules of Origin. Article 13 of the Trade in Goods provide that goods shall be eligible for preferential treatment if they are originating in any of the State Parties. The Rules of Origin are aimed at preventing the import of goods from non-preferential countries at preferential rates of duty. It is not yet clear what rates will apply, but compliance with the Rules of Origin will be necessary in order to access the preferential rates.
Trade in Services
The Protocol on Trade in Services defines ‘Service’ as to include any service in any sector except services supplied in the exercise of government authority. The aim of the Protocol on Trade in Service is to facilitate the liberalization of trade in services. Article 3(2)(a,b,c,d and e) of the Protocol on Trade in Services allows member states to “enhance competitiveness of services through: economies of scale, reduced business costs, enhanced continental market access, and an improved allocation of resources including the development of trade-related infrastructure; promote sustainable development in accordance with the Sustainable Development Goals (SDGs); foster domestic and foreign investment; accelerate efforts on industrial development to promote the development of regional value chains; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services; progressively liberalize trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services”.
Each State Party shall accord immediately and unconditionally to service and service suppliers of any other State Party treatment no less favorable than that it accords to like services and service suppliers of any Third Party.
Article 20 of the AfCFTA Agreement establishes an interstate Dispute Settlement Mechanism that will be administered according to the Protocol on Rules and Procedures on the Settlement of Disputes (‘Dispute Settlement Protocol’). The Dispute Settlement Protocol was set out along with the AfCFTA Agreement. Article 3(1) of the Disputes Settlement Protocol state that ”This protocol applies to disputes arising between State Parties concerning their rights and obligations under the provisions of the Agreement’‘. The aim of the dispute settlement mechanism is to provide security and predictability to the regional trading system. The dispute settlement mechanism shall preserve the rights and
obligations of State Parties under the Agreement and clarify the existing provisions of the Agreement in accordance with customary rules of interpretation of public international law.
This mechanism has copied the dispute settlement system of the WTO and is therefore a state-to-state system. Accordingly, it is important for businesses and individuals to be note that, if they are of the view that a member state has breached an obligation, they should appeal to their home or host country to take up the dispute (while bearing in mind that a dispute is only likely to be taken up in exceptional cases where the subject matter is of national importance and diplomatic efforts have failed).
Procedures under the Dispute Settlement Mechanism is as follows. Where a dispute arises between or among the State Parties, in the first instance, recourse shall be had to consultations, with a view to finding an amicable resolution to the dispute. Where an amicable resolution is not achieved, any party to the dispute shall, after notifying the other parties to the dispute, refer the matter to the (Dispute Settlement Body) DSB, through the Chairperson and request for the establishment of a Dispute Settlement Panel, (“Panel”) for purposes of settling the dispute. The DSB shall adopt Rules of Procedure for the selection of the Panel, including the issues of conduct, to ensure impartiality. The Panel shall set in motion the process of a formal resolution of the dispute as provided for in this Protocol and the parties to the dispute shall, in good faith, observe in a timely manner, any directions, rulings and stipulations that may be given to them by the Panel in relation to procedural matters and shall make their submissions, arguments and rebuttals in a format prescribed by the Panel. The DSB shall make its determination of the matter and its decision shall be final and binding on the parties to a dispute. Where the parties to a dispute consider it expedient to have recourse to arbitration as the first dispute settlement avenue, the parties to a dispute may proceed with arbitration as provided for in Article 27 of this Protocol.
Protocols under negotiation
As mentioned above, there have been ongoing negotiations on the Investment Protocol of the AfCFTA. Nevertheless, the Investment Protocol has not been completed. One hurdle facing the negotiations is the already negotiated and existing international investment agreements at the bilateral and regional level. There are currently 171 intra-African bilateral investment treaties that the AfCFTA Agreement aims to supersede by creating and offering a single treaty that would regulate all intra-African investments. In the future, the AfCFTA Agreement may serve as a basis for negotiations on international investment agreements, including those with non-African countries.
Intellectual Property Rights
The on-going discussions on the Protocol on Intellectual Property will be aimed at creating a consolidated approach to intellectual property rights across the African continent. The Protocol on Intellectual Property will therefore achieve a higher level of certainty to a currently fragmented legal landscape for intellectual property.
The AfCFTA Agreement will bring greater integration between member states by reducing tariff and non-tariff barriers. This will pave the way to an upward increase in cross-border business. Such cross-border business will require a strong regulatory framework in order to promote competition and protect consumers at a regional level. In this regard, according to some commentators, the Protocol on Competition Policy aims to address cross border anti-competitive cases such as cartels, abuse of dominance, mergers analysis, creation of a competitive environment conducive for existing competitors and new entrants.
Potential for Ethiopia
Ethiopia is a signatory to AfCFTA and also has ratified the AfCFTA Agreement under its Proclamation No 1124/2019 done on the 5th day of April 2019. Foreign investors thus will be able to do business on a single line of trade and investment procedure across Africa. AfCFTA will promote larger, more integrated markets on the continent. This will make investing in Ethiopia more profitable to foreign investors. The conducive business environment existing in Ethiopia, in terms of labor, land, laws, infrastructures and favorable climate will provide foreign investors with access to market across the African continent. As the seat of the African Union, Ethiopia provides direct access to expedited handling of settlement of disputes as well.
Therefore, the AfCFTA Agreement officially came into force as of January 1,2021, in the middle of the Covid19 pandemic. AfCFTA signals a positive hope in the middle of a global economy hardship. Foreign investors now have the opportunity to tap into a vast market that has more legal and economic certainty. Ethiopia is one great access route for such an investment. It is important for local and foreign businesses in the Ethiopia to be aware of and take advantage of the new platform that is now available.
Ethiopia amended its Federal Judicial Administration Proclamation No 648/2010 and came out with Federal Judicial Administration Proclamation No 1233/2021. The objective is to ensure in a fundamental way that the courts exercise their judicial functions free of all internal and external influences. Such independence of the judiciary with accountability will gain the trust of the people. The process of appointment of judges and judges conduct their judicial functions in a complete independence, impartiality and accountability will ensure public confidence. This will contribute to the democratization process of building of institutions.