Online Legal Resources

A to Z is a collection of resources for Ethiopian's legal profession, students, academics and the public. These links have been collected so that users with an interest in the law and Ethiopia may be able to access the Ethiopian legal information they require more quickly. The site is organized simply into an alphabetical list of law subjects. This link is a very helpful source for students who want to study online as teaching materials written by different university teachers under the sponsorship of Justice and Legal System Research Institute are included in the list. Moreover, Training materials prepared by different Proffessionals under the sponsorship of Federal Justice Organs Professionals Training Centerare also in our list. 

DEFINITION OF LAW

Jurists have defined law differently from different point of views. It has been called Dhama in Hindu jurisprudence and “Hukum” in Islamic system. Romans called it jus and in Germany and France, it is called as Recht and Droit respectively [N.V. PARANJAPE; 2001: 133].

Defining the term ‘law’ is not an easy task because the term changes from time to time and different scholars define the term variously. Definition of the term may vary due to the different types of purposes sought to be achieved. Definitions given to the term law are as many as legal theories.

According to Black’s Law Dictionary [Garner; 2004: 900] law consists of rules of action or conduct. These rules are issued by an authority. In addition, these rules have binding force and are obeyed and followed by citizens. Sanction or other legal consequence may help the law to be abided by citizens.

From the pragmatic point of view, American jurist, Benjanin Nation Cordazo defines law as “a principle or rule of conduct so established as to justify a production with reasonable certainty that it will be enforced by the courts if its authority is challenged.” [Steven; 2003: 8].  According to Holmes “the prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law”. It is observable from these definitions that courts play great role in applying as well as creating the law.

From the sociological perspective, Max Weber suggests that an order will be called law if it is externally guaranteed by the probability that coercion (physical or psychological), to bring about conformity or avenge violation will be applied by a staff of people holding themselves especially ready for that purpose [Steven; 2003: 8].

He argues that law has three features that distinguish it from other normative orders such as custom or convention [[Steven; 2003: 9]:

a) There must be a pressure that comes from external in the form of actions or threats of action by others regardless of the person wants to obey the law or not;

b) These external actions or threats of action always involve coercion or force;

c) Individuals whose official role is to enforce the law must enforce the coercive action.

He refers to state particularly when he talks about officials who enforce the law because they are state officials who are empowered to do that.

In general, law may be described in terms of legal order tacitly or formally accepted by the society and enforced. A body of binding rules sufficient compliance of them is ensured by some mechanism accepted by community is called law [Paton; 1967].

BASIC FEATURES OF LAW

[Biset Beyene, Introductory Note on Law in general, 2006, Unpublished, Alpha University College, Pp. 1ff]

Analysing the features and nature common to all laws would help us to understand the concept of law. Among these features and natures, the ones considered as essential include generality, normativity and sanction.

I) GENERALITY

Law is a general rule of human conduct. It does not specify the names of specific persons or behaviours. Hence, its generality is both in terms of the individuals governed and in terms of the social behaviour controlled.

The extent of its generality depends on-on whom the law is made to be applicable. Consider the following illustrations.

“Everyone has the right to life, liberty and the security of a person.” [Art 3, UNDHR; 1948].

- This law is made to be applicable to every person on this world. Therefore, it is universal.

“Every person has the inviolable and inalienable right to life, the security of person and liberty.” [Article 14 of the 1995 Constitution of the Federal Democratic Republic of Ethiopia].

- This constitutional provision is made to be applicable to every person in Ethiopia. so, the extent of its generality is national. This is less general than the first illustration.

“Every Ethiopian national, without any discrimination based on colour, race, nation, nationality, sex, status, has the following rights…

(b) On attainment of 18 years of age, to vote in accordance with the law.” [Article    38(1)(b) of the 1995 Constitution of the Federal Democratic Republic of Ethiopia.].
- This law is made to be applicable only to Ethiopian nationals who attain 18 years of age. Therefore, it is even less general than the second illustration.

“Whoever intentionally spreads or transmits a communicable human disease is punishable with rigorous imprisonment not exceeding ten years.” [Article 514 (1) of the 2004 Criminal Code of the Federal Democratic Republic of Ethiopia].

- This law is made to be applicable only on a person who commits the crime.
Therefore, it is even less general than the third illustration.

“The term of office of the presidents shall be six years. No person shall be selected president for more than two terms” [Article 70(4) of the 1995 Constitution of the Federal Democratic Republic of Ethiopia].

- This law is made to be applicable only to a person who becomes a president in Ethiopia. Therefore, it is even less general than the fourth illustration.

Under all these illustrations, the subjects of laws are given in general terms. However, the extents of the generalities decrease from universality to an individual person. Generality of the subject of the law may serve two purposes. Firstly, it promotes uniformity and equality before the law because any person falling under the group governed by the law will be equally treated under the same law. Secondly, it gives relative permanence to the law. Since it does not specify the names of the persons governed, the same law governs any person that falls in the subject on whom the law is made to be applicable. There is no need to change the law when individuals leave the group. This is what can clearly be seen from the fifth illustration. Even if the former president’s term of office has lapsed, the same law governs the present and future presidents without any need to change the law. The permanence of law is indicated as relative for there is no law made by person, which can be expected to be applicable eternally.

Generality of law, as indicated above, does not only refer to the subjects governed but also the human conduct, which is controlled. The human conduct in any law is given as a general statement on possible social behaviour. It does not refer to any named specific act like stealing, killing by shooting and killing by spearing. Just a law can govern millions of similar acts and that saves the legislator from making millions of laws for similar acts, which may make the law unnecessarily bulky.

II) NORMATIVITY

Law does not simply describe or explain the human conduct it is made to control. It is created with the intention to create some norms in the society. Law creates norms by allowing, ordering or prohibiting the social behaviour. This shows the normative feature of the law. Based on this feature, law can be classified as permissive, directive or prohibitive.

A) Permissive Law

Permissive laws allow or permit their subjects to do the act they provide. They give right or option to their subjects whether to act or not to act. Most of the time such laws use phrases like:

-          has/ have the right to

-          is/are permitted/allowed to

-          shall have the right

-          shall be entitled to

-          may

-          is/are free to


Illustrations:

“Every person is free to think and to express his idea.” [Article 14 of The 1960 Civil Code of Ethiopia].

- The human conduct to think and to express ideas is permitted by this law. Therefore, it is a permissive law.

“Accused persons have the right to be informed with sufficient particulars of charge brought against them and to be given the charge in writing.” [Article 20(2) of the 1995 Constitution of the Federal Democratic Republic of Ethiopia].

- “have the right to” in this law shows that the subject is given the right or permitted to get the charge in writing and to be informed its particulars. Therefore, it is permissive law.


B) Directive law

Directive law orders, directs or commands the subject to do the act provided in the law. It is not optional. Therefore, the subject has legal duty to do it whether s/he likes it or not, otherwise, there is an evil consequence that s/he incurs unless s/he does it as directed by the law. Directive law usually uses phrases like:

-          must

-          shall

-          has/have the obligation

-          is/are obliged to

-          is/are ordered to

-          shall have the obligation/duty


Illustrations:

“The debtor shall personally carry out his obligations under the contract where this is essential to the creditor or has been expressly agreed.” [Civ. C. Art. 1740(1)]. “Shall…. carryout” in this law shows that the contracting party, the debtor, is directed, ordered or commanded by the law as it is provided. Therefore, this law is directive law.

“Every worker shall have the following obligations to perform in person the work specified in the contract of employment.” ( emphasis added) [Article 13(1) of the 2003 Labour Code Proclamation No. 377/2003].

”Shall have the … obligations to” in this law shows that the worker is directed by the law as it is provided in the law. Therefore, it is directive law.

In general, directive laws are mandatory provisions of laws. They oblige the subject to act, as they require him/her to act.

C) Prohibitive law

Prohibitive law discourages the subject from doing the act required not to be done. If the subject does the act against the prohibition, an evil follows as the consequence of the violation. All criminal code provisions are prohibitive laws. Prohibitive laws usually use phrases like:

-          must not;

-          shall not;

-          should not;

-          no one shall/should;

-          no person shall/should;

-          may not;

-          is/are not permitted/allowed;

-          is/are prohibited;

-          is/are punishable; and

-          is a crime.

Illustrations:

“Any unmarried person who marries another he knows to be tied by the bond of an existing marriage is punishable with simple imprisonment.” [Article 650(2) of the 2004 Criminal Code of Ethiopia]

”is punishable” in this law, indicates that the law discourages such act. Therefore, it is prohibitive law.

“No one may enter the domicile of another against the will of such person, neither may a search be effected there in, except in the case provided by law.”[Civ. C. Art 13].

“No one may” shows that any one is discouraged from acting as provided by the law and so it is a prohibitive law.


III) Sanction

Each and every member of a society is required to follow the law. Where there is violation the law sanction would follow. Sanction according to Black’s Law Dictionary [Garner; 2004: 1368], is a penalty or coercive measure that results from failure to comply a law. The main purpose of sanction is to prompt a party (a wrong doer) to respond. In other words, sanction will make the wrong doer to think that s/he made a fault and s/he should correct it. Sanction may be criminal. Criminal sanction is a sanction attached to criminal liability [Garner; 2004: 1368]. If the fault committed is defined by criminal law, the person will be liable to a sanction provided under the criminal law.


 

Liberal economic theory is based on the premise that free-market yield maximum productivity. In the eighteenth century, Adam Smith and David Ricardo came up with the liberal economic theory and challenged mercantilism. Mercantilism argues that extensive state regulation of economic activity is necessary to promote the interest of a nation. In the period between the 16th to 18th centuries, mercantilism was a dominant political-economic theory in Europe. According to mercantilists, a national wealth may be equated with the quantity of gold held hold by the state. Hence, they sought to restrict imports and increase exports to increase the gold supply.

 

When communism proved to be unsuccessful, a free-market economy was accepted as a means to marshal economic development. Then, the private economy was considered essential for the development of an economy. As a result, privatization of state companies took place in developed and developing countries. Accordingly, the ideological predisposition to foreign investment has shifted the view that. A multinational corporation is a threat to the sovereignty of developing states has changed. Developing states have built up confidence in dealing with these multinational corporations. Multinational corporations, on their part, usually ceased to be instruments of the foreign policy of their home states. It was also observed that such corporations formed alliances with developing states. For example, foreign corporations in the petroleum sector formed alliances with oil-exporting states to the determinant of oil-importing developed states.

The dependency theory is a criticism of the classical theory. It does focus on an entirely different meaning of economic development. It redefines development as requiring not wealth transfer to the host state, but the development of the people of a state as a whole.

 

It is popular among Latin American economists. The proponents of the dependency theory analyze that multinational corporations have their headquarters in developed countries and the branches they establish in developing countries work in the interest of their parent companies and their shareholders. Hence, development becomes impossible in developing countries since their economy is subservient/dependent to the developed countries. Thus, they propose that indigenization measures and efforts be made to control foreign investment. because Attempts to permit foreign investments through joint ventures are seen as a failure and the foreign investor defeated it through his/her alliance with the elite in the host state. According to the dependency theory, foreign investment is a way for developed countries to gain power in developing countries. It influenced many nationalizations of foreign direct investment.

 

For example, nationalizations in Peru, Jamaica, and Chile were the results of such a theory. Further, it influences the restructuring of the economy by deriving out foreign investment and providing policy justifications for such restructuring. According to this view, there cannot be development until the people as a whole are free from poverty and exploitation. Development becomes a right of the people rather than that of the state.

 

For More please read Joho H. Barton and Bart S. Fisher, International Trade and Investment: Regulating International Business, Little, Brown and Company,1986, p. 28

 

QUESTIONS

 

1) Dependency theory is a criticism of classical theory on foreign investment. Discuss.

2) Cite examples where the dependency theory was applied.

3) Cite examples where the dependency theory is popular and explain its importance.

 

According to classical economic theory, foreign investment is wholly beneficial to the host economy. In other words, pursuant to the classical economic theory, it is the economy where the investment is made that benefited wholly from the investment. What are the reasons upon which classical economic theory is based?

 

  • Capital inflow – The first reason for the classical theory is that foreign investment makes available capital in the host state that flows from the capital sending country. The proponents of classical economic theory argue that foreign investment is beneficial to develop countries by making available capital. The capital, then, is used to promote the development of the economy of the host state.

 

Do you believe that foreign investment is wholly beneficial to the host state? Those who reject the theory argue that the existence of capital in a host country soaks local capital. Thus, the inflow of capital to the host state is like a big fish that swallows a small one. Hence, the local capital that would be used to invest could not be invested. What is more, foreign investors will export the high profits obtained from the investment to their home state.

 

Therefore, the capital will benefit the shareholders who are foreigners.  In short, the justification that foreign investment is wholly beneficial to the host state on the basis of capital flow is rejected.

 

  • Transfer of technology: - is the second reason on which the classical economic theory bases its justification. The proponents of the classical economic theory propagate that foreign investment transfers technology that is not available in the host state. They further argue that investment is beneficial to the host state since it diffuses the transferred technology to the host economy. Foreign investment will help the workers who are the citizens of the host state to learn how to run the technology the investment uses. They will use their technical knowledge and skill in a similar field in their country.

 

 Do you agree that foreign investment is wholly beneficial to Ethiopia by transferring technology?

The fact that foreign investment transfers technology could not be denied. However, foreign investors may transfer technology that is outdated. Foreign investors may need to use a technology that is already not up to date. They may not have the chance to use the outdated technology in their country because it may be dangerous to the environment, or it may not be efficient. In addition, the technology used by foreign investors may be capital intensive; using such a technology may be expensive. Further, the technology may be unsuitable to developing countries, for example, the goods that are produced may be outdated, i.e., they are replaced by other goods or products based on newer technology. Thus, the product could not be exported because it is replaced. It cannot bring foreign exchange to the host state. Sometimes the technology may be new and the products may be new to the society of the host state. In this case, the consumers may develop or not tastes to luxury goods.

 

  • Creation of employment: - It is argued that foreign investment creates new employment opportunities.

 

Accordingly, the unemployment problem that exists in a host state will be solved.

No doubt that foreign investment creates a new job. However, the fact that it creates a new job opportunity should not be taken as a benefit only to the host state. The foreign investor is highly beneficial from the creation of employment because labour is usually not expensive. Rather, the workers will not be fully paid, or the rate of wages is very low that is not commensurate with the service rendered by the workers.

 

  • Transfer of managerial skills – Foreign investment transfers managerial skills to the host state, particularly skills in the management of large projects. The foreign investor may recruit local experts in higher managerial positions. For example, the local employees could be assistants to foreigners in structure in the business organization, marketing the product of the business organization, administration of employees, etc. Hence, the proponents of classical economic theory argue that foreign investment will result in transfer of managerial skills from the foreign investor to the local professions. Therefore, they conclude that foreign investment is beneficial to host states.

 

Do you agree with this?

Transfer of managerial skills to local personnel is illusory because the foreign investor do not allow higher managerial positions such as departmental head for local professionals. Therefore, local personnel who are employed cannot acquire new skills.

 

  • Building infrastructure- It is also argued that foreign investment makes sure the building of infrastructure in a host country. Fundamentally, the state builds necessary infrastructures in areas where foreign investment is made. For example, health, and education facilities are delivered by the state. The investor may also build infrastructure facilities in host countries. Therefore, proponents of classical economic theory on foreign investment argue that it is beneficial to the host state. Do you believe that a host state will really benefit from foreign investment since infrastructure could be built? The infrastructure that is built is based on the standard of foreigners. It is only those who can pay for the facilities who could benefit from the building of the infrastructure. For example, a school fee may be high and only elites that can afford may benefit from it.

 

  • Upgrades infrastructure- It is also argued that foreign investment upgrades facilities such as transport, health, and education that will benefit society as a whole.
  • Brings economic development- Foreign investment brings about economic development for the less developed countries. However, it is revealed that foreign investors engage themselves directly or indirectly in the suppression of human rights to ensure the continued maintenance of regimes favorable to foreign investors.
  • The classical economic theory does not explain other reasons for state interference in foreign investment. However, it is worth noting that it influences international law on foreign investment. For example, the preambular statements of bilateral agreement emphasize the importance of foreign investment to benefit the development of both parties. In addition, the theory is accepted by World Bank. Thus, in 1992 the World Bank guideline on the treatment of foreign direct investment incorporates the philosophy of the classical theory. The first paragraph of the guideline reads as follows:

      

       … that a greater flow of foreign direct investment brings substantial benefits to bring on the world economy and on the economies of developing countries in particular, in terms of improving the log term efficiency of the host country through greater competition, transfer of capital, technological and managerial skills and enhancement of market access and in terms of the expansion of international trade.

 

What is more, the classical theory also provides a policy basis for the formulation of many documents that relate to international as well as national laws on foreign investment.

Nevertheless, strong criticism has been directed against this theory. It is argued that the flow of resources to a host country does not bring about the development of the state. Foreign investment only benefits the elites. It also leads to unequal development within a state because the elites benefit while the large group of the society is exploited by the foreigners. Thus, another theory has been developed with the intent of providing another reason as justification for foreign investment.

 

Throughout the history of capitalism, investment has been primarily the function of private business; during the 20th century, however, governments in planned economies and developing countries have become important investors.

 

Before 1930, investment was thought to be strongly affected by the growing rate of interest, with the rate of investment likely to rise as the rate of interest fell. Since then, the empirical investigation has shown business investment to be less responsive to interest rates and more dependent on businessmen’s expectations about future demand and profit, technical changes in production methods, and the expected relative costs of labour and capital.

 

Foreign investment, as one form of investment, was necessitated to ensure raw materials for production in the Western states continued. At the time of colonization, resources were transferred from colonies to the metropolitan powers so that they could be converted into manufactured products or used to fuel the industries in these states. In the earlier stages, the petroleum sector was the most prominent sector for foreign investments. At that time, concession agreements were used to tie up resources for foreign investments.

 

As time went, on the concession agreements ceased to be the norm in investment and were replaced by the production sharing agreements. These agreements reflect the shift in the power equations that have taken place within the investment, particularly in oil industry. Indonesia was a pioneer in the field of devising new arrangements for the oil industry. Such a shift was aided by the formulation of international law doctrines such as the doctrine on the permanent sovereignty over natural resources. The doctrine of permanent sovereignty over natural resources has been translated into national legislation. Thus, constitutions and foreign investment legislation incorporated the doctrine. It was also possible to draft investment contracts that ensure the host state having greater control over the process of the exploitation of the mineral resources. As a result of this development, it was recognized that host states have the power to control their natural resources. Thus, international agreements which have provided significant rights for investors began in 1959.

 

HISTORY OF INTERNATIONAL LAW ON FOREIGN INVESTMENT

 

International Law on Foreign Investment has passed through some history. The first attempt to create rules to govern the conduct of foreign investment was made by the United Nations conference held in Havana after World War II. At that time, it was felt essential to reconstruct the damage caused by the war. Having in mind this reconstruction purpose, a general attempt has been made to create an International Trade Organization (ITO). The proposed law of ITO under Article 12 provides provisions for the conduct of foreign investment that include the host states’ ability to regulate investment. This provision was opposed by some countries, particularly the United States of America. Such countries argued that the provision is contrary to liberal economic principles and public international law. The opposition contributed to the demise of the ITO.

 

In place of ITO, the General Agreement on Tariffs and Trade (GATT) came into being. However, GATT deals with a reciprocal tariff reduction agreement and it does not directly deal with foreign investment. In addition, the provisions of GATT will only be applicable if states have concluded agreements to govern international trade between them.

When countries became free from colonization during the early 1960s, they wanted to control their resources. Consequently, there was a conflict between the interest of host countries and the principles of international law that determined the relations between investors and host states.

 

What do you think is the cause of such conflict? The newly independent developing countries desired to control their natural resources in order to realize their dreams of development. On the other hand, the rules of public international law concerning foreign direct investment lacked a development-focused approach. Consequently, there emerged a conflict between the interest of the host states and the rules of international law on the field. Developing countries wanted rules of international law that would promote their desire to develop by sharing fair profits from foreign investment. Thus, developing countries advocated the reconstruction of international economic order in a manner that would expedite their economic growth and development. They succeeded in having the Charter of Economic Rights and Duties of States by using their majority at the United Nations. According to this Charter, the right of all states to regulate, supervise, expropriate and nationalize foreign investment has been reasserted. Nevertheless, the developed states argued that the resolution contradicts the rules of public international law on foreign investment.

 

The evolution of international rulemaking in the field of foreign investment is marked by the growing prominence of bilateral, regional and plurilateral agreements aiming at encouraging foreign investment. Such arrangements have also an advantage in providing substantive standards with regard to the admission and treatment of foreign investment by host states.

 

HISTORY OF INVESTMENT LAW IN ETHIOPIA

 

Coming to Ethiopia, though it is not possible to pinpoint the date investment was started, it is not new to Ethiopia.

I. The Imperial Era

The Ethiopian economy after the war with Italy was described as a mixed economy in which the private and public sectors worked hand-in-hand to achieve economic progress. The private sector was having good ground during this period since there was no any law that limited the private business.

In the Emperial era, Proc. No 60/1944 and 107/1949 were enacted to promote foreign investment in Ethiopia. In 1950, the Minister of Finance gave an income tax exemption notice with a view to encouraging investment. After that, in 1956, the Income Tax Decree which provided for income tax emption to encourage investment was promulgated. However, this Decree was replaced by the Income Tax Proclamation of 1963. This Decree was the first proper law to regulate investment transactions in Ethiopia. After three years, i.e. in 1966, the Investment Proclamation No. 242/1966 was enacted.

What is special to those laws was that they did not provide investment areas for the government. Thus, investors could invest in all areas of the economy with no restriction. They also provided investment incentives which included: import-export income tax exemptions, income tax holidays. It was also possible for foreign investors to own land required for their investment.

Though the private sector was in good condition, the share of the domestic investors was very small due to lack of entrepreneurship.

II) The Derg Regime

Then, the 1974 Revolution got rid of the concept of private property including private investment. This retarded the development in the sector. During the Derg regime, it was only the state that invests. After all that was considered investment proper.

The Derg regime adopted a socialist economic policy through National Democratic Revolution (NDR), which disfavours private investment. During this period, it was witnessed that nationalization was exercised repeatedly.

Proclamation No 26/1977 heralded the start of nationalization. The proclamation clearly stated that it was necessary to transfer to government ownership all resources that were crucial for economic development.

As a result, the government had controlled all private investments and the private sector was restricted to small industrial activities. However, the government allowed investment through joint venture, i.e. investment in Cooperation with the Ethiopian Government. The intention of the government was to introduce capital know-how, and technology into the country. But the law was taken as a disincentive to the private investors since the share of the government could grow from 51-99% while that of private investors could fall down from 49-1%.

The government felt the necessity to change the economic policy in the late period of the Derg Regime and adopted a mixed economic policy by adopting the Multilateral Investment Guarantee Agency (MIGA) of which Ethiopia became a member. Then, this economic reform was reiterated by the transitional Government of Ethiopia in 1992 after the down fall of Derg Regime.

III) The Period after Derg

The Derg regime was replaced by the Transitional Government. The Transitional Government, which was established in 1991 adopted an economic and investment policy directly opposite to that of the Derg regime. The policy emphasised the role of private investment in the development of the Ethiopian economy. In 1992, Ethiopia embarked upon the liberal economic policy which is deemed to be a favourable condition for investment. To implement this policy, the Transitional Government enacted Investment Proclamation No 15/1992 so as to open the door to private investment. The proclamation also reserved some sectors such as large scale eclectic power and postal service to the government. It also provided for joint investment with the Ethiopian government.

The proclamation provided for incentives to attract and promote private investment. It also guaranteed against nationalization and expropriation. Thus, “no assets of a domestic or foreign investor may be expropriated or nationalized wholly or partially except in accordance with the due process of law”.

The Investment Office was established by the proclamation to regulate and supervise investment activities. The proclamation imposed a higher capital requirement for foreign investors and proclamation No 37/1996 was enacted to rectify this problem.

Thus, the following are essential developments in Proc No 37/1996 and Regulations No 7/1996.

1. The minimum capital required from foreign investors has been reduced from 500,000 USD to 300,000 USD to establish joint venture with our government. The minimum capital of retained profit and dividends reduced to 400,000 USD for expansion. Further, the capital requirement for foreign investors to invest in engineering and consultancy was reduced from 500,000 USD to 100,000 USD.

2. Foreign investors were relieved from the obligation to deposit 1258,000 USD in blocked account.

3. Foreign investors were also allowed to invest in building construction equipment, and in hotels whose standard was below the four star and five grades.

4. Foreign investors were allowed to repatriate capital from sale, liquidation or transfer of residence to their home country, in addition to profits, dividends, interests and payments arising from technological transfer.

5. It also provided for internationally accepted investment dispute settlement procedures where it was not possible to solve the dispute amicably.

6. Investment incentives were also extended to additional sectors such as education, hotels, tourism and health. Further, the period of incentives was extended from 3 to 5 years.

7. Banking and insurance, electricity-generating up to 25 MW, air transport with the capacity of up to 20 passengers or 2,700kg. were reserved for Ethiopian nationals.

8. Both domestic and foreign investors were allowed to borrow money from abroad provided that they are registered with the NBE.

9. It was also provided under the proclamation that investors should be provided land within sixty days from the date of application for land.

 

In general, despite its constraints and drawbacks, the law seems to be attractive to private investment when compared to the past regime’s restrictive policy.

 

Investment (Amendment) Proclamation No 116/1998 and Regulations No 36/1998

 

These laws were enacted with a view to encouraging and facilitating investment (both domestic and foreign). Thus, the amendment was made with the aim of opening more investment areas to the private sector. It also aimed at providing additional investment incentives.

These laws resulted in the following essential changes to the proclamation No 37/1996 and Regulations No 7/1996.

  1. The status of foreign nationals of Ethiopian origin: A number of Ethiopians were forced to leave Ethiopia and went abroad for political and other reasons (especially in the past regime).

It is felt important to give them a chance to invest in their country and to contribute in the economic development by investing their capital and know-how that they acquired abroad. Thus, Proclamation No 116/1998 provides that foreign nationals of Ethiopian origin are at liberty to chosse to be treated as domestic investors or foreign investors.

If they opt to be considered as domestic investors they must apply to the then Ethiopian Investment Authority (EIA) and fill a form which is taken as a promise not to be considered as a foreign investor. Thus, they are relieved from a capital restriction on a foreign investors and be able to take part in investment with a capital of 250,000 Ethiopian Birr rather than 500,000 USD, 300,000 USD or 100, 000 USD.

In addition, they will acquire a right to invest in areas exclusively reserved to domestic investors by Regulations No 35/1998. On the other hand, they will lose the rights of foreign investors. Thus, they may not claim to repatriate their profits and capital outside Ethiopia, because such a right is given to foreign investors.

Once an investor is considered a domestic investor, s/he/it may participate in investment areas exclusively reserved for Ethiopian nationals such as banking and insurance.

 

Employment of Expatriates

 

According to Proclamation No 37/1996, there were restrictions in employing expatriates imposed on investors both domestic or foreign.  First, they must ascertain that a person of the required qualification cannot be found in Ethiopia Second, they must arrange to replace such foreigners by Ethiopians within a limited period.[29] Nonetheless, Proclamation No 116/1998 avoided these restrictions with regard to foreign investors while maintaining the restrictions for domestic investors.

However, it is worth noting that Proc. No 116/98 gave a discretion to the EIA to allow or refuse the recruitment because prior consent of the Authority is a requirement. The restriction is also limited to top managerial positions though the term top managerial position was not defined by the law.

Ownership of immovable properties by foreigners to create conducive atmosphere for foreign investors and to make them feel at home in Ethiopia, Proclamation No 116/1998 allows foreigners to own immovable property required for their investment. Immovable property in this context means buildings only since land is not the subject of private ownership but is made available for investors by lease.

Areas of Investment

One of the achievements of investment Proclamation No 116/1998 was that it fully opened the hydroelectric power generation for private sectors. However, the distribution of the electricity was still made to continue as the exclusive monopoly of the government. Thus, private investors were allowed to generate electric power and to sell it to a state-owned electric distribution agency.

Further, the proclamation allowed private investors to invest in the telecommunication sector jointly with the government,[32] although it which was reserved only for the government as per Proclamation No 37/1996.

Defence industries may be important to produce civilian goods and services in addition to weapons. Thus, it was felt important to allow private investors to participate in order to have the know-how to efficiently run the defence industries that were inherited from the Derg regime.[33] Thus, Proclamation No 116/1998 allowed private investors to participate jointly with the government.

Proclamation No 116/1998 also expanded the scope of consultancy services to include accounting and auditing services in addition to engineering, architectural or other technical services.

Regulation No 35/1998 also recognized oil companies such as Shell, Mobil, Agip and Total as areas of investment for foreigners with a view to maintaining efficient service in supplying petroleum and its by-products.

Another important change made to Proclamation No 37/1996 was that Proclamation No 116/1998 conferred on the Ethiopian Investment Board the power to decide on additional investment incentives other than those provided under the Investment Regulations No.

Thus, the Board was given the power to initiate and propose additional investment incentives so as to promote investment, but the power to approve was given to the Council of Ministers.