VZCZCXRO9073
RR RUEHROV
DE RUEHDS #0238/01 0260714
ZNR UUUUU ZZH
R 260714Z JAN 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 4261
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 08 ADDIS ABABA 000238 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR DO/JWALLACE, USDOC FOR ITA/SMATHEWS, USTR FOR 
DWEINER, OPIC FOR ROSULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV ET
SUBJECT: ETHIOPIA: INVESTMENT CLIMATE STATEMENT 2007 
 
REF: STATE 178303 
 
¶1. Begin Ethiopia's 2007 Investment Climate Statement: 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
There are few changes since last year's Investment Climate 
Statement report.  The 2005/2006 highlights include: 
 
-- A new proclamation governing trademark registration and 
protection was issued in July 2006 
 
-- Despite relative stability and security for investors, 
sporadic political, religious and ethnic violence continued 
in some parts of the country, including the capital. 
 
-- A recently published UN Investment Guide to Ethiopia 
indicated that, according to the private sector, routine 
bureaucratic corruption is virtually non-existent in 
Ethiopia.  Transparency International recorded a decline in 
Ethiopia's ranking from 114th out of 145 countries rated in 
2004 to 130th out of 160 countries rated in 2006 in its 
Corruption Perception Index, where a higher number indicates 
higher level of corruption. 
 
-- Ethiopia signed a double taxation treaty with, Algeria, 
Tunisia, and France in 2006 which made the total signed 
agreements about fifteen. 
 
-- Ethiopia and Djibouti on November 18, 2006 signed a 
multi-modal transport agreement which enables the effective 
utilization of the port of Djibouti for the coming 20 years 
and a door-to-door cargo transit between the two countries. 
 
-- A bilateral investment agreement was preliminarily signed 
between Ethiopia and Djibouti which allows citizens of both 
countries to invest in areas only restricted for domestic 
investors/nationals. This agreement does not cover areas of 
banking, insurance, micro-financing institutions, 
broadcasting and press. This agreement will be official after 
it is passed by the House of Peoples Representatives. 
 
-- The nation's central bank, the National Bank of Ethiopia 
(NBE), has ordered that all bank processes concerning items 
being exported to China shall be undertaken and overseen by 
the Commercial Bank of Ethiopia (CBE) effective November 14, 
¶2006. 
 
-- A National Foreign Investment Promotion Advisory Council 
has been recently established with a view to conducting 
focused foreign investment promotion on textile and garment, 
leather and leather products, fruits and vegetables and 
agro-processing areas. Its two major tasks to collect 
organize and make available basic data with regard to land 
allocation, utilities connection, investment opportunities, 
market and other relevant information. The next step is to 
track potential foreign inventors and convince them to invest 
in Ethiopia in the priority areas. 
-- Ethiopian Telecommunications Corporation is about to 
embark on $1.5 billion expansion project through a vendor 
financing scheme signed with a Chinese company called ZTE. 
 
The Government of the Federal Democratic Republic of Ethiopia 
(GFDRE) has publicly stated that the private sector will be 
an engine of development and that private capital should play 
an important role in the economy. To that end it 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. In 
2003, Ethiopia formally applied for membership to the World 
Trade Organization (WTO) and a Memorandum of Foreign Trade 
Regime (MFTR) was submitted to the WTO Secretariat in January 
¶2007. 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 is now providing a highly expedited 
"one-stop shop" service that significantly cuts the time and 
cost of acquiring investment and business licenses. 
 
In June 1996, the Ethiopian Government issued a revised 
Investment 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 
 
ADDIS ABAB 00000238  002 OF 008 
 
 
forward provision, cut the capital gains tax from 40 to 10 
percent, and gave priority to investors in obtaining land for 
lease. 
 
Amendments to Ethiopia's Investment Proclamation (Law) were 
issued in September 1998 and July 2002, further liberalizing 
the investment regime and removing most of the remaining 
restrictions. In the latest amendment, areas solely reserved 
for government investment were reduced to the transmission 
and supply of electricity through the Integrated National 
Grid System and postal services with the exception of courier 
services. Manufacturing of weapons and ammunitions and 
telecommunications services can only be undertaken as joint 
ventures with the government. 
 
Ethiopia's revised investment code prohibits foreign firm 
participation in domestic banking, insurance and micro-credit 
services. Other areas of investment reserved for Ethiopian 
nationals include broadcasting, air transport services using 
aircraft with a seating capacity of more than 20 passengers 
and forwarding and shipping agency services. Professional 
service providers must be licensed by the Government to 
operate in Ethiopia. Also a foreign investor intending to buy 
an existing enterprise to operate it or buy shares in an 
existing enterprise needs to obtain prior approval from the 
Investment Agency. 
 
In addition to those mentioned above, the amendment reserves 
the following areas of investments for domestic investors: 
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); import 
trade (excluding LPG, bitumen and upon approval from the 
Council of Ministers, material inputs for export products); 
export trade of raw coffee, chat, oilseeds, pulses, hides and 
skins bought from the market and 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), motels, pensions, tea rooms, coffee 
shops, bars, night clubs and restaurants excluding 
international and specialized restaurants; travel agency, 
trade auxiliary and ticket selling services; car-hire, 
taxi-cabs transport services; commercial road transport and 
inland water transport services; bakery products and pastries 
for the domestic market; grinding mills; barber shops, beauty 
saloons, and provision of smith, workshop and tailoring 
services except by garment factories; building maintenance 
and repair and maintenance of vehicles; saw milling and 
timber making; custom clearance services; museums, and 
theaters and cinema hall operations; and printing industries. 
 
Another important change made in the 2002 amendment has been 
the reduction in the minimum capital requirement of foreign 
investors from $500,000 to $100,000 per project for wholly 
foreign owned 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 
is reduced from $100,000 to $50,000 for wholly foreign owned 
investment; and to $25,000 for joint ventures undertaken with 
domestic partners. A foreign investor reinvesting profits or 
dividends, or exporting at least 75 percent of the output 
will not be required to meet minimum capital requirements. 
The 27 percent equity requirement of local partners in joint 
ventures is also repealed. 
 
The Ethiopian Government reviews investment proposals in a 
non-discriminatory manner. Foreign investors do not regard 
the screening process as an impediment to investment, a limit 
to competition, or a means of protecting domestic interests. 
 
Most, but not all of the tenders issued by the Privatization 
and Public Enterprises Supervising Agency (PPESA) under 
Ethiopia's privatization program are open to foreign 
participation. In some instances the Government promotes 
joint ventures with Ethiopian private companies rather than 
outright sales. Some sectors are closed to foreign 
investment. Foreign firms participate through consultancy 
services preparatory to privatization, or through tendering 
on advertised privatization opportunities. Of the 360 public 
enterprises and branches pegged for privatization, 294 have 
been offered between 1994 and end of October 2006, 230 
properties approximately worth $460 million have been sold; 
18 returned to their original owners, while 10 retail shops 
and 1 state farm have been closed. These enterprises are 
mostly small enterprises in trade and other service sectors. 
 
 
ADDIS ABAB 00000238  003 OF 008 
 
 
The privatization process is back on its track again. PPESA 
has put out a tender for 41 state enterprises in the past one 
year. Out of the 41 enterprises 20 are tendered for a 
partnership and outright sale. Among them are 9 food and 
beverage factories, 5 agro-industry and agriculture firms, 
and 6 transport and chemical enterprises 
 
None of Ethiopia's utilities have been privatized to date, 
though the government is looking for foreign investor 
partners in selected telecommunications sectors. At the 
moment the Government has 91 state enterprises under its 
control. 
 
There are no discriminatory or excessively onerous visas, 
residence, or work permit requirements regarding foreign 
investors. 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 Ethio-American investors who acquired 
privatized properties have experienced difficulties obtaining 
title deeds to the properties because of difficulties created 
by local level authorities. Some had problems acquiring land 
for investment purposes. Although federal officials have at 
times intervened to resolve these problems, a lasting 
solution requires policy level changes 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
-- Ethiopia's Investment Proclamation (Law) allows all 
foreign investors, whether or not they receive incentives, to 
freely remit 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. U.S. businesses represented in 
Ethiopia do not encounter difficulties in the repatriation of 
dividends. 
 
-- The National Bank (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. Ethiopia issued several proclamations 
(laws) in September 1998 that somewhat liberalized the 
country's foreign exchange market. NBE issued a directive in 
2004 that allows non-resident Ethiopians and non-resident 
foreign nationals of Ethiopian origin to establish and 
operate foreign currency accounts. The minimum deposit is 
U.S. $100 and maximum $5,000.  The Bank amended the directive 
in 2006 that the maximum amount to be deposited in a current 
account shall be $50,000. The directive also allows them to 
open a minimum of $5,000 in a fixed foreign currency account 
The Bank issued two other directives in 2006 regarding Flower 
Export and Foreign Exchange Repatriations and Provision for 
International Remittance Services.  In general, firms 
complain that they are facing difficulty in obtaining needed 
foreign exchange at competitive rates. 
 
-- In the last three years, the Birr has been fairly stable, 
undergoing a gradual depreciation from 8.57 birr per dollar 
in June 2004 to birr 8.75 per dollar in December 2006. Over 
this period, the differential between the inter-bank 
determined rate and the parallel (or "black market") exchange 
rate has been nearly narrowed significantly, though rates 
began to diverge in late 2005 due to speculations owing to 
domestic unrest and loss of investor confidence. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
-- Per Ethiopia's 1996 Investment Proclamation (Law) and 
subsequent amendments, no assets of a domestic investor or a 
foreign investor, enterprise or expansion may 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. 
 
-- No acts of expropriation have occurred under either the 
Transitional Government of Ethiopia (1991-95) or the Federal 
Democratic Republic of Ethiopia, which assumed power in 
mid-1995. Nevertheless, a few cases of U.S. citizens whose 
business properties were expropriated by the Marxist Derg 
government in power between 1974 and 1991 remain unresolved. 
 
 
ADDIS ABAB 00000238  004 OF 008 
 
 
-- There is no right of private ownership of land. Land is 
leased from the state for up to 99 years. A few textile 
factories privatized in recent years were repossessed by the 
government because the new owners failed to pay debts owed to 
the government. 
 
DISPUTE SETTLEMENT 
------------------ 
 
-- According to the Investment Proclamation (Law), 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. 
 
 
-- Ethiopia's judicial system remains underdeveloped, poorly 
staffed and inexperienced, although efforts are underway to 
strengthen its capacity. While property and contractual 
rights are recognized and there are written commercial and 
bankruptcy laws, many judges lack understanding of commercial 
matters. There is no guarantee that the decision of an 
international arbitration body will be fully accepted and 
implemented by Ethiopian authorities. The Embassy routinely 
advises investors to specify that disputes will be settled by 
arbitration either in Ethiopia (the Chamber of Commerce now 
runs an arbitration center) or abroad due to the lack of 
experience of domestic courts. 
 
-- Ethiopia is not a member of the International Center for 
the Settlement of Investment Disputes. 
 
PERFORMANCE REQUIREMENTS AND INCENTIVES 
--------------------------------------- 
 
-- The 2003 amendment to the Investment proclamation gives 
investment incentives for investors in specific areas. 
 
-- Investors engaged in manufacturing, agro-industrial 
activities or the production of certain agricultural products 
and who export at least 50 percent of their products or 
supply at least 75 percent of their product to an exporter as 
production input are exempt from income tax for five years. 
An investor who exports less than 50 percent of his product 
or supplies his product only to the domestic market is income 
tax exempt for two years. Under special circumstances, the 
Board and the Council of Ministers could extend the tax 
exemption. 
 
-- The government has also set up a special loan fund of $174 
million through Development Bank of Ethiopia and made 
available land at low lease rates for priority export areas 
such as floriculture, leather goods, textiles and garments, 
agro-processing and related products. An investor can borrow 
up to 70 percent of the cost of the project from this special 
fund without collateral upon presenting a viable business 
plan and a 30% personal equity. 
 
-- An investor who invests in the relatively under-developed 
regions of Gambella, Benshangul and Gumuz, South Omo, Afar 
and Somali will be eligible for an additional one-year income 
tax exemption. However, an investor who exports hides and 
skins after processing only up to crust level will not be 
entitled to the income tax incentive. 
 
-- Investors who expand or upgrade existing enterprises and 
export at least 50 percent of their output or increase 
production by 25 percent are eligible for income tax 
exemption for two years. 
 
-- 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. Also spare parts worth 15 percent of the value of 
the capital good can be imported duty free. This privilege 
may be denied if the capital good and construction materials 
are locally produced and have competitive prices, quality and 
quantity. 
 
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. 
 
 
ADDIS ABAB 00000238  005 OF 008 
 
 
-- State-owned enterprises have considerable de facto 
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 businessmen as well as foreign investors complain of 
the lack of a level playing field when it comes to 
state-owned and party-owned businesses. 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
 
-- Secured interests in property are protected and enforced, 
although all land ownership remains in the hands of the 
state. 
 
-- One pending issue is the return of properties seized, 
"lawfully" or "unlawfully" during the Mengistu Haile-Mariam's 
regime (1974-91). The Government's position is that property 
seized "lawfully," that is, by court order or government 
proclamation published in the official gazette, remains the 
property of the state. The state may choose to sell such 
property if deemed appropriate. 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 judicial appeals process. Claimants are required to 
pay for any additions (buildings, generators, etc.) or 
improvements made by the Government. 
 
-- Land for investment purpose is leased, with prices set by 
periodic auctions for urban land with established market 
floors. Land leasehold regulations, however, vary in form and 
practice by region. The June 1996 Investment Proclamation and 
subsequent amendments charge the Investment Authority with 
locating and facilitating the leasing of property by licensed 
investors. 
 
-- Loan terms are generally quite short and very few 
mortgages are made. There is no system of recording security 
interests. 
 
-- Also see section on Intellectual Property Rights. 
 
TRANSPARENCY OF REGULATORY SYSTEM 
--------------------------------- 
 
Ethiopia's regulatory system is generally considered fair, 
though 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. Investment, business and other licenses for foreign 
investors can now be obtained from the Ethiopian Investment 
Agency in a matter of hours. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
-- 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. 
 
-- While credit is available to investors on market terms, 
the 100 percent collateral requirement limits the ability of 
some investors to take advantage of business opportunities. 
Export oriented investors can borrow from the special fund at 
the Development Bank of Ethiopia without collateral for the 
amount up to 70 percent of the project cost. 
 
-- Foreign banks are not permitted to operate in Ethiopia. 
Currently eleven banks; three state-owned and eight privately 
owned, are licensed to operate in the country. Some of the 
banks used to have extremely high non-performing loan (NPLs) 
portfolios. Due to their risk averse behavior and NBE's 
stringent supervision, currently the NPLs ratio is declining 
and is below 20 percent. The state-owned Commercial Bank of 
Ethiopia has approximately two-third of the assets of the 
entire banking system. 
 
-- The Ethiopian Government partially controls interest 
rates. NBE determines the floor bank deposit rate.  Because 
there are no real securities markets, the Government cannot 
affect interest rates through market actions and retains the 
right to set interest rates. Loan interest rates are allowed 
to float. The minimum deposit interest rate is now 3 percent; 
adjusted downward from 6 percent in March 2002.  Real 
interest rates remained negative in the past two years driven 
by the increase in the inflation rate.  The Government argues 
this move was necessary to lower lending rates to encourage 
economic activity. The Government offers a limited number of 
28 days, 3-month and 6-month Treasury bills, but prohibits 
 
ADDIS ABAB 00000238  006 OF 008 
 
 
the interest rate from exceeding the savings deposit rate. In 
September 1998, Ethiopia reduced the minimum denomination of 
Treasury bills to about $600 (5,000 birr) in view of 
accommodating the private sector and individuals in the 
market. The yield on these T-bills is very low, 0.051 percent 
for 28 days, 0.048 percent for 91 days and 0.025 percent for 
182-days bill in the first quarter of 2006/07. 
 
-- 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. 
 
POLITICAL VIOLENCE 
------------------ 
 
Ethiopia is relatively stable and secure for investors. 
Sporadic ethnic and religious violence in Oromia, Southern 
and Somali regions in recent years has not seriously affected 
foreign or domestic investors. 
 
In fact the pace of both domestic and foreign investments 
particularly in Oromia has picked up in recent years. 
However, following the May 2005 elections, there was 
political unrest across the country and two incidents of 
demonstrations in Addis Ababa that turned violent, resulting 
in numerous arrests. Strikes, demonstrations, boycotts and 
shutdown of businesses by the government affected production, 
employment, trade, transport and other aspects of the 
national economy.  By the year 2006, the unrest had largely 
subsided. 
 
CORRUPTION 
---------- 
 
-- The UN Investment Guide to Ethiopia published in 2004 
points out that, according to the private sector, routine 
bureaucratic corruption is virtually non-existent in 
Ethiopia.  The guide adds that bureaucratic delays and 
difficulties certainly exist, but they are not devices by 
which officials strive to line their pockets. 
 
-- Ethiopia ranked 114th  out of 146 countries rated in 2004 
(a higher number indicates a higher level of corruption), 
137th  out of 159 countries rated in 2005 and 130th  out of 
160 countries rated in 2006, suggesting a worsening 
corruption trend. There are suspicions that the frequent 
cancellation of telecommunications, power and other 
infrastructure tenders may be a result of corruption. In 
addition, state- and party- owned businesses receive 
preferential access to land leases and credit. 
 
-- In May 2001, the Government launched an anti-corruption 
campaign in which a number of Ethiopian Government and 
private sector officials were detained. On May 24, 2001, the 
Government passed a proclamation on anti-corruption 
procedures and rules, and an Anti-Corruption Commission has 
been established. Since its establishment, the Commission has 
arrested many officials, including managers of the 
Privatization Agency, the state-owned Commercial Bank of 
Ethiopia, and private businessmen and charged them with 
corruption. There were no major arrests in the last two years. 
 
-- It is a criminal offense to give or receive bribes, and 
bribes are not tax deductible. The Embassy has no knowledge 
of foreign investors ever being charged with corruption. The 
Ministry of Justice and the Anti-Corruption Commission are 
the Government entities with the primary responsibility to 
combat corruption. 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
To date, Ethiopia has bilateral investment agreements and 
treaties with China, Denmark, Italy, Kuwait, Malaysia, 
Netherlands, Russia, Sudan, Switzerland, Tunisia, Turkey 
Yemen, and recently with Djibouti. The Investment Agency has 
expressed interest in discussing a bilateral investment 
treaty with the United States. A Treaty of Amity and Economic 
Relations, which entered into force on October 8, 1953, 
governs economic and consular relations between the U.S. and 
Ethiopia. Ethiopia also has double taxation treaties with 
 
ADDIS ABAB 00000238  007 OF 008 
 
 
Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel and 
South Africa. There is no double taxation treaty between the 
U.S. and Ethiopia. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
The Overseas Private Investment Corporation (OPIC) offers 
risk insurance and loans to U.S. investors in Ethiopia. In 
October 2000, the then called Ethiopian Investment Authority 
(now Investment Agency) and OPIC signed an Investment 
Incentive Agreement and the agreement was ratified by the 
Ethiopian Parliament on April 8, 2003. OPIC provided 
political risk insurance in 1995 for a $48 million project by 
a U.S. firm to construct a sugar refinery. It also provided 
risk insurance to a U.S. firm involved in a road design 
project. OPIC also provided loan and risk insurance in 2003 
for Med-Pharm project, a medical laboratory established by a 
U.S. company led by a U.S. citizen of Ethiopian origin. The 
project is now operational. Ethiopia is a member of the 
Multilateral Investment Guarantee Agency (MIGA). 
 
LABOR 
----- 
 
-- Ethiopia's labor force is estimated at 35 million, of 
which 85 percent are employed in subsistence agriculture, 
mostly as farmers. The Government and armed forces are the 
most important sectors of employment outside agriculture and 
provide work for almost 3 million people. The number of 
permanent and temporary workers employed in public sector 
manufacturing increased from 78,000 in 1978 to over 300,000 
in 1999 and currently remains at about the same level. 
Approximately 40 percent of the urban workforce is 
unemployed. The high urban underemployment is partially 
offset by an informal economy. 
 
-- Labor remains readily available and inexpensive in 
Ethiopia. Skilled manpower, however, is scarce in many fields. 
 
-- Only about 300,000 workers are members of labor unions. 
Civil sector employees are not allowed to form unions. Most 
ILO Core Labor Standards have been enacted into law; the 
Ethiopian Parliament ratified ILO Convention 182 on the Worst 
Forms of Child Labor in May 2003. 
 
-- Child labor is not a pressing issue in the formal economy, 
but is common in rural agrarian areas and the informal 
economy in urban areas. Employers are statutorily prohibited 
from hiring youngsters 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 are not always 
enforced. 
 
-- Ethiopia generally enjoys labor peace. There was no formal 
strike in 2005/06. The Government re-certified the 
Confederation of Ethiopian Trade Unions (CETU) in April 1997. 
Since its re-certification, CETU has focused on fundamental 
workers' concerns, such as job security; pay increases, 
severance pay, and health and retirement benefits. The right 
to form labor associations and to engage in collective 
bargaining is granted in the constitution. The new labor law 
that went into effect in February 2004 is generally 
considered pro-employer by labor unions.  Workers who perform 
essential services are not permitted to strike. 
 
-- Tri-partism emerged in May 1998 when the Government 
licensed the Ethiopian Employers' Association (EEA). The 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. 
 
FOREIGN-TRADE ZONES/FREE PORTS 
------------------------------ 
 
There are no areas designated as foreign trade zones and/or 
free ports in Ethiopia. Because of the 1998-2000 
Ethio-Eritrean war, Ethiopian exports and imports through the 
Eritrean port of Assab are now prohibited. As a result, 
Ethiopia is conducting almost all of its trade through the 
port of Djibouti. Despite Ethiopia's efforts to clamp down on 
small-scale trade of contraband, unregulated exports of 
coffee, live animals, khat (a mildly narcotic 
amphetamine-like leaf), fruit and vegetables, and imports of 
cigarettes, alcohol, textiles, electronics and other consumer 
goods continues. The Government of Ethiopia provides support 
to exporters of textiles, leather and horticultural products, 
 
ADDIS ABAB 00000238  008 OF 008 
 
 
including plots of land at low lease prices and a line of 
credit of $174 million (1.5 billion birr) to finance exports. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
-- Foreign direct investment in Ethiopia has gradually 
increased in the last few years. It increased from $40 
million in 2002 to $70 million in 2004. Floriculture, 
horticulture in general, and leather are the sectors that 
have lately attracted FDI.  Cumulated US capital inflow in 
the form of FDI to Ethiopia in the past 15 years has 
surpassed an estimated amount of $400 million. Current U.S. 
direct investment in Ethiopia is estimated at about $60 
million. 
 
-- U.S. companies with the  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, DHL 
International, Federal Express, United Parcel Service, 
Caterpillar, Mack Trucks, General Motors, Rank/Xerox 
Corporation, John Deere, Navistar and Hughes Network. 
YAMAMOTO