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RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 11 ADDIS ABABA 000073 
 
SIPDIS 
 
DEPARTMENT FOR AF/E JWIEGERT; AF/EPS - ABREITER AND GMALLORY; 
EEB/IFD/OMA - JWINKLER AND EEB/CBA - DWINSTEAD; EEB/IFD/OIA - DAHN 
DEPARTMENT PASS TO USTR FOR PATRICK COLEMAN, BARBARA GRYNIEWWICZ 
DEPT OF COMMERCE FOR ITA MARIA RIVERO 
DEPT OF TREASURY FOR REBECCA KLEIN 
USAID FOR AFR/EA - HELLYER, DALTON, AFR/SD - MCURTIS, EGAT - 
JHESTER, JYASMAN AND GMYERS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB OPIC KTDB USTR PGOV AF ET
SUBJECT: ETHIOPIA: INVESTMENT CLIMATE STATEMENT 2010 
 
REF: 09 STATE 124006 
 
ADDIS ABAB 00000073  001.2 OF 011 
 
 
¶1. (U) This cable is a reftel response that includes Ethiopia's 
Investment Climate Statement 2010.  As requested, the response is 
divided into the following categories:  Openness to Foreign 
Investment; Conversion and Transfer Policies; Expropriation and 
Compensation; Dispute Settlement; Performance Requirements and 
Incentives; Right to Private Ownership and Establishment; Protection 
of Property Rights; Transparency of Regulatory System; Efficient 
Capital Markets and Portfolio Investment; Competition from State 
Owned Enterprises; Corporate Social Responsibility; Political 
Violence; Corruption; Bilateral Investment Agreements; OPIC and 
Other Investment Insurance Programs; Labor; Foreign Trade Zones/Free 
Trade Zones; Foreign Direct Investment Statistics 
 
¶2. (U) Openness to Foreign Investment 
 
--The Ethiopian Government states that the private sector is an 
engine of growth and that private capital should play an important 
role in the economy. The government has eliminated most of the 
discriminatory tax, credit and foreign trade treatment of the 
private sector, simplified administrative procedures, and 
established a clear and consistent set of rules regulating business 
activities.  Despite the promotion of the private sector, 
state-owned enterprises and ruling party-owned entities dominate the 
major sectors of the economy. 
 
--Though bureaucratic hurdles continue to affect implementation of 
projects, the Ethiopian Investment Agency (EIA), the main contact 
point for foreign investors, has improved its services and provides 
an expedited "one-stop shop" service that significantly cuts the 
time and cost of acquiring investment and business licenses.  A 
foreign investor intending to buy an existing private enterprise or 
buy shares in an existing enterprise needs to obtain prior approval 
from the EIA. 
 
--A National Foreign Investment Promotion Advisory Council operates 
with the goal of conducting foreign investment promotion on textiles 
and garments, leather and leather products, fruits and vegetables, 
and agro-processing areas.  The Council's major tasks are to collect 
and make available basic data regarding land allocation, utilities 
connection, investment opportunities, market and other relevant 
information. 
 
--In 2009, the Ethiopian Government shifted its agricultural policy 
focus towards encouraging private investment (both domestic and 
foreign) in larger-scale commercial farms.  The Ministry of 
Agriculture and Rural Development (MoARD) created a new Agricultural 
Investment Support Directorate that is currently negotiating 
long-term leases (all land is owned by the government) on over 7 
million acres of land for these commercial farms.  The new 
Directorate's goal is to boost productivity, employment, technology 
transfer, and foreign exchange reserves by offering incentives to 
private investors. 
 
--Rampant power outages forced factories and businesses to cease 
operations for several days per week in 2009.  Power supply improved 
in late 2009, but demand still outpaces supply.  The Ministry of 
Mines and Energy (MoME) is actively seeking additional investment in 
Ethiopia's energy sector to resolve its power crisis and even has 
plans to export electricity to neighboring countries.  MoME is 
specifically interested in renewable energy sources and is 
finalizing a draft feed-in tariff bill which will establish the 
rates and conditions for independent power producers to sell 
electricity to the national grid. 
 
--In January 2009, the first American Chamber of Commerce (AmCham) 
in Ethiopia was established to enhance the bilateral trading 
relations between the two countries.  AmCham currently has about 60 
members.  AmCham has been facing bureaucratic delays in renewing its 
license with the Ministry of Justice due to the restrictive Civil 
Society Organization (CSO) law that came into effect in 2009. 
 
--In June 1996, the Ethiopian Government issued a revised Investment 
 
ADDIS ABAB 00000073  002.2 OF 011 
 
 
Code which provided incentives for development-related investments, 
reduced capital entry requirements for joint ventures and technical 
consultancy services, created incentives in the education and health 
sectors, permitted the duty-free entry of capital goods (except 
computers and vehicles), opened the real estate sector to expatriate 
investors, extended the losses carried forward provision, cut the 
capital gains tax from 40% to 10%, and gave priority to investors in 
obtaining land for lease. 
 
--Amendments to Ethiopia's Investment Proclamation were issued in 
September 1998 and July 2002, further liberalizing the investment 
regime and removing most of the remaining restrictions.  The 
remaining state-controlled sectors include telecommunications, 
postal services with the exception of courier services, and 
passenger air service using aircraft with more than 20 seats. 
Manufacturing of weapons and ammunitions and telecommunications 
services can only be undertaken as joint ventures with the 
government. 
 
--Ethiopia's investment code prohibits foreign investment in 
banking, insurance, and financial services.  Other areas of 
investment reserved for Ethiopian nationals include:  broadcasting; 
air transport services; travel agency services, forwarding and 
shipping agencies; retail trade and brokerage; wholesale trade 
(excluding supply of petroleum and its by-products as well as 
wholesale by foreign investors of their locally-produced products); 
most import trade; export trade of raw coffee, chat, oilseeds, 
pulses, hides and skins bought from the market; live sheep, goats 
and cattle not raised or fattened by the investor; construction 
companies excluding those designated as grade 1; tanning of hides 
and skins up to crust level; hotels (excluding star-designated 
hotels); restaurants and bars excluding international and 
specialized restaurants; trade auxiliary and ticket selling 
services; transport services; bakery products and pastries for the 
domestic market; grinding mills; hair salons; clothing workshops 
(except by garment factories); building and vehicle maintenance; saw 
milling and timber production; custom clearance services; museums, 
theaters and cinema hall operations; and printing industries. 
 
--Another important change made in the 2002 amendment was the 
reduction in the minimum capital requirement of foreign investors 
from $500,000 to $100,000 per project for wholly-owned foreign 
investments and from $300,000 to $60,000 for joint investments with 
domestic investors.  The minimum capital required of foreign 
investors in the areas of engineering, architectural, accounting and 
auditing services; business and management consultancy services; and 
publishing was reduced from $100,000 to $50,000 for wholly-owned 
foreign investment; and to $25,000 for joint ventures undertaken 
with domestic partners.  A foreign investor reinvesting profits or 
dividends or exporting at least 75% of the output will not be 
required to meet minimum capital requirements or the 27% equity 
requirement of local partners in joint ventures. 
 
--The Ethiopian Government established a Trade Practices Commission 
in April 2003 as an investigative commission accountable to the 
Ministry of Trade and Industry.  This Commission was designed to 
promote a competitive business environment by regulating 
anti-competitive, unethical, and unfair trade practices to enhance 
economic efficiency and social welfare.  Some of the Commission's 
powers include: investigating complaints by aggravated parties; 
compelling witnesses to appear and testify at hearings; and 
searching the premises of accused parties. 
 
--Nearly all tenders issued by the Ethiopian Government's 
Privatization and Public Enterprises Supervising Agency (PPESA) are 
open to foreign participation.  In some instances, the government 
prefers to engage in joint ventures with private companies rather 
than sell an entire entity.  The government has sold approximately 
260 public enterprises since 1994.  Most of these enterprises were 
small enterprises in the trade and service sectors.  Ten of these 
enterprises were privatized in 2009 and 93 public enterprises remain 
under PPESA control. 
 
--Foreign investors have complained about the abrupt cancellation of 
 
ADDIS ABAB 00000073  003.2 OF 011 
 
 
some government tenders, a perception of favoritism toward Chinese 
vendors, and a general lack of transparency in the procurement 
system.  In September 2009, Proclamation No. 649/2009 established a 
new public procurement and property administration agency.  This 
agency is going to be an autonomous government organ, have its own 
judicial arm, and be accountable to the Ministry of Finance and 
Economic Development.  The government established this new agency in 
order to achieve better transparency, efficiency, fairness, and 
impartiality in public procurement processes and to ensure that the 
government achieves the maximum benefit from public property use. 
 
--Foreign investors do not face unfavorable tax treatment, denial of 
licenses, discriminatory import or export policies, or inequitable 
tariff and non-tariff barriers. However, some U.S. investors have 
experienced difficulties obtaining title deeds to properties 
purchased.  Although government officials have at times intervened 
to resolve these problems, a lasting solution requires policy level 
changes. 
 
--Ethiopia's World Trade Organization (WTO) accession process has 
been underway since 2003.  Ethiopia submitted a Memorandum of 
Foreign Trade Regime to the WTO Secretariat in December 2006, sent 
replies to the first round of WTO member questions in January 2007, 
and held its first working party meeting in May 2008.  In March 
2009, Ethiopia submitted its replies to a second round of questions. 
 The scheduling of the second working party meeting has been subject 
to extensive procedural delay, but is expected to be held in 2010. 
 
 
--The Ethiopian Government cites 2008/09 (fiscal year ending July 7, 
2009) Gross Domestic Product (GDP) growth at 10.1%, while the 
International Monetary Fund (IMF) and the World Bank estimate it at 
6.5%.  According to the government, Ethiopia's economy has grown at 
an average of 11.5% during the past five years. 
 
--Ethiopia is enduring a severe foreign exchange crisis.  Reserves 
dropped to $700 million in December 2008, but have only slightly 
recovered to $1.8 billion.  Reserves have not stabilized due to 
Ethiopia's widening trade deficit.  Ethiopia's total imports were 
$7.7 billion for the 2008/09 fiscal year due to a reliance on 
imported petroleum and machinery products.  Ethiopia's exports 
totaled only $1.4 billion in the same year. 
 
--Ethiopia has been battling high inflation in recent years. 
Year-on-year inflation peaked at 64% in July 2008-- the second 
highest in Sub-Saharan Africa after Zimbabwe--but it has declined to 
0.6% in November 2009.  In efforts to combat inflation, the 
Ethiopian Government enacted various measures beginning in late 
2008, including:  capping the lending limits of banks; reducing 
government borrowing from domestic banks; eliminating the domestic 
fuel price subsidy; depreciating the local currency; importing wheat 
and selling at subsidized prices; and lifting import duties on food 
imports. 
 
--Ethiopia's ranking on various indices: 
 
      Indicator    Year  Index/Ranking 
 
Transparency Int'l Corruption Index 2009                2.7; 120 out 
of 180 countries 
Heritage Economic Freedom   2009    53.0/+0.5; 135 out of 179 
countries 
World Bank Doing Business  2010     107 out of 183 countries 
 
      Millennium Challenge Corporation (MCC) Scorecard: 
      MCC Government Effectiveness 2010   0.37 (84%); Median 0.00 
MCC Rules of Law    2010  0.29 (66%); Median 0.00 
MCC Control of Corruption  2010  0.12 (63%); Median 0.00 
MCC Fiscal Policy   2010  -3.5 (22%); Median -1.4 
MCC Trade Policy   2010  61.9 (23%); Median 67.9 
MCC Regulatory Quality  2010  -0.23 (37%); Median 0.00 
MCC Business Start up  2010  0.975 (86%); Median 0.918 
MCC Land Rights Access  2010  0.731 (82%); Median 0.612 
MCC Natural Resources Mgmt 2010  53.22 (31%); Median 61.61 
 
ADDIS ABAB 00000073  004.2 OF 011 
 
 
 
 
¶3. (U) Conversion and Transfer Policies 
 
--Ethiopia's central bank, the National Bank of Ethiopia (NBE), 
retains a monopoly on all foreign currency transactions.  The NBE 
supervises all payments or remittances made abroad. The local 
currency (Birr) is not freely convertible.  In 2004, the NBE issued 
a directive that allows non-resident Ethiopians and non-resident 
foreign nationals of Ethiopian origin to establish and operate 
foreign currency accounts up to $50,000. 
 
--Ethiopia's Investment Proclamation allows all foreign investors, 
whether or not they receive incentives, to remit freely profits and 
dividends, principal and interest on foreign loans, and fees related 
to technology transfer.  Foreign investors may also remit proceeds 
from the sale or liquidation of assets, from the transfer of shares 
or of partial ownership of an enterprise, and funds required for 
debt service or other international payments.  The right of 
expatriate employees to remit their salaries is granted in 
accordance with the foreign exchange regulations of the National 
Bank of Ethiopia (NBE).  While these transfers are legally allowed, 
foreign companies face significant delay in the repatriation of 
profits, as the NBE does not have enough hard currency to allocate 
to this process.  Banks started rationing foreign currency during 
2008 on a priority basis, given preference to the state-driven 
growth in construction, transport and communication as well as 
domestic food and agricultural subsidization programs.  Many foreign 
investors face delays in importing equipment and spare parts and 
businesses must apply for foreign exchange for imports at least 
six-to-nine months in advance of their intended need.  This lack of 
foreign exchange has reportedly forced some companies to buy hard 
currency in the illegal parallel market or to pay bribes to move up 
on banks' priority lists. 
 
--In 2008, amendments to the Monetary and Banking Proclamation No. 
83/1994 and the Banking Business Proclamation No. 84/1994 became 
effective (the amendments were Proclamation Numbers 591/2008 and 
592/2008, respectively).  These laws assigned more authority to NBE 
to license and rigorously supervise financial institutions. 
 
--The Ethiopian Government depreciated the Birr over 30% against the 
U.S. Dollar between 2004 and 2009.  In January 2010, the Birr traded 
at 12.7 per U.S. Dollar.  The rate offered in the illegal parallel 
market made a marked divergence from the official rate starting in 
2005, but the spread between the rates narrowed after the government 
significantly depreciated the Birr in 2009 and enforced a crackdown 
on illegal currency dealers. The parallel market exchange rate was 
approximately 13.5 Birr per U.S. Dollar in January 2010. 
 
--Effective November 14, 2006, the NBE ordered that all bank 
processes concerning items for export to China shall be undertaken 
and overseen by the state-owned Commercial Bank of Ethiopia (CBE). 
 
--In December 2009, the Proclamation on Prevention and Suppression 
of Money Laundering and the Financing of Terrorism became effective. 
 This legislation calls for the established of a national financial 
intelligence unit. 
 
 
¶4. (U) Expropriation and Compensation 
 
--Per Ethiopia's 1996 Investment Proclamation and subsequent 
amendments, assets of a domestic investor or a foreign investor, 
enterprise or expansion cannot be nationalized wholly or partly, 
except when required by public interest and in compliance with the 
laws and payment of adequate compensation.  Such assets may not be 
seized, impounded, or disposed of except under a court order. 
 
--Ethiopia's Privatization and Public Enterprises Supervising Agency 
(PPESA) stopped accepting requests from owners of formerly 
expropriated properties in July 2008.  The Derg military regime 
nationalized many properties in the 1970s.  U.S. citizens are still 
involved in negotiating the return of some of these properties 
 
ADDIS ABAB 00000073  005.2 OF 011 
 
 
seized by the Derg with the Ethiopian Government. 
 
--In recent years, U.S. citizens have reported threatened or actual 
property expropriation by the government and are involved in ongoing 
contractual investment disputes with the government.  There are also 
complaints against the government by U.S. companies of unlawful 
contract termination and non-transparent tender award processes. 
 
--In early 2009, the Ethiopian Government revoked licenses of six 
major coffee exporters and seized the coffee warehouses of over 
eighty firms as it accused them of "hoarding" coffee in hopes of 
selling it later for a higher price.  The global price of coffee was 
historically low during this time period.  The government blamed 
these exporters for the decline in coffee exports, while exporters 
blamed domestic issues such as new coffee marketing and control 
legislation as well as the capacity constraints of the new Ethiopia 
Commodity Exchange (ECX). 
 
¶5. (U) Dispute Settlement 
 
--According to the Investment Proclamation, disputes arising out of 
foreign investment that involve a foreign investor or the state may 
be settled by means agreeable to both parties.  A dispute that 
cannot be settled amicably may be submitted to a competent Ethiopian 
court or to international arbitration within the framework of any 
bilateral or multilateral agreement to which the government and the 
investor's state of origin are contracting parties. 
 
--Investors involved in disputes have expressed a lack of confidence 
in the judiciary to objectively assess and resolve disputes. 
Ethiopia's judicial system is weak, overburdened, poorly staffed and 
inexperienced, although efforts are underway to strengthen its 
capacity.  While property and contractual rights are recognized and 
there are commercial and bankruptcy laws, judges often lack 
understanding of commercial matters and case scheduling suffers from 
extended delays.  There is significant government influence and 
intervention into legal proceedings, particularly those related to 
government entities or officials.  There is no guarantee that the 
award of an international arbitral tribunal will be fully accepted 
and implemented by Ethiopian authorities.  Ethiopia has signed, but 
never ratified, the 1965 Convention on the Settlement of Investment 
Disputes between States and Nationals of Other States. 
 
¶6. (U) Performance Requirements and Incentives 
 
--The 2003 amendment to the Investment Proclamation outlines the 
investment incentives for investors in specific areas.  New 
investors engaged in manufacturing, agro-industrial activities or 
the production of certain agricultural products and who export at 
least 50% of their products or supply at least 75% of their product 
to an exporter as production input are exempt from income tax for 
five years.  An investor who exports less than 50% of his product or 
supplies his product only to the domestic market is income tax 
exempt for two years.  Investors who expand or upgrade existing 
enterprises and export at least 50% of their output or increase 
production by 25% are eligible for income tax exemption for two 
years.  An investor who invests in the relatively under-developed 
regions of Gambella, Benishangul and Gumuz, South Omo, Afar or 
Somali Region will be eligible for an additional one-year income tax 
exemption. 
 
--The government has established a special loan fund through the 
Development Bank of Ethiopia (DBE) and made available land at low 
lease rates for priority export areas such as floriculture, leather 
goods, textiles and garments, and agro-processing related products. 
An investor can borrow up to 70% of the cost of the project from 
this special fund without collateral upon presenting a viable 
business plan and 30% personal equity. 
 
--An investor who exports hides and skins after processing only up 
to crust level will not be entitled to the income tax incentive.  In 
2008, a bill imposing an export duty on raw and semi processed hides 
and skins ranging from 5% to 150% was passed in efforts to shift the 
leather sector to only export finished goods. 
 
ADDIS ABAB 00000073  006.2 OF 011 
 
 
 
--Investors are allowed to import duty-free capital goods and 
construction materials necessary for the establishment of a new 
enterprise or for the expansion of an existing enterprise.  In 
addition, spare parts worth 15% of the value of the capital goods 
can be imported duty-free.  This privilege may not be granted if 
comparable capital goods or construction materials are locally 
produced and have competitive prices, quality, and quantity. 
Imported duty-free capital goods can no longer be used as loan 
collateral. 
 
--The Ministry of Agriculture and Rural Development's (MoARD) new 
Agricultural Investment Support Directorate offers grace periods of 
up to seven years on land rents. 
 
--Ethiopia does not have discriminatory or excessively onerous visa, 
residence, or work permit requirements for foreign investors. 
 
 
¶7. (U) Right to Private Ownership and Establishment 
 
--Both foreign and domestic private entities have the right to 
establish, acquire, own and dispose of most forms of business 
enterprises. 
 
--There is no right of private ownership of land. All land is owned 
by the state and can be leased for up to 99 years. 
 
 
¶8. (U) Protection of Property Rights 
 
--Secured interests in property are protected and enforced, although 
all land ownership remains in the hands of the state.  Certain 
residents have been relocated (and usually compensated) when the 
government decides that the land they are living on should be used 
for a road or other public use.  Many ongoing property disputes date 
back to properties seized by the Derg military regime (1974-91). The 
current government's position is that property seized "lawfully" by 
the Derg (i.e., by court order or government proclamation published 
in the official gazette) remains the property of the state.  In most 
cases, property seized by oral order or other informal means is 
gradually being returned to lawful owners or their heirs through a 
lengthy bureaucratic process.  Claimants are required to pay for 
improvements made by the government during the time of its control 
over the property. 
 
--Land leasehold regulations vary in form and practice by region. 
Land has been made readily available by the authorities to foreign 
investors in the manufacturing and agriculture sectors, but less so 
for real estate developers.  Some investors, including foreign 
investors, reportedly have had their land and all assets forcibly 
taken by Sudanese authorities without recourse or response from the 
Ethiopian Government. 
 
--Mortgages are uncommon as loan terms are generally quite short. 
There is no system of recording security interests. 
 
--Ethiopia has yet to sign a number of major international 
intellectual property rights (IPR) treaties, such as: the Paris 
Convention for the Protection of Industrial Property; the World 
Intellectual Property Organization (WIPO) copyright treaty; the 
Berne Convention for Literary and Artistic Works; and the Patent 
Cooperation Treaty.  The Ethiopian Intellectual Property Rights 
Office (EIPO) has been tasked only to protect Ethiopian copyrighted 
materials and pirated software; foreign works are not considered 
part of their purview.  Generally, EIPO has weak capacity in terms 
of manpower and law enforcement.  In addition, a number of 
businesses, particularly in the tourism and service industries, 
operate in Ethiopia are freely using well-known trademarked names or 
symbols without permission. 
 
¶9. (U) Transparency of Regulatory System 
 
--Ethiopia's regulatory system is generally considered fair, though 
 
ADDIS ABAB 00000073  007.2 OF 011 
 
 
there are instances in which burdensome regulatory or licensing 
requirements have prevented the local sale of U.S. exports, 
particularly personal hygiene and health care products.  Government 
ministries often pass decisions and associated paperwork to various 
other ministries before any decision is finalized.  In many cases, 
this paperwork gets stuck in one ministry and no decision is made. 
 
--Investment, business, and other licenses for foreign investors can 
now be obtained from the Ethiopian Investment Agency in a matter of 
hours. 
 
--Proposed national laws are generally circulated for public comment 
prior to enactment. 
 
¶10. (U) Efficient Capital Markets and Portfolio Investment 
 
--Access to finance is an impediment to increased private 
investment.  While credit is available to investors on market terms, 
the 100% collateral requirement limits the ability of some investors 
to take advantage of business opportunities.  In addition, due to 
current inflationary concerns, the National Bank of Ethiopia (NBE) 
(central bank) does not allow commercial banks to lend above their 
current limits.  Export-oriented investors can borrow from a special 
fund at the Development Bank of Ethiopia without collateral for up 
to 70% of the project cost. 
 
--Ethiopia currently has fifteen banks--three state-owned and twelve 
privately-owned. Two more private banks are under formation but not 
yet licensed.  Foreign banks are not permitted to provide financial 
services in Ethiopia.  The state-owned Commercial Bank of Ethiopia 
owns approximately two-thirds of the $11.6 billion in total assets 
of the banking sector (as of mid-2008 using exchange rate of 9.62 
Birr/U.S. Dollar).  Due to the NBE's recently-imposed stringent 
supervision, the commercial banks' non-performing loan ratio is 
declining and below 15%. 
 
--Ethiopia does not have a securities market, although a private 
sector initiative to establish a mechanism for buying and selling 
company shares is under discussion. 
 
--The Ethiopian Government partially controls interest rates.  The 
government cannot affect interest rates through market actions and 
retains the right to set interest rates.  The NBE determines the 
bank deposit rate floor, which now stands at 4%, while loan interest 
rates are allowed to float.  Real interest rates have been negative 
in recent years mainly driven by high inflation.  The government 
offers a limited number of 28 days, 3-month, and 6-month Treasury 
bills, but prohibits the interest rate from exceeding the bank 
deposit rate.  The yields on these T-bills are very low, 0.68% for 
28 days, 0.90% for 91 days, and 0.70% for 182-days bill as of 
October 2009.  This market remains unattractive to the private 
sector and over 95% of the T-bills are held by the state-owned 
Commercial Bank of Ethiopia. 
 
--The Ethiopia Commodity Exchange (ECX) was launched in 2008 and 
currently offers trades of commodities such as coffee, sesame seeds, 
corn, and wheat.  The government launched ECX to increase 
transparency in commodity pricing, alleviate food shortages, and 
encourage the commercialization of agriculture.  Both buyers and 
sellers have complained of ECX inefficiency and ineffectiveness 
since its establishment; however, the exchange continues to make 
improvements in attempts to address these concerns. 
 
--There are no laws or regulations authorizing private firms to 
adopt articles of incorporation/association that limit or prohibit 
foreign investment, participation or control. There are no private 
sector or government efforts to restrict foreign participation in 
industry standards setting consortia or organizations. There are no 
known instances of private firms attempting to restrict foreign 
investment, participation, or control of domestic enterprises. 
There are no "cross-shareholding" or "stable shareholder" 
arrangements used by private firms to restrict foreign investment 
through mergers or acquisitions. 
 
 
ADDIS ABAB 00000073  008.2 OF 011 
 
 
¶11. (U) Competition from State-Owned Enterprises 
 
--Despite the Ethiopian Government's promotion of the private 
sector, state-owned enterprises, and ruling party-owned entities 
dominate the major sectors of the economy.  There is state monopoly 
or state-run dominance in sectors such as telecommunications, power, 
banking, and insurance.  Ruling party-affiliated "endowment" 
companies have a strong presence in the fertilizer, textile, and 
transport sectors. 
 
--State-owned enterprises have considerable advantages over private 
firms, particularly in the realm of Ethiopia's regulatory and 
bureaucratic environment, including ease of access to credit and 
speedier customs clearance.  Local business owners as well as 
foreign investors complain of the lack of a level playing field when 
it comes to state-owned and party-owned businesses.  While there is 
no report of credit advancement to these entities, there are 
indications that they receive incentives such as priority foreign 
exchange allocation, preferences in government tenders, and 
marketing assistance. 
 
--Corporate governance of state-owned enterprises is structured and 
monitored by a board of directors composed of senior government 
officials and politically-affiliated individuals.  Ethiopia's 
published national budget does not include the financial activity of 
these enterprises. 
 
--The World Bank Investment Climate Competitiveness Surveys of 2002, 
2004 and 2006 concluded that government preferences play an 
important role in distorting competition in Ethiopia.  Types of 
government preferences identified in the report included ownership 
of enterprises, directed credit, and reduced barriers to entry. 
 
¶12. (U) Corporate Social Responsibility 
 
--Some larger international companies have introduced corporate 
social responsibility (CSR) programs; however, most local companies 
do not practice CSR.  There is a movement to develop CSR programs by 
the Ministry of Trade and Industry in collaboration with the World 
Bank, U.S. Agency for International Development, and others.  The 
Ethiopian Chamber of Commerce, in cooperation with regional 
chambers, is also creating awareness on the generally accepted CSR 
principles. 
 
¶13. (U) Political Violence 
 
--While Ethiopia has been relatively stable and secure for 
investors, cases of ethnic or religious violence have become more 
frequent and political tensions are high.  Cases of small localized 
bombings have occurred, particularly in and around Addis Ababa, in 
recent years.  While investors are not normally affected, insurgents 
operating in the Somali Region of Ethiopia have warned investors 
against exploring oil or natural gas resources in this area.  In 
April 2007, the Ogaden National Liberation Front (ONLF) attacked 
Chinese and Ethiopian workers at an oil exploration site which was 
surrounded by military forces.  Over 70 workers were killed in this 
attack.  Political tensions exist along many of Ethiopia's border 
areas with Sudan, Eritrea, and Somalia. 
 
--There was political unrest, violent protests and numerous arrests 
following the disputed May 2005 elections.  Ethiopian Government 
forces killed over 200 Ethiopians during these protests.  While the 
unrest had largely subsided by 2007, national elections in May 2010 
have potential to trigger renewed political unrest.  There have been 
numerous claims of voter intimidation and coercion of opposition 
party candidates and members in recent months. 
 
--In 2009, the Ethiopian Government passed an Antiterrorism 
Proclamation granting executive branch-controlled security services 
virtually unlimited authority to take unilateral action to disrupt 
suspected terrorist activities.  Terrorist activities are broadly 
defined in the legislation and could be used to define political 
activities.  The proclamation does not require judicial review of 
such activities, but does give the courts the option, ex-post, to 
 
ADDIS ABAB 00000073  009.2 OF 011 
 
 
review past events.  The Proclamation authorizes hearsay testimony 
as adequate in judicial proceedings. 
 
--A Civil Society Organizations (CSO) law, adopted in February 2009, 
prohibits CSOs that receive more than 10% of their funding from 
foreign sources from engaging in activities that promote human 
rights and democracy; the rights of children and the disabled; 
equality among nations, nationalities, people, gender and religion; 
or conflict resolution or reconciliation.  The Ethiopian Government 
has stated the law aims to increase the transparency and 
accountability of CSOs to stakeholders and restrict foreign 
involvement in purely domestic advocacy, but critics of the law have 
expressed concern that it will prevent the capacity development of 
civil society and undermine CSOs' watchdog role. 
 
¶14. (U) Corruption 
 
--Ethiopia ratified the United Nations (UN) Anticorruption 
Convention in 2007. 
 
--The UN Investment Guide to Ethiopia (2004) asserted that routine 
bureaucratic corruption is virtually non-existent in Ethiopia.  The 
guide added that bureaucratic delays certainly exist, but are not 
devices by which officials seek bribes. 
 
--According to Transparency International's corruption perception 
index, Ethiopia's rating has declined in the past two years after 
spiking in the aftermath of the 2005 elections.  Ethiopia ranked 
130th out of 146 countries rated in 2004 (a higher number indicates 
a higher level of corruption), 137th out of 163 countries rated in 
2006, 138th out of 180 countries rated in 2007, 126th out of 180 
countries rated in 2008 and 120th out of 180 countries rated in 
¶2009.  There are suspicions that the frequent cancellation of 
telecommunications, power lottery, and other infrastructure tenders 
may be a result of corruption. 
 
--The Ministry of Justice and the Federal Ethics and Anti-Corruption 
Commission (FEACC) are charged with combating corruption.  Since its 
establishment, the Commission has arrested many officials on charges 
of corruption, including managers of the Privatization Agency, 
Ethiopian Telecommunications Corporation, National Bank of Ethiopia, 
Ethiopian Geological Survey, the state-owned Commercial Bank of 
Ethiopia, and private businessmen.  The Commission reported that it 
arrested and conducted investigations on 203 corruption suspects 
from August 2008 to January 2009.  In 2009, there were also several 
arrests of businessmen for alleged tax evasion. 
 
--It is a criminal offense to give or receive bribes, and bribes are 
not tax deductible. 
 
¶15. (U) Bilateral Investment Agreements 
 
--Ethiopia has bilateral investment and protection agreements with 
China, Denmark, Italy, Kuwait, Malaysia, Netherlands, Russia, Sudan, 
Switzerland, Tunisia, Turkey, Yemen, Spain, Algeria, Austria, UK, 
Belgium/Luxemburg, Libya, Egypt, Germany, Finland, India, and 
Equatorial Guinea and a protection of investment and property 
acquisition agreement with Djibouti.  A Treaty of Amity and Economic 
Relations, which entered into force in 1953, governs economic and 
consular relations with the United States.  Ethiopia also has double 
taxation treaties with thirteen countries, including Italy, Kuwait, 
Romania, Russia, Tunisia, Yemen, Israel, South Africa and Sudan. 
There is no double taxation treaty between the U.S. and Ethiopia. 
 
¶16. (U) OPIC and Other Investment Insurance Programs 
 
--The Overseas Private Investment Corporation (OPIC) has offered 
risk insurance and loans to U.S. investors in Ethiopia in the past, 
but has not originated any investment in Ethiopia in recent years. 
In 2007, OPIC established the Enterprise Development Network 
(EDN)--an alliance between OPIC and the private sector--to help 
source and process small business deals.  The International 
Executive Service Corps (IESC), a non-profit economic development 
organization, became involved in this alliance as a loan originator. 
 
ADDIS ABAB 00000073  010.2 OF 011 
 
 
 
 
--Ethiopia is a member of the Multilateral Investment Guarantee 
Agency (MIGA). 
 
¶17. (U) Labor 
 
--Ethiopia's labor force is estimated at 35 million, of which 80% 
are employed in subsistence agriculture, mostly as farmers.  The 
Ethiopian Government and armed forces are the most important sectors 
of employment outside of agriculture and provide work for almost 3 
million people.  Approximately 40% of the urban workforce is 
unemployed.  The high urban underemployment is partially offset by 
an informal economy.  According to a May 2006 International Labor 
Organization (ILO) survey, the informal sector constitutes 70% to 
80% of the workforce.  The economy is growing, but does not generate 
enough jobs for the 600,000 new entrants per year. 
 
--Labor remains readily available and inexpensive in Ethiopia. 
Skilled manpower, however, is scarce in many fields.  Ethiopia's 
illiteracy rate is over 60%. 
 
--The right to form labor associations and engage in collective 
bargaining is constitutionally guaranteed for many workers, but 
excludes managerial employees, teachers, and civil servants.  Only 
about 300,000 workers are members of labor unions. Most ILO Core 
Labor Standards have been enacted into law. 
 
--Ethiopia has ratified all eight core ILO conventions.  The 
Ethiopian Penal Code outlaws work specified as hazardous by ILO 
conventions.  The Ethiopian Parliament ratified ILO Convention 182 
on the Worst Forms of Child Labor in May 2003. 
 
--Child labor is widespread in Ethiopia. While not a pressing issue 
in the formal economy, child labor is common in rural agrarian areas 
and the informal economy in urban areas. Employers are statutorily 
prohibited from hiring children under the age of 14.  There are 
strict labor laws defining what sectors may hire "young workers," 
defined as workers aged 14 to 18, but these laws are infrequently 
enforced. 
 
--Ethiopia generally enjoys labor peace. There was no formal labor 
strike in 2009 possibly due in part to the government's prohibition 
on public demonstrations.  The government re-certified the 
Confederation of Ethiopian Trade Unions (CETU) in April 1997.  Since 
its re-certification, CETU (with a constituent membership of 
182,000) has focused on fundamental workers' concerns, such as job 
security, pay increases, severance pay, and health and retirement 
benefits.  The new labor law that went into effect in February 2004 
and amended in 2006 is generally considered pro-employer by labor 
unions. Workers who perform essential services are not permitted to 
strike.  The Ethiopian Employers' Association (EEA) is dedicated to 
maintaining labor peace and works in harmony with the ILO, CETU and 
the Ministry of Labor and Social Affairs.  Its leadership supports 
the adoption of all ILO Core Labor Standards.  In general, 
entrepreneurs believe that cooperating with labor is in their 
self-interest. 
 
--Although the law provides for workers' rights, unions have 
reported that employers frequently terminate workers for union 
activities.  Anti-union discrimination is prevalent in the workplace 
and workers have found it difficult to conduct strikes.  The ruling 
party tightly controls the leadership of the Confederation of Labor 
Unions and often influences union elections.  Unemployment is high 
and poses major challenges to the organization of labor.  There is 
no national minimum wage standard and many workers find it difficult 
to attain a decent standard of living. 
 
¶18. (U) Foreign Trade Zones/Free Trade Zones 
 
--There are no areas designated as foreign trade zones and/or free 
ports in Ethiopia. Because of the 1998-2000 Ethiopian-Eritrean war, 
Ethiopian exports and imports through the Eritrean port of Assab are 
prohibited.  As a result, Ethiopia conducts almost all of its trade 
 
ADDIS ABAB 00000073  011.2 OF 011 
 
 
through the port of Djibouti with some trade via the Somaliland port 
of Berbera.  Despite Ethiopia's efforts to clamp down on small-scale 
trade of contraband, unregulated exports of coffee, live animals, 
chat (a mildly narcotic amphetamine-like leaf), fruit and 
vegetables, and imports of cigarettes, alcohol, textiles, 
electronics and other consumer goods continues. 
 
¶19. (U) Foreign Direct Investment Statistics 
 
--Foreign direct investment (FDI) flows into Ethiopia have gradually 
increased in the last few years.  According to estimates by the 
National Bank of Ethiopia, it increased from $150 million in 2005 to 
$880 million in 2009 (about 3% of GDP).  Floriculture, horticulture, 
and leather are the sectors that have attracted the most FDI. 
Recently, commercial farming has attracted Indian, Saudi, European, 
and U.S. investors.  The stock of U.S. foreign direct investment 
since 1992 in Ethiopia reached $255 million as of September 2009, 
which includes both projects under implementation and operation. 
 
--U.S. companies with a significant presence and participation in 
Ethiopia's economy include Boeing, Cargill, Sheraton Hotels, Lucent 
Technologies, Cisco, Coca-Cola, Pepsi-Cola, Schaffer & Associates, 
Pioneer Hi-Bred Seeds, Federal Express, United Parcel Service, 
Caterpillar, Mack Trucks, General Motors, Rank/Xerox Corporation, 
John Deere, Navistar, Rx for Africa, and Hughes Network. 
 
MUSHINGI