PULSES SECTORINVESTMENT PROFILE

ETHIOPIA

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PULSES SECTORINVESTMENT PROFILE

ETHIOPIA

2016

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ACKNOWLEDGEMENTS

This profile has been produced under the framework of Supporting Indian Trade and Investment for Africa (SITA) project, funded by the Department for International Development, Government of the United Kingdom and implemented by the International Trade Centre. SITA is a South-South Trade and Investment project aimed at improving competitiveness of select value chains; and increasing investment in five Eastern African countries through partnerships with institutions and businesses from India.

Special contributions to writing this report have been provided by:

Ethiopian Pulses, Oilseeds and Spices Processors - Exporters Association

Quality Assurance:

International Trade Centre (ITC), Trade Facilitation and Policy for Business Section (TFPB)TCA Ranganathan, External consultant, Rajesh Aggarwal, Chief (TFPB), Andrew Huelin, Associate Programme Advisor (TFPB)

Author: Mengesha Yayo Negasi

Design: Iva Stastny Brosig, Design plus

Editor: Vanessa Finaughty

The views expressed in this report are those of the authors and do not represent the official position of the International Trade Centre, Ethiopian Investment Commission and the Government of the United Kingdom. The images used in this profile may not always reflect accurately the country context.

© International Trade Centre 2016

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Table of Contents

ETHIOPIA: AN OVERVIEW 7KEY FACTS 7

POLITICAL ENVIRONMENT 8

ECONOMIC ENVIRONMENT 8

PRICE CHANGE AND MANAGEMENT 9

FINANCIAL SECTOR: BANKING, CREDIT AVAILABILITY AND OTHER SERVICES 10

Access to financial and insurance services

TAXATION POLICIES AND PROCEDURES 12

Direct taxes

Indirect taxes

WHY ETHIOPIA? 15POLITICAL AND SOCIAL STABILITY 15

RAPID ECONOMIC GROWTH 15

CONDUCIVE CLIMATE, ADEQUATE FARMING LAND AND FERTILE SOILS 15

STRONG GUARANTEES AND PROTECTIONS 16

ABUNDANT AND AFFORDABLE INPUTS (LABOUR, LAND, ENERGY AND POWER, ETC.) 16

REGIONAL HUB WITH ACCESS TO A WIDE MARKET 17

IMPROVED LOGISTICS AND INFRASTRUCTURE 17

Electricity

Telecommunication

Water supply

Transport infrastructure

ETHIOPIAN PULSES SECTORAL OVERVIEW 19

OVERVIEW OF ETHIOPIA’S PULSES PRODUCTION SYSTEM 19

PULSES TRADE PERFORMANCE 21

ETHIOPIA’S TRADE AND INVESTMENT 23

DEBT POLICY 25

ECONOMIC COOPERATION, REGIONAL INTEGRATION AND TRADE 25

INCENTIVES ON CUSTOMS DUTY 25

Customs duty exemption

Income tax exemption and loss carried forward

EXPORT ENCOURAGING MEASURES 26

EXPORT INCENTIVES 26

Export credit guarantee scheme

Export trade duty incentive scheme

Franco valuta import facility

Full repatriation

The right to employ expatriate experts and management staff

Investment loans

REMITTANCE OF FUNDS AND INVESTMENT GUARANTEE AND PROTECTION 27

ETHIOPIA’S DEVELOPMENT PLAN PRIORITY 27

INVESTMENT OPPORTUNITIES 29

USEFUL CONTACTS 30

BIBLIOGRAPHY 30

ANNEXES 31ANNEX I: INSTITUTIONAL SUPPORT FOR INVESTORS 31

ANNEX II: INVESTMENT START-UP PROCEDURES 32

Abbreviations & Acronyms

AGOA African Growth and Opportunity Act COMESA Common Market for Eastern and Southern Africa CSA Central Statistics Authority EBA Everything But ArmsEIA Ethiopian Investment Agency ERCA Ethiopian Revenues and Customs Authority GTP Growth and Transformation Plan MoFED Ministry of Finance and Economic Development NBE National Bank of Ethiopia

SNNP Southern Nations Nationalities and PeopleGDP gross domestic productDBE Development Bank of EthiopiaVAT value-added taxFDI foreign direct investmentIPDC Industrial Parks Development Corporation of EthiopiaEPOSPEA Ethiopian Pulses, Oilseeds and Spices Processors – Exporters AssociationPPP public-private partnershipECX Ethiopia Commodity Exchange

List of Figures

FIGURE 1: ETHIOPIA’S TRENDS IN SECTORAL GROWTH (percentage growth rates) (2006–2014) 8

FIGURE 2: ETHIOPIA’S SECTORAL SHARE TRENDS 9

FIGURE 3: ETHIOPIA’S INFLATION TRENDS BY CATEGORIES (2007–2014) 9

FIGURE 4: ETHIOPIA’S EXPORT AND IMPORT TRENDS (2007–2014) 23

FIGURE 5: ETHIOPIA’S EXPORT SHARE OF SELECTED MAJOR COMMODITIES IN 2013/2014 23

FIGURE 6: ETHIOPIA’S EXPORT BY DESTINATION 24

FIGURE 7: ETHIOPIA’S CAPITAL OF OPERATIONAL INVESTMENT PROJECTS BY SOURCES (2011–2014) 24

FIGURE 8: ETHIOPIA’S SOURCE OF INVESTMENT 24

List of Tables

TABLE 1: ETHIOPIA’S INCOME TAX RATE 12

TABLE 2: ETHIOPIA’S POTENTIAL AREAS FOR FARMING 15

TABLE 3: ETHIOPIA’S MAIN INPUTS 16

TABLE 4: ETHIOPIA’S TOTAL AREA AND PRODUCTION OF GRAIN CROPS FOR PRIVATE HOLDINGS IN 2014/2015 19

TABLE 5: ETHIOPIA’S ESTIMATE OF AREA, PRODUCTION AND YIELD OF PULSES BY TYPE (for private peasant holdings) (2010–2014) 20

TABLE 6: ETHIOPIA’S EXPORT VALUE AND SHARE TRENDS BY COMMODITY (2011–2014) 21

TABLE 7: ETHIOPIA’S PULSES EXPORT PERFORMANCE BY TYPE (2010–2015) 22

TABLE 8: ETHIOPIA’S PULSES EXPORT PERFORMANCE BY COUNTRY DESTINATION (July 2014–June 2015) 22

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Ethiopia: An Overview

Key facts

Capital City: Addis Ababa

Area: 1.14 million km2

Arable land: 513 000 km2 (45%)

Irrigated land: 34 200 km2 (3%)

Population: 96.96 mm (2014)

0–14 years: 42.1%

15–64 years: 54.5%

Population growth: 2.5% (2014)

Youth literacy rate (15–24 years):

Male: 63% (2008–2012)

Female: 47% (2008–2012)

Urban population: 19%

GDP (nominal): US$ 55.61 bn (2014)

FDI inflow: US$ 1.2 bn (2014)

Exports: 11.6% of GDP (2014)

Imports: 29.1% of GDP (2014)

Exchange rate (per US$):

ETB 21.55 (2015 est.)

Govt. expenditure: US$ 11 bn (2015 est.)

Govt. revenue: US$ 9.11 bn (2015 est.)

*Source: EIC, 2015; CIA, 2016

Ethiopia at a glance

� GDP per capita (nominal): US$ 573.6 (2014)

� GDP growth: 10.3% (2014)

� Inflation rate (consumer price): 7.4% (2014)

� Currency: Ethiopian birr (ETB)

� Language: Amharic, Oromiffa, Tigrigna, English (major)

� Religion: Christianity and Islam (major)

� Major Economic sectors: Agriculture, Industry and Service

� Strategic location: Africa, Europe, Middle East & Asia

� Major international trade agreements: COMESA, AGOA, EBA

� Why invest in Ethiopia?

� Young, competitive and trainable labour force with labour law that conform international standards

� Stable and consistent business operating environment

� Excellent climate and fertile soils � Abundant irrigable land � Competitive incentive packages

*Source: EIC, 2015;

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POLITICAL ENVIRONMENT

The Federal Democratic Republic of Ethiopia is Africa’s oldest independent country and one of the region’s most stable countries. Ethiopia also boasts the lowest corruption and crime levels among least-developed countries.

Source: MoFED, 2014

Figure 1 : Ethiopia's trends in sectoral growth (percentage growth rates) (2006–2014)

20

25

Real GDP growth rate Industry ServicesAgriculture

2006 / 07 2007 / 08 2008 / 09 2009 / 10 2010 / 11 2011 / 12 2012 / 13

15

10

5

02013 / 14

ECONOMIC ENVIRONMENT

For 11 years, from 2004 to 2014, Ethiopia has registered an economic growth of 10.9% on average per year. In 2013/14, nominal gross domestic product (GDP) at constant factor cost was US$ 54.9 billion. Ethiopia’s purchasing power parity (2014) was US$ 1,500. The per capita GDP in current prices has grown from US$ 341.9 in 2010 to US$ 573.6 in 2014 (with a population size of 96.96 million in 2014).

With respect to sectoral change and growth, on average per year (from 2004 to 2014), the agriculture, industry and service sectors have grown by 6.6%, 20% and 10.7% respectively. It is evident from figure 2 that the share of industry remained low, while that of the service sector was high. Even if the manufacturing subsector has grown on average by 13% per annum for the last 11 years (2004–2014), its share is still less than 5%. For the same period, medium and large manufacturing industries have grown on average by 17% per annum.

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Ethiopia has also succeeded in reducing both total poverty and food poverty with an increasing population. The poverty level in 2005 was 38.7%. However; the overall poverty level has declined to 29.6% and 26%, in 2010/11 and 2012/13 respectively. In the same period, food poverty has reduced from 33.6% in 2010/11 to 31.8% in 2012/13 (GTP II, 2015). In terms of income distribution, the country’s Gini coefficient has changed from 0.33 at national level (0.26 in rural; 0.44 in urban) in 2005 to 0.3 at national level (0.27 in rural; 0.37 in urban) in 2013/14 (National Bank of Ethiopia, 2014).

The national saving has grown from 12.7% in 2011 to 22.5% in 2014. Due to this, the share of investment (capital formation) in GDP has increased from 32.1% in 2011 to 40.3% in 2014, which makes the resource gap (= current account deficit) (2013/14) 17.8% of GDP – up from 16.6% the previous year. By growing by 33% on average per annum for the period from 2010–2014, the country’s tax revenue has risen from 43 billion birr in 2010 to 133 billion birr in 2014 (National Bank of Ethiopia, 2014).

PRICE CHANGE AND MANAGEMENT4

Since 2006, Ethiopia has not been considered a low inflation country and, in July 2008, an all-time high inflation rate of 64% was recorded. Inflation (food) re-emerged in 2012 and reached a peak of about 40% in September 2012. However, well-coordinated monetary and fiscal policy stance coupled with a slowdown in world commodity prices have resulted in a significant decline in inflation. Hence, in January 2014, while headline inflation became 7.8%, food inflation tumbled down to 5.1% and non-food inflation to 10.9%.

Figure 2: Ethiopia’s sectoral share trendsSe

rvice

Agriculture

Industry

50.8%

10.25%

39.3%

2006/07

Serv

ice

Agriculture

Industry

39.9%

14.2%

45.9%

2013/14

Source: Ministry of Finance and Economic Development, 2014

Source: National Bank of Ethiopia, 2014

Figure 3: Ethiopia’s inflation trends by categories (2007–2014)

2007 / 08 2008 / 09 2009 / 10 2010 / 11 2011 / 12 2012 / 13 2013 / 14-10

0

10

20

30

40

50

General inflation Food inflation Non-food inflation (core inflation)

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LIST OF BANKS

� Abay Bank (25 branches): www.abaybank.com.et

� Addis International Bank (23 branches): www.addisbanksc.com

� Awash International Bank (80 branches): www.awashbank.com

� Abyssinia Bank (47 branches): www.bankofabyssinia.com

� Buna International Bank (8 branches): www.bunnabanksc.com

� Birhan International Bank (17 branches): www.berhanbanksc.com

� Commercial Bank of Ethiopia (more than 980 branches): www.combanketh.com

� Construction and Business Bank of Ethiopia (34 branches): www.cbb.com.et

� Cooperative Bank of Oromia (38 branches): www.coopbankoromia.com.et

� Dashen Bank (55 branches): www.dashenbanksc.com

� Development Bank of Ethiopia (32 branches): www.dbe.com.et

� Lion International Bank (20 branches): www.anbesabank.com

� Debub Global Bank (23 branches): www.debubglobalbank.com

� Enat Bank (11 branches): www.enatbanksc.com

� Nib International Bank (45 branches): www.nibbanksc.com

� Oromia International Bank (25 branches): www.orointbank.com

� United Bank (41 branches): www.unitedbank.com.et

� Wegagen Bank (50 branches): www.wegagenbanksc.com

� Zemen Bank (1 branch): www.zemenbank.com

LIST OF INSURANCE COMPANIES

� Ethiopian Insurance Corporation (government-owned)

� Africa Insurance Corporation � Awash Insurance Corporation � United, Global Insurance Corporation � Nile Insurance Corporation � Nyala Insurance Corporation � Nib Insurance Corporation � Lion National Insurance Corporation � Ethio-Life Insurance Corporation � Oromia Insurance Corporation � Abay Insurance Corporation � Berhan Insurance Corporation � Tsehay Insurance Corporation � Global Insurance Company � National Insurance Company of Ethiopia � Lucy Insurance Company � Bunna Insurance Company

FINANCIAL SECTOR: BANKING, CREDIT AVAILABILITY AND OTHER SERVICES

As of 2013/14, Ethiopia has 19 commercial banks (three of them government-owned) and 17 insurance companies.

Source: NBE, 2014

The Commercial Bank of Ethiopia (CBE), as well as private commercial banks, offer short-term loans, chequing and savings accounts, cable and mail money transfer services, and foreign exchange transactions. They also offer guarantees, take part in equity investments and participate in other commercial banking activities. Expatriate employees are able to remit their salaries under

the National Bank of Ethiopia’s (NBE’s) foreign exchange regulations. The birr, Ethiopia’s local currency, is not freely convertible. From 2004, the NBE allows non-resident foreign nationals of Ethiopian origin and non-resident Ethiopians to open foreign currency accounts of as much as US$ 50,000.

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ACCESS TO FINANCIAL AND INSURANCE SERVICES

There has been improvement in access to financial services and, in 2014, the total bank branches reached 2,208 (roughly 34% are in Addis Ababa), making the ratio of population to bank branches 39,834 from 49,675 (African Economic Outlook, 2015). The banking system’s total capital is US$ 1.28 billion (ETB 25.6 billion), of which private banks comprise 53.9% (African Economic Outlook, 2015).

New lending to the economy has continued to increase. Commercial banks and the Development Bank of Ethiopia (DBE) disbursed birr 59.9 billion, which went up by 10.5% last year as the capacity of banks to lending remained strong due to higher loan collection and deposit mobilization. Of the total new loans that the banking system disbursed, 35.1% was by private banks, while the share of public banks was 64.9%. Regarding disbursement by sector, 34.0% went to industry, followed by agriculture (18.1%) and domestic trade (15.2%), while other sectors consumed the balance (National Bank of Ethiopia, 2015).

Besides the commercial banks, the DBE, with 32 branches, offers short-, medium- and long-terms loans for achievable development ventures, such as agricultural and industrial projects. The Construction and Business Bank (CBB), with 34 branches, offers long-term loans for producing housing construction materials, and the construction of plants, hospitals,

clinics, private schools and real-estate development.

Investors involved in the agro-processing and agriculture sector and who export 75% of their goods are eligible for loans. If investors are able to provide 30% of their initial cost, the DBE can offer loans for the other 70% of the investment.

In Ethiopia, insurance services for the agricultural sector are not well-developed. However, crop and other product services insurance have been introduced by some insurance companies, such as Ethiopian Insurance Corporation (government-owned).

In 2013/14, both minimum and maximum deposit interest rates remained at the past two years’ level of 5% and 5.75% respectively. Consequently, the average interest rate on savings deposit was 5.38%, while the weighted yearly typical interest rate on time deposits stood at 5.66% and demand deposit and lending rates at 0.03% and 11.88% respectively (National Bank of Ethiopia, 2014). On the other hand, the real rate of interest on savings and time deposits showed a slight improvement during 2012/13 as a result of a year-on-year drop in inflation from 8.7% to 8.5%. Consequently, the real lending interest rate was positive at 3.41% (National Bank of Ethiopia, 2014).

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TAXATION POLICIES AND PROCEDURES

Every investor has a tax obligation and is required to obtain a taxpayer identification number (TIN).

DIRECT TAXES

� Income tax It includes earnings from business and personal undertakings, employment, entrepreneurial undertakings by non-residents, immovable and movable property, alienation property, license fees, profit shares by registered partnerships, dividends distributed by a resident company, and interest paid by local, regional or national government (Ethiopia Trade and Investment).

� Business income taxUnder Proclamation No. 286/2002, taxable business income is ascertained for each tax period based on the income statement or profit and loss account.

� Rural land use fee and agricultural income tax

In 1995, the tax on earnings from agricultural endeavours and land rentals was amended. Due to the fact that regional states are allocated income tax from this source in observance of the new constitution of 1994, every regional state is permitted to make a proclamation that provides for such rent and tax.

� Capital gains taxThis is payable on profits from company shares at 30% and the transfer of buildings utilized for factory, office or business purposes at 15%. A foreigner who stays in Ethiopia in excess of 183 days for 12 calendar months, whether intermittently or continuously, is considered to be a resident for the whole tax period and is, therefore, taxed according to the Income Tax Proclamation No. 286/2002 (Article 5.2).

� Other direct taxes applicableOther applicable direct taxes include interest income (5%), dividends (10%), income paid for services provided outside Ethiopia (10%), royalties (5%), income from property rental (15%), corporate income tax or profit payable tax (30% of their taxable income) and income from games of chance (15%), and these are taxed at flat rates according to the Income Tax Proclamation (Article 31–36).

Table 1: Ethiopia’s income tax rate

Personal income tax rates

Business income tax rates

Tax rate in %No.

Income level in pound sterling (£)

Income level in pound sterling (£)

1 0–6 0–70Exempt

threshold

2 7–25 71–304 10

3 26–54 305–654 15

4 55–91 655–1097 20

5 92–138 1 098–1 657 25

6 139–195 1 658–2 335 30

7 More than 195 More than 2 335 35

*Source: Ethiopian Investment Commission, 2014

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INDIRECT TAXES

� Value-added tax (VAT)The standard VAT rate is 15% of the value of each taxable transaction by a registered individual and all services and goods imports except for those exempted. Taxable transactions that are charged at 0% include: services and goods exports to the scope provided in the regulations.

� Excise tax In addition to VAT, excise tax is payable on a variety of consumer goods, either imported or locally produced. These include fuel, salt, tobacco, alcohol, carpets, toys, television sets and cars. The rates are anything from 10% on garments, receivers, fabrics and textiles to 100% on alcoholic drinks, perfumes and vehicles more than 1,800 cc.

� Turnover taxIn Ethiopia, one has to pay turnover tax if one is not registered for VAT and if one’s yearly taxable transaction value is not more than 500 thousand birr. The turnover tax rates are:

� 2% on grain mills, contractors, combine harvesters and tractors;

� 2% on services rendered and goods sold locally;

� 10% on others.

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Why Ethiopia?

POLITICAL AND SOCIAL STABILITY

Ethiopia’s political environment is stable, which makes for a secure and peaceful working environment. It has strong security and political integration with the region’s other countries, which furthers mutual economic benefits and ties. Ethiopia is also a seat of the African Union and has a strong policy framework in the Growth and Transformation Plan, which concentrates on private sector investment fostering growth. Moreover, the World Economic Forum (Global Competitiveness Report, 2013–2014) rated Ethiopia’s security 55th out of 148 countries, much higher than the majority of its regional peers, like the Republic of South Africa (109th), the Republic of Kenya (131st) and the Federal Republic of Nigeria (142nd). Globally, Ethiopia was rated 36th and 38th in business costs of violence and crime, and organized crime. Government political will and policy coherence, the low cost of doing business, and access to geographic proximities to the rest of the world are additional attractive factors for investment in the country. Furthermore, strong commitment to rural development and agriculture by allocation in excess of 10% of the government’s total budget and commitment to dealing with corruption and promoting good governance are attractive to foreign direct investment (FDI).

RAPID ECONOMIC GROWTH8

Since 2004, Ethiopia’s growth has averaged 10.9%. Ethiopia was the world’s 12th fastest-growing economy in 2012, with a faster growth rate than other African countries, like Ghana, Mozambique, Zambia and Rwanda, as well as India and China (World Bank, 2013).

CONDUCIVE CLIMATE, ADEQUATE FARMING LAND AND FERTILE SOILS

Ethiopia is known as the homeland and domestication of a number of crop plants, and boasts diverse agroecological zones and a wealth of natural resources.

Table 2: Ethiopia’s potential areas for farming

No. Type of farming Area (ha) Region

1 Rice 280 000Southern Nations Nationalities and People (SNNP), Oromiya, Amhara, Benshangul Gumuz and Somali

2 Maize 1 400 000 SNNP, Oromiya, Amhara, Benshangul Gumuz, Gambella and Somali

3 Tea 150 000 SNNP, Oromiya, Amhara and Gambella

4 Horticulture 763 300 SNNP, Oromiya, Amhara and Dire Dawa

5 Coffee 426 000 SNNP, Oromiya, Amhara and Gambella

6 Cotton 3 000 810 SNNP, Oromiya, Amhara and Gambella

7 Oil crops 1 601 323Tigray, SNNP, Oromiya, Amhara, Benshangul Gumuz, Gambella, Afar and Somali

8 Pulses 3 274 469Oromiya, Amhara Tigray, SNNP, Benshangul Gumuz, Gambella, Afar and Somali

9 Rubber 200 000 Tigray, SNNP, Oromiya, Amhara and Benshangul Gumuz

10 Palm oil 450 000 SNNP, Oromiya and Gambella

Total 11 545 902

*Source: Ministry of Agriculture and Rural Development

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STRONG GUARANTEES AND PROTECTIONS

The constitution is the highest law that prevails over all other legislation in Ethiopia. The Investment Proclamation (2002) also permits foreign investors to purchase a dwelling house and other immovable property needed for their investment. The Investment Proclamation offers foreign investors protection and guarantee. As such, no private investment can be expropriated or nationalized unless it is necessitated by public interest and only if it meets the requirements of the law. When an investment is nationalized or expropriated for public interest, suitable compensation is paid in advance. Foreign investors are guaranteed capital repatriation and remittance of interest and dividends. Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA), which offers guarantees for non-commercial risks like expropriation. The country has also signed bilateral investment protection and promotion agreements with a number of countries.

ABUNDANT AND AFFORDABLE INPUTS (LABOUR, LAND, ENERGY AND POWER, ETC.)

Ethiopia’s Human Development Index (HDI) rank in 2013 became 173rd out of 187. During the last twenty years, considerable headway has been made in chief human development indicators: enrolment in primary schools has quadrupled. More recently, the (official) unemployment rate has decreased from 26.4% in 1999 to an all-time low of 17.4% in 2014. Ethiopia’s demographic feature can be characterized by a young boom population, which indicates the existence of a huge labour force opportunity in the country. With its population of 96.96 million (2014), Ethiopia is Sub-Saharan Africa’s second heaviest populated country after Nigeria. During the past decade, Ethiopia has experienced one of Africa’s highest growth rates – between 8% and 10%. It is also predicted to reach 117.6 million by the year 2025 (Ethiopian meat industry subsector’s strategic plan, 2015–2025). Ethiopia’s total labour force was last measured at 45,145,776 in 2013. About 80% to 85% of the people are employed in agriculture, especially farming activities (World Bank, 2013).

Ethiopia’s labour force is a young, competitive and trainable one, with a labour law that conforms to international standards. Salaries and wages differ subject to the type of profession, size of the enterprise and skill levels needed, and are decided by agreement between the employee and the employer. The country’s labour market is also flexible and labour law does not represent restriction on the exit of firms (the withdrawal of firms at any time is not legally forbidden). Furthermore, unskilled workers’ wages are among the lowest worldwide. The cost of inputs like water and electricity is also low by international standards.

Table 3: Ethiopia’s main inputs

Input Cost/tariffs Availability

Labour (agriculture, forestry and fishing)

Monthly average wage: 1 277.50 birr (2014) Abundant

Land Low (rental-based)10 Abundant

Electricity Moderate

Road transport

Dry cargo sea (40-foot container)11

North Europe (1 890–3 850), Mediterranean (2 200–3 850), Africa (1 715–3 030), India (1 955–3 710), Dubai (1 650–1 895), China (2 300–4 195)

Moderate

Air (foodstuff 100 kg)

Stockholm (2.05), Paris (1.75), Frankfurt (2.08), Rome (1.65), London (2.35), Washington (2.3)

Moderate

*Source: Ethiopian Investment Commission, 2014

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REGIONAL HUB WITH ACCESS TO A WIDE MARKET

Due to its large population, Ethiopia has the potential to be among Africa’s biggest domestic markets and its proximity to the Middle East presents further prospective market opportunity. Furthermore, Ethiopia is a member of the African Union, the Multilateral Investment Guarantee Agency, the United Nations (UN), and the Common Market for Eastern and Southern Africa (COMESA) – a regional trading block populated by in excess of 420 million people. The country also has a duty-free and quota-free (DFQF) privilege offered by, among others, the EU (Everything But Arms) and the United States of America (Africa Growth and Opportunity Act), as well as other privileged duty treatment from countries like the People’s Republic of China, the Republic of India, the Republic of Austria, the Republic of Finland, Japan, the Kingdom of Norway, the Swiss Confederation and the Kingdom of Sweden. The market access privileges enable investors to benefit from the preferential markets, which gives them a competitive advantage for their goods over those not participating in the scheme.

In 2003, Ethiopia applied for accession to the World Trade Organization and, in 2006, it submitted its memorandum of Foreign Trade Regime. The country also has bilateral protection and investment agreements with 29 countries, one of which is South Africa, and has sanctioned a protection of property acquisition and investment agreement with the Republic of Djibouti. Ethiopia also has double taxation treaties with the People’s Democratic Republic of Algeria, China, the Republic of Turkey, the Islamic Republic of Iran, the State of Israel, South Africa, the Republic of

Tunisia, the Czech Republic, the Russian Federation, the United

Kingdom of Great Britain and Northern Ireland,

the Republic of Yemen,

Romania, the Republic of

Italy, the State of Kuwait and the French Republic.

IMPROVED LOGISTICS AND INFRASTRUCTURE

ELECTRICITY

Ethiopia has huge potential for geothermal energy and hydropower generation. The country’s installed power-generating capacity is around 2000 MW, of which hydropower plants generate 1,980 MW (99%). The balance of 8 MW (0.4%) and 12 MW (0.6%) is generated by geothermal and thermal sources respectively. All the power projects designed to generate the additional capacity of 6,000 MW to 8,000 MW are progressing as per the plan. Under the five-year Growth and Transformation Plan (GTP), Ethiopia’s installed electricity generating capacity is projected to reach 10,000 MW. To upgrade both hard and soft infrastructure, massive investments in infrastructure (projected national investments of US$ 73 billion) are allocated by the government in its Growth and Transformation Plan.

Accordingly, from 2015/16 to 2020, the government has plans to construct power-generating projects in hydropower (11,237 MW to 51,706 GWh), solar energy (300 MW to 525 GWh), geothermal energy (1,200 MW to 9,461 GWh) and gas turbine stations (420 MW to 2,940 GWh).

TELECOMMUNICATION

The state-owned Ethio Telecom is Ethiopia’s only telecom service provider. It offers an international and national telecommunications service by means of satellite, a microwave digital radio multi-access system (DRMAS), long line, HF radio, UHF and VSAT. All regional towns and cities are linked by direct microwave connections, and have automatic cellular phone and telephone services. Ethio Telecom is also involved in the major transformation effort of Next Generation Network (NGN) projects to establish a first-rate telecom service provider.

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WATER SUPPLY

Ethiopia has great groundwater and run-off potential, but it only makes use of a small percentage of these resources. In 2012/13, access to potable water in urban areas was 81.3%. In the same year, access to potable water in rural areas was 66.5%. In 2012/13, the total national average of access to potable water was 68.5%.

Ethiopia’s first five-year development plan launched a massive project deemed to meet the demand for safe water in rural and urban areas. In 2014, pure water supply coverage reached 75.5% in rural areas, 84.1% in urban areas and 76.7% at national level. At national level, for 679,352 hectares of land (in medium and large irrigation), design works have been conducted. Similarly, for 199,304 hectare of land (in medium and large irrigation), construction works have been accomplished.

TRANSPORT INFRASTRUCTURE

� RoadFrom 2010–2015, 12,000 kilometres of paved road and 40,000 kilometres of gravel road have been built by federal and regional states. As result, Ethiopia’s total road length has reached more than 100,000 kilometres that connect 70% of the rural kebeles, which are all-weather roads. This reduced the time taken to reach the main road to 1.8 hours. In its Growth and Transformation Plan (GTP), the Ethiopian Government has planned to build 71,000 km of new roads, comprising an expressway connecting Addis Ababa to Adama (an important route for the facilitation of import and export trade) and all-weather roads to almost all kebele administrations, as well as to build new railways connecting Addis Ababa and Djibouti, connecting certain domestic cities, and in Addis Ababa itself.

� Railway transport The Government of Ethiopia has devised a strategic plan to build a 5,000-kilometre-long railway network. One railway corridor that is a vital trade route is to the neighbouring Port of Djibouti. An electric-fired railway is replacing the old railway that links the capital, Addis Ababa, to such ports – the project is anticipated to increase Ethiopia’s export and import trade. Construction of this vital railway is progressing well.

� SeaportThe Ethiopian Government has created the Ethiopian Shipping and Logistics Enterprise in order to ensure reliable, cost-effective and efficient export and import movements of cargo to and from neighbouring countries’ seaports. The Ethiopian Shipping and Logistics Enterprise operates two dry ports, at Semera and Modjo, 588 km and 73 km from Addis Ababa respectively. Four sub-terminals are also run by the enterprise at Kombolcha, Mekele, Dire-Dawaand and Gelan, 376 km, 783 km, 515 km and 34 km respectively from Addis Ababa. Addis Ababa is linked to the Port of Djibouti by road at the Gulf of Aden, 910 km from Addis Ababa. Other external trade routes offering services for import-export trades between the countries are the port of Barbara in Somaliland, 964 km from Addis Ababa, and the Port of Sudan in the Sudan, 1,881 km from Addis Ababa. Another port potentially accessible to Ethiopia (in the south) is the Port of Mombasa in Kenya, 2,077 km from Addis Ababa (Ethiopian Investment Commission, 2014).

� Air transport Air transport is a key part of the transport network in Ethiopia. Ethiopian Airlines is a world-class airline that has earned an exceptional worldwide reputation in its 68 years of existence, and offers both international and domestic air transport services. The airline has an excellent safety record and is among the few African airlines that are profitable.

Ethiopian Airlines is a member of Star Alliance. Ethiopian services include cargo and passenger transport in its domestic and international flights. It also offers overhaul, maintenance and repair, and training services to more than twelve Middle Eastern and African airlines, and domestic flights are offered to 17 destinations countrywide.

Ethiopian Airlines connects the country to more than 63 destinations across the world, including London, Washington DC, Paris, Brussels, Rome, Frankfurt, Bangkok, Stockholm, Bahrain, Beirut, Beijing, Hong Kong, Dubai, Guazhou, Mumbai, Jeddah, Tel Aviv, Kuwait, Nairobi, Delhi, Sana’a, Riyadh, Johannesburg, Logos, Accra, Dakar and Lusaka. The airline is still expanding its international services. Ethiopian Airlines operates more than 40 cargo destinations throughout Africa, Asia, the Middle East and Europe through its Addis Ababa hub and other cargo hubs.

Other airlines, including Lufthansa, Emirates, Turkish Airlines, KLM Royal Dutch Airlines and Kenya Airways, have flights to and from Addis Ababa.

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Ethiopian Pulses Sectoral Overview

With its diverse natural resources and many agroecological zones, Ethiopia is the homeland and domestication of a number of crop plants. Among those, large amounts of pulses have been farmed and consumed for many years.

OVERVIEW OF ETHIOPIA’S PULSES PRODUCTION SYSTEM

Twelve species of pulses are farmed in Ethiopia. Of the different varieties, faba beans (commonly known as horse beans) account for the largest share of production, at 36%, followed by haricot beans (17% of production) and chickpeas (15.3 % of production). Other pulses, such as mung beans, lupines, lentils, dry peas and vetches, make up the remaining 31.7% (Shahidur Rashid et al., 2010).

Lentils and chickpea are predominantly cultivated on dark soils on residual moisture – a prevalent type of soil in Oromiya’s North and West Shewa zones, South Wollo, South and North Gonder, the East Tigray zone, Amhara’s West and East Gojam zones and the Goro zones of the Southern Nations Nationalities and People’s Region (SNNPR). Field peas and faba beans are cultivated throughout the main season on black and red soils, predominantly in Oromiya, Tigray, Amhara and SNNP regional states. Haricot beans are grown in the warmer and fairly dry parts of Ethiopia, mostly along the Rift Valley, and production is increasing in the SNNP region, and Benshangul-Gumuz and Gambella regional states.

Table 4: Ethiopia’s total area and production of grain crops for private holdings in 2014/201515

Crop categoryTotal area in: Total production in:

Hectares % Quintals %

Cereals 10 144 252.30 80.78 236 076 624.39 87.31

Pulses 1 558 442.04 12.41 26 718 430.40 9.88

Oil seeds 855 750.22 6.81 7 600 993.24 2.81

Grain crops 12 558 444.56 100 270 396 048.03 100

*Source:Central Statistical Agency, 2015

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Smallholders cultivate 95% of the harvested area and yield 90% to 95% of pulses, oilseeds and cereals (CSA, NBE, MoFED). Cultivation of pulses like chickpeas, red kidney beans and white pea beans is common in Ethiopia and is carried out in both the highland and lowland areas of the country, mainly by peasant farmers. The country also has a number of pulse-processing factories. Pulses, especially red kidney beans, are produced through major cooperatives that exist along the major regions of Ethiopia, such as Tsehay Union in Oromiya and Mercha Union in Oromiya. Chickpeas are exported with a contract-based linkage between large-sized business and small farmers’ organizations (unions) such as ACOS Ethiopia.

While pulses are grown throughout Ethiopia, production is mostly in the Oromia and Amhara regions – combined, these regions account for 79% of field pea production, 79% of haricot bean (including white pea bean) production, 85% of faba bean production and 92% of chickpea production (Netherlands – African Business Council and FME-CWM, 2015).

Ethiopia is among the world’s top 10 total pulses producers, the second-biggest faba beans producer after China and the sixth biggest chickpea producer.

Significant potential is evident for productivity gains in the pulses sector. As table 5 indicates, national pulses productivity on average was 15.52% in 2014/15. Comparisons between existing yields with worldwide and on-farm trial benchmarks reveal that Ethiopia has significantly lower yields of faba beans and chickpeas than international yields and on-farm trial suggest is possible.

For instance, while the typical Ethiopian chickpea yield is 1.2 tons per hectare (which is considerably higher than the Sub-Saharan African average of 0.8 tons/ha and the international average), farm trials in Ethiopia on experimental plots have reached yields of between 2.9 and 3.5 tons per hectare. This suggests a minimum production gap of at least 150% (Netherlands – African Business Council and FME-CWM, 2015). Assessments suggest that production gains from advances in planting techniques may well increase total pulse production. This productivity gain would raise smallholder income by between 40% and 70% per hectare, along with ensuring better food security by meeting domestic demand for pulses if accompanied by the appropriate inputs (Shahidur Rashid et al., 2010). To ensure this, FDI involvement is highly encouraged by the government.

Table 5: Ethiopia’s estimate of area, production and yield of pulses by type (for private peasant holdings) (2010–2014) (Area in “000” hectare and production “000” kunital)18

Crop category

2011/12 2012/13 2013/14Yield (quintals/

hectares)

Cultivated area

Total production

Cultivated area

Total production

Cultivated area

Total production

2013/14 2014/15

Pulses 1 616.8 23 162 1 863.4 27 510.3 1 742.6 28 588.815.16 (average)

15.52 (average)

Horse beans 457.5 7 148 574.1 9 439.6 538.5 9 917 18.42 18.93

Chickpeas 231.3 4 002 239.5 4 097.3 229.7 4 238 13.79 14.85

Haricot beans 331.7 3 878 366.9 4 630.1 326.5 4 574.1 14.9 16.02

Field peas 212.8 2 632 256 3 273.8 275.4 3 798.1 13.39 15.81

Lentils 109.9 1 280 123.7 1 515 125.8 1 591.2 18.45 19.13

Soya beans 19.4 358 8 31.9 636.5 30.5 610.2 12.65 13.89

Grass peas 179.8 3 055.8 205.4 3 255.8 169.4 3 173.2 18.73 18.37

Gibto 34.2 443.7 33.2 368.8 22.4 230.4 20 20.47

*Source: Central Statistical Agency, 2015

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PULSES TRADE PERFORMANCE

Pulses form a substantial portion of Ethiopia’s diet, especially for peri-urban and rural consumers, and its domestic demand rises from time to time, along with its domestic price.

White pea beans and chickpeas are important crops within the Ethiopian pulses export sector. Ethiopia exports a sizeable amount of pulses to the global market. As depicted in table 7, the total export volume and value of pulses has increased from 224,875 tons in 2010/11 to 353,646 tons in 2013/14, and US$ 137.9 million in 2010/11 to US$ 251.02 million in 2013/14 respectively. Based on export earnings in 2013/14, pulses are Ethiopia’s fifth most important export crop. Some chief export pulses are chickpeas, faba beans, field peas, haricot beans, and lentils.

As shown in table 6, pulses are the fifth largest export crop, after coffee (21.9%), oilseeds (20%), gold (14%) and chat (9.1%), with a share of 7.7% contributing US$ 250.7 million to export earnings in 2013/14.

Ethiopia exports pulses to numerous African countries, as well as in Asia, Europe, the Middle East and the United States of America. Some chief haricot bean destinations are Yemen, the Republic of the Sudan, the United Arab Emirates and South Africa. These countries’ importance as a destination for Ethiopia’s pulses fluctuates from year to year.

Whereas demand for Ethiopian pulses rose steadily in Italy, India and Yemen, Romania, the Kingdom of the Netherlands and the Kingdom of Belgium, demand was inconsistent for the United Arab Emirates, the Sudan, the Islamic Republic of Pakistan, the Kingdom of Morocco and the Kingdom of Saudi Arabia. Therefore, Ethiopia must work on ensuring constant demand for its pulse exports, but it will be challenging to sustain continual demand by country. The export coverage of import has been 33.3%, 28.9% and 26.8% for the years 2010/11, 2011/12, 2012/13 respectively (Seid, 2015).

Table 6: Ethiopia’s export value and share trends by commodity (in US$ million) (2011–2014)

Particulars 2011/12 2012/13 2013/14 Percentage change

A % share B % share C % share C/A C/B

Coffee 833.1 26.4 746.6 24.2 714.4 21.95 -14.25 -4.31

Oilseeds 472.3 15 443.5 14.4 651.9 20.03 38.03 46.99

Leather and leather products

109.9 3.5 121.1 3.9 129.8 3.99 18.11 7.18

Pulses 159.7 5.1 233.3 7.6 250.7 7.7 56.98 7.46

Meat and meat products

78.8 2.5 74.3 2.4 74.6 2.29 -5.33 0.4

Fruits and vegetables

44.9 1.4 43.9 1.4 45.9 1.41 2.23 4.56

Live animal 207.1 6.6 166.4 5.4 186.7 5.74 -9.85 12.2

Chat 240.3 7.6 271.3 8.8 297.3 9.13 23.72 9.58

Gold 602.4 19.1 578.8 18.8 456.2 14.02 -24.27 -21.18

Flowers 197 6.2 186.7 6.1 199.7 6.14 1.37 6.96

Others 207.1 6.6 215.4 7 247.4 7.6 19.46 14.86

Total 3152.6 100 3081.3 100 3254.6 100 106.2 84.7

*Source: Ethiopian Revenues and Customs Authority, 2014

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Table 7: Ethiopia’s pulses export performance by type (2010–2015) (Volume in tons, value in “000” US$)

Type of pulse

2010/11 2011/12 2012/13 2013/14 2014/15

VolumeFOB value

VolumeFOB value

VolumeFOB value

VolumeFOB value

VolumeFOB value

Haricot bean 102 026 57 932 63 699 39 469 183 458 122 626 102 394 70 187 151 639 98 793

Horse bean 41 027 24 166 35 302 25 525 35 981 21 746 38 985 20 629 38 552 18 945

Chickpeas 61 536 39 639 60 346 45 354 73 953 48 193 46 338 25 681 47 461 23 812

Soya beans 1 380 656 40 34 34 411 19 183 35 606 19 988 27 475 13 296

White pea beans

–– – 50 834 35 346 – – 59 628 61 574 41 631 33 181

Others 19 906 16 577 16 053 13 999 29 715 21 599 70 694 52 962 34 725 32 166

Total 225 875 138 970 226 274 159 727 357 518 233 347 353 645 251 021 341 483 220 193

*Source: Ethiopian Pulses, Oilseeds and Spices Processors – Exporters Association (EPOSPEA), 2015

Table 8: Ethiopia’s pulses export performance by country destination (July 2014–June 2015)21

Sr. No.

Country Total volume in tonsTotal value in US$/000/total

Volume share

1 India 58 338.30 39 557.93 17.08

2 Pakistan 59 284.40 34 074.89 17.36

3 Sudan 40 232.45 19 169.75 11.78

4 Kenya 33 617.93 13 771.90 9.84

5 Nicaragua 19 487.84 15 875.17 5.71

6 Others22 130 520.36 97 744.44 38.23

Total 341 481.28 220 194.08 100

*Source: EPOSPEA, 2015

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Ethiopia’s Trade And Investment

Ethiopia’s export has grown by 37%, 14% and 3% in 2011, 2012 and 2013 respectively. In 2014, the country received US$ 3.2 billion from exports, which is by far below the expected in GTP I (US$ 5 billion to US$ 6 billion). This enabled the country to cover less than 20% of its import bill in same year. The export coverage of import has been 33.3%, 28.9% and 26.8% for the years 2010/11, 2011/12, 2012/13 respectively (Seid, 2015). Ethiopia faces a growing trade deficit.

As shown in figure 4, imports outweighed exports from 2007 to 2014, which resulted in a negative resource balance and export-import balance.

The overall balance of payments deficit in FY 2013/14 was US$ 91.4 million, higher than the US$ 6.5 million deficit registered in the preceding year. The trade deficit also widened by 24.8% during the review period owing to a 19.7% growth in merchandise imports compared to a moderate increase (5.6%) in merchandise exports (National Bank of Ethiopia, 2014).

Coffee is a vital product to Ethiopia’s economy. Its earning represents 21.1%, followed by oilseeds, gold, chats and pulses (Ethiopian Investment Commission, 2014).

Figure 4: Ethiopia’s export and import volume trends in million tons (2007–2014)

2007 / 08 2008 / 09 2009 / 10 2010 / 11 2011 / 12 2012 / 13 2013 / 14

-100000

-200000

0

100000

200000

300000

400000

Exports Export - import balanceImports Overall balance of payments

*Source: Ethiopian Revenues and Customs Authority, 2014

Figure 5: Ethiopia’s export share of selected major commodities in 2013/2014

Asia22%

Coffee

Others

Flow

er

Gold

Oils

eed

s

Leather

and leather

products

Chat

21.9%

20.0%

4%7.7%9.1%

14%

6.1%

17%

Pulses

*Source: National Bank of Ethiopia, 2014

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In FY 2012/13, Ethiopia’s five main export destinations were Switzerland (19%), the Federal Republic of Somalia (11.7%), China (8.1%), the Federal Republic of Germany (7.5%) and the Netherlands (5.4%). The US was Ethiopia’s eighth biggest export destination (3.6%), primarily due to buying of oil seeds, coffee, and garments and textiles.

As a result of Ethiopia’s investment-friendly environment, FDI inflow has grown during the last 21 years. Consequently, of the total investment endeavours licensed between 1992 and 2012, FDI comprises roughly 15.5%. Nevertheless, the general trend of investment in 2012, both total capital investment and total number of projects, has risen somewhat. Ethiopia is an unexploited and unexplored market for investors.

China, India, the Sudan, Germany, Italy, Turkey, The United Kingdom of Great Britain and Northern Ireland, the United States, China, Italy, the Sudan, India, Saudi Arabia, Turkey, Germany, Yemen, Israel and Canada are among the major sources of FDI. According to the World Bank Doing Business report (2014), Ethiopia’s overall ease of business rank was 125 out of 189.

Figure 6: Ethiopia’s export by destination

Asia22%

0.6%Oceania

Europe

Am

erica

Africa

Asia 22.6%

37.7%4.6%

34.5%

Source: National Bank of Ethiopia, 2014

*Source: National Bank of Ethiopia, 2014

Figure 7: Ethiopia’s capital of operational investment projects by sources (2011–2014)

3,000

In m

illio

ns o

f Birr 2,500

2,0001,5001,000

5000 2011/12 2012/13 2013/14

Domestic Foreign Public

Figure 8: Ethiopia’s source of investment

Africa

Asia

Other

North America

Mid

dle

Eas

t

Europe

3%

11%

22%

24%

21%

19%

Source: National Bank of Ethiopia, 2014

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DEBT POLICY

Ethiopia’s external debt stock at the end of 2013/14 amounted to US$ 13.9 billion, depicting a 36.7% increase during the preceding year. Of the total debt stock, US$ 5.85 billion (42.1%) was owed to multilateral, US$ 2.5 billion (18.2%) was owed to bilateral and US$ 5.5 billion (39.7%) was owed to commercial creditors. Hence, the country’s external debt stock to GDP ratio rose to 27.9% from 23.7% in 2012/13. Debt stock to total receipts from export of commodities and non-factor services ratio also went up to 2.2 from 1.7 a year ago (NBE, 2014). Similarly, the country’s external debt burden as measured by debt services to export of goods and services ratio increased from 8.2% in the past year to 10.2% in the review year.

ECONOMIC COOPERATION, REGIONAL INTEGRATION AND TRADE

Ethiopia is a founding member country of Africa’s largest regional trade union, the Common Market for Eastern and Southern Africa (COMESA). Moreover, it has market access from the United States’ African Growth and Opportunity Act (AGOA) and the EU’s Everything But Arms (EBA) unilateral grant, in which Ethiopian products that conform to the origin criterion exemption from customs duty and quota restriction can access the US and EU markets. Ethiopia is also a strategic location by connecting Africa and Europe, as well as Middle East and Asia.

INCENTIVES ON CUSTOMS DUTY

CUSTOMS DUTY EXEMPTION

� Investment capital goods and building supplies needed for setting up a new enterprise are granted a 100% exemption from import customs duty and other taxes imposed on imports. This is also applicable to the upgrading or expansion of an existing business, and spare parts valued at up to 15% of the imported capital goods’ value;

� Investment capital goods that are imported with no import customs duties or other taxes imposed on imports can be transferred to investors who have similar privileges;

� An investor given a customs duty exemption is permitted to indefinitely import capital goods duty-free if the investment is in agriculture and manufacturing, and for a five-year period if the investment is in other authorized areas;

� An investor eligible for a duty-free privilege who purchases construction materials or capital goods from local manufacturers will receive a refund of the customs duty paid for raw materials or items utilized as inputs for the manufacture of such goods;

� Packing materials and raw materials required for the manufacture of export goods are granted exemption from customs duties and other taxes imposed on imports. Duties and taxes paid on packaging materials and raw materials are drawn back when the finished products are exported. The bonded manufacturing warehouse facilities and voucher system are also set up;

� All goods and services destined for export are exempted from any export and other taxes levied on exports.

INCOME TAX EXEMPTION AND LOSS CARRIED FORWARD

� All income resulting from an approved new agricultural, agribusiness or manufacturing investment is exempt from income tax payment for between two and eight years, depending on the export volume, the investment area and the investment’s location;

� Income resulting from the upgrading or expansion of an existing agricultural, agribusiness or manufacturing company is exempt from income tax for a two-year period if it exports a minimum of 50% of its goods and increases its production value by 25%.

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Export Encouraging Measures

EXPORT INCENTIVES

Export incentives apply to both foreign and domestic investors participating in eligible new initiatives or expansion projects.

EXPORT CREDIT GUARANTEE SCHEME

This is to sustain the export sector by making use of the required financial resources from banks for financing of exports, both pre-shipment and post-shipment. The credit is equal to the overall value of the preceding year’s export earnings without any collateral obligation for existing exporters, and with 30% and 20% collateral obligation for new exporters and new producer exporters respectively. The pre-shipment and post-shipment guarantees are offered for a limit of 180 days.

EXPORT TRADE DUTY INCENTIVE SCHEME

The scheme is intended to give access to inputs at world market prices to exporters, to enable them to compete on the same level as their competitors. The system involves five incentives schemes. These are:

� Duty drawback scheme: Of the duty paid on raw materials utilized in the production of goods, 100% is refunded to exporters when the commodity is exported;

� Voucher scheme: A voucher is a document with monetary value that is organized by the Ministry of Finance and Economic Development to be utilized as a deposit for taxes and duties due on imported raw materials;

� Bonded manufacturing warehouse scheme: This scheme’s beneficiaries are producers exclusively involved in exporting their goods and who are not entitled to make use of the voucher scheme;

� Foreign exchange retention scheme: This scheme’s purpose is to allow exporters to use foreign currency derived from their export trade. This foreign currency should be deposited into two designated accounts to be used for export-related expenses. The two foreign exchange retention accounts are:

� Foreign exchange retention account A: This bank account allows exporters to keep as much as 20% of their foreign exchange incomes for future use in their business undertakings and the National Bank of Ethiopia (NBE) does not levy export price control;

� Foreign exchange retention account B: This bank account allows exporters to retain the remaining 80% to 90% of the foreign currency derived from export sale for only 28 days.

� Foreign credit scheme: Foreign partners or suppliers’ credit is interim financing offered by a foreign partner or supplier. This financing is normally short-term, but can also be long-term or medium-term. The National Bank of Ethiopia should register and authorize foreign credit.

� Franco valuta import facility � Import of raw materials and other inputs that are essential for the production of export commodities;

� To benefit from this facility, exporters should To take advantage of this facility, exporters need to obtain an import permit from the National Bank of Ethiopia (NBE).

� Full repatriation: Full repatriation (in convertible currency) of payments of dividends, profits, principal and interest on external loans, etc. out of Ethiopia.

� The right to hire expatriate management staff and experts Here, foreign investors are allowed to employ expatriates.

� Investment loans Investors involved in the agro-processing and agriculture sector and who export 75% of their goods are eligible for loans. If investors are able to provide 30% of their initial cost, the Development Bank of Ethiopia can offer loans for the other 70% of the investment cost. ©

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REMITTANCE OF FUNDS AND INVESTMENT GUARANTEE AND PROTECTION

Any remittance earned by a foreign investor from the profits of the transfer or sale of assets or shares upon the closure or liquidation of a company is exempt from tax. Foreign investors are permitted to make remittances out of Ethiopia (from interests, profits and earnings from the sale of a company, for example) in convertible foreign currency at the current exchange rate on the date of remittance. Both the investment code and the constitution safeguard private property in Ethiopia. The country is also a member of the Multilateral Investment Guarantee Agency (MIGA), which offers guarantees against non-commercial risks to businesses investing in signatory countries. Ethiopia is also a signatory of bilateral investment protection and promotion treaties (BITs) with several countries.

ETHIOPIA’S DEVELOPMENT PLAN PRIORITY

The ongoing second Growth and Transformation Plan (GTP II) of Ethiopia, and its industrial development strategy, are centred on agricultural-based, manufacturing sector-driven and export-led development. The GTP pursued the growth through the export-driven industrialization strategy focussing on labour and capital-intensive manufacturing industries, export-oriented and import-substituting industries, rapid technology and skills transfer, broad linkages with the rest of the economy, and use of agricultural products as inputs (agro-processing). Some of the manufacturing industries that have given due attention are agro-processing, textile and clothing, leather and tannery goods, beverage and food, pharmaceutical, chemicals and chemical products, paper and paper products, plastic industries, building materials, glass and glass products, and metal and metal engineering.

The Government of Ethiopia is trying innovative ideas to attract more FDI, such as the construction of special economic zones and clustering of industries through the construction of industrial parks. The government is also building various centres to act as incubators of technological and skills transfer and support to industries. The government is committed to reducing poverty and pursuing growth led by the agricultural sector.

The Government of Ethiopia recognizes the private sector’s role in improving agricultural

productivity and is taking the necessary measures, some of which include

increased export promotion and improved financial access.

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Investment Opportunities

The investment potential in the Ethiopian pulses sector is clear, as its population of 96.96 million constitutes one of Africa’s biggest markets for pulses, apart from the international market requirements. Pulses make up a substantial share of Ethiopians’ diet, especially for peri-urban and rural consumers; hence, its domestic demand is growing in tandem with population and income growth. The fact that 40% of the population is under age 15 and 70% is under age 30 suggests great scope for sustained growth of domestic demand for pulses.

PRIMARY PRODUCTION

In terms of competitive advantage, it is evident that there is substantial potential for production gains in the pulses sector in Ethiopia. National pulses productivity on average was 15.6 quintals per hectare in 2014/15, which is above Sub-Saharan average (Netherlands – African Business Council and FME-CWM, 2015). Moreover, there is ample irrigable land with abundant labour force for pulses farming for both domestic and foreign investors. The good climate in Ethiopia, along with the country’s diverse agroecology, and varied and plentiful natural resources, is suitable for pulses production. The Ethiopian Government is proactively promoting FDI-initiated commercial farming. This is shown in its Growth and Transformation Plan to enable irrigation scheme rehabilitation in order to rehabilitate irrigated crop production, including pulses.

INDIRECT PRODUCTION THROUGH CONTRACT FARMING

The Government of Ethiopia is keen to expand contract farming between companies and producers as an important commercialization instrument to enhance export earnings, knowledge transfer and food security.

VALUE-ADDED PRODUCTION AND PROCESSING

As the government recognizes that FDI will play an active role in industrial development through value addition, there is also strong government commitment to value-added investments, as reflected in export incentives for agro-processed items, such as free from sales and value-added taxes, and efforts for the establishment of food-related agribusinesses like pulses processing and packing for further development. Value-added processing thus provides an investment destination with potential.

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Useful Contacts

Ethiopian Investment Commission

Telephone: +251 115 510 033E-Mail: ethioinvest@investethiopia.gov.etWebsite: www.investethiopia.gov.et

Ethiopian Revenues and Customs Authority

Telephone: +251 11 662 98 87E-Mail: erca@ethionet.etWebsite: www.erca.gov.et

Ministry of Agriculture

Telephone: +251 115 518 040E-Mail: vmoasc@ethionet.etWebsite: www.moa.gov.et

Ethiopian Pulses , Oilseeds and Spices Processors - Exporters Association

Telephone: +251 116 623 545/46E-Mail: epospea@yahoo.com epospea@gmail.comWebsite: www.epospeaeth.org

Ethiopian Chamber of Commerce and Sectoral Association

Telephone: +251 115 518 240E-Mail: etchamb@ethionet.etWebsite: www.ethiopianchamber.com

Addis Ababa Chamber of Commerce and Sectoral Associations

Telephone: +251 115 528 120E-Mail: aachamber1@ethionet.etWebsite: www.addischamber.com

Ministry of Foreign Affairs

Telephone: +251 115 517 345E-Mail: mfa.addisababa@telecom.net,et

Ministry of Trade

Telephone: +251 115 518 025Website: www.mot.gov.et

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Bibliography

� AfDB, OECD and UNDP (2015). Ethiopia 2015. African Economic Outlook.

� CIA, World Factbook, 2015

� Ethiopia Trade and Investment. Investing in Ethiopia: A guide for new investors. www.ethioembassy.org.uk/trade_and_investment/General%20report-final.pdf.

� Ethiopian Investment Commission (2014). Invest in Ethiopia: An Investment Guide to Ethiopia 2014. www.investethiopia.gov.et/images/pdf/Investment_Guide_2014.pdf.

� Shahidur Rashid, Chilot Yirga, Befekadu Behute and Solomon Lemma (2010). Pulses Value Chain in Ethiopia Constraints and Opportunities for Enhancing Exports, IFPRI Paper.

� National Planning Commission (2015). The Second Growth and Transformation Plan (GTP II) (2015/16–2019/20). www.africaintelligence.com/c/dc/LOI/1415/GTP-II.pdf.

� National Bank of Ethiopia (2014). Annual Report 2013/14. www.nbe.gov.et/publications/annualreport.html.

� Netherlands – African Business Council (NABC) and FME-CWM (2015). The Oilseeds and Pulses Business Opportunity Report.

� Seid (2015). Prospects and challenges of structural transformation in Ethiopia: assessing the performance of GTP I and reflecting on GTP II, EEA

� Seid, Nuru Ali (2015). Prospects and Challenges of Structural Transformation in Ethiopia: Assessing the Performance of GTP I and Reflecting on GTP II. Ethiopian Economics Association. Ethiopian Economic Policy Research Institute.

� Schwab, Klaus (2013). Global Competitiveness Report 2013–2014. World Economic Forum. SRO-Kund. www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf.

� Trading Economics. Ethiopia Unemployment Rate: 1999–2016. www.tradingeconomics.com/ethiopia/unemployment-rate.

� World Bank (2013). Ethiopia Economic Update – Laying the Foundation for Achieving Middle Income Status. Press release. Addis Ababa

� World Bank (2014). Doing Business Report (2014). www.doingbusiness.org/reports/global-reports/doing-business-2014.

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Annexes

ANNEX I: INSTITUTIONAL SUPPORT FOR INVESTORS

ETHIOPIAN INDUSTRIAL ZONES DEVELOPMENT CORPORATION (IZCD)

The strategic plan makes available the complete framework with regards to the industrialization vision, strategies, goals and programmes that must be put into action in the next few years to support Ethiopia’s progress towards developing into a middle-income country by 2025. In order to support, trigger and complement relative advantage, as validated via strategic planning, Industrial Parks Development Corporation of Ethiopia (IPDC) is authorized to develop and run a number of industrial parks in Ethiopia. From 2016 to 2025, IPDC will develop 100,000 hectares of land (10,000 hectares per year) for an overall factory floor space of 20 million m2 (two million m2 delivered per year).

ETHIOPIAN PULSES, OILSEEDS AND SPICES PROCESSORS – EXPORTERS ASSOCIATION (EPOSPEA)

Most big Ethiopian pulse and oilseed exporters have membership with the Ethiopian Pulses, Oilseeds and Spices Processors – Exporters Association (EPOSPEA). This association is working hard to improve its market information system. EPOSPEA, together with various organizations and private-public partnership (PPP), also arranges workshops to share information within the supply chain so as to better anticipate vital market issues.

ETHIOPIA COMMODITY EXCHANGE (ECX)

In 2008/09, Ethiopia Commodity Exchange was founded with the objective of institutionalizing commodity trade like coffee, sesame and other products. ECX has established a directive that dictates how and on what basis sesame transactions are undertaken. The directive includes specifications and criteria that cover various aspects of sesame transactions. ECX has established its outlets at major sesame production areas to which farmers and cooperatives directly provide their products and first stage transaction takes place at these outlets. This has also come into effect for pulses product trading.

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ANNEX II: INVESTMENT START-UP PROCEDURES

The Ethiopian Investment Commission (EIC) is in the process of setting up a “one-stop shop” service with the aim of significantly cutting the cost and time of obtaining business and investment licenses. EIC is working to provide business licenses in one day provided all conditions are met. However, before beginning the investment process, it is prudent to take into account the following:

Additionally, the EIC offers technical support to private investors who invest in agriculture. This technical support varies from making available information and technical support, and enabling of other public services. Rural land rental prices are usually low, and almost 11.55 million hectares of land is easily available for farming. Moreover, there is solid government commitment to make the country’s fertile land available for investment.

Investment license

Familiarize yourself with the most recent investment guide (which can be downloaded from the Ethiopian Investment Commission’s website) and the investment code. Investors are also obligated to obtain a business license prior to starting production. It is compulsory to get an investment license and register the minimum capital needed to commence investment.

Residence permit

When the investment permit is submitted, the Main Department for Immigration and Nationality Affairs supplies a foreign investor with a residence permit. An expatriate staff member in possession of a work permit, and a foreign investor who is a shareholder of a business or a branch business, are also permitted to have a residence permit.

Health requirements

Before entering the country, foreign visitors must have a valid health certificate for yellow fever. Cholera vaccination is also compulsory for anyone who has been to a cholera-infected region within six days of arrival in Ethiopia.

Visa and immigration requirements

All foreign visitors to Ethiopia need visas, except for nationals of the Sudan and Kenya. Visas can be acquired from Ethiopia’s foreign diplomatic missions. However, 33 countries’ nationals are can now get their tourist visas upon arrival in Ethiopia.

Land acquisition procedures and process

Land in Ethiopia is public property owned by the state. Individuals, companies and other organizations cannot buy land, but can lease it for a specified number of years. There are two general classifications of land for lease or rent purposes: urban land and rural land. The lease time differs among the different regional states. The rental and lease prices of rural and urban land also differ dependent on investment type, land class and location. Investors can apply for land acquisition during a field visit and upon obtaining an investment license. The Ethiopian Investment Agency (EIA), regional state governments, regional investment offices and regional agricultural offices have the mandate to enable land allocation for FDI projects countrywide. Rural land is mostly rented for agriculture. Farm land is given to foreign investors by the Ministry of Agriculture.

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SITA project implemented by: SITA project funded by:

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