The Ethiopian government has recently revised existing Value Added Tax (VAT) legal regime that has been in place since 2002. The Federal parliament passed the VAT Amendment Proclamation No. 1157/2019 (“Proclamation”) effective from 13 August 2019. At a tertiary level, new directives addressing VAT refunds and VAT withholding have been issued by the Ministry of Revenue and Ministry of Finance respectively. This legal update covers the changes introduced by these new regulations.

Introduction

A new Geothermal Regulation No. 453/2019 (“Regulation”) was recently enacted by the Council of Ministers to supplement the Geothermal Resource Development Proclamation No. 981/2016 (“Geothermal Proclamation”). In 2016, the adoption of the Geothermal Proclamation introduced a separate legislative framework to govern geothermal energy resources which was previously treated as part of the mining sector. (For more on the Geothermal Proclamation, please click here).  While the geothermal legislations regulate the exploration and development of geothermal resources, for the purposes of power and energy generation, the Energy Proclamation No. 810/2013(as amended) (“Energy Proclamation) and the Energy Regulation No.447/2019 (“Energy Regulation”) will be applicable.  In this issue of our legal update, we present the key features of the geothermal Regulation with special emphasis on Grade 1 geothermal resources capable of generating electric power.

The Ethiopian parliament recently approved an amendment to the Commercial Registration and Business Licensing Proclamation No. 980/2016. The new Proclamation No. 1150/2019 (“Proclamation”) came as part of the “Ease of Doing Business” initiative launched by the Prime Minister Office aiming to simplify and streamline business regulation.  In this issue of our legal update, we provide a brief summary of the key changes introduced by the new legislation.

(Note: The New Labour Proclamation No. 1156/2019 became effective on September 15, 2019. Find the full text here)

On July 5^th, 2019, the House of People’s Representatives approved a draft Labour Proclamation (“Proclamation”) that will repeal Labour Proclamation No. 377/2003 (“Labour Proclamation”) together with its amendments. The Proclamation replaces a law that has been in place for the last 16 years. This has been a period where Ethiopia saw major shift in investment and business environment as well as the overall labour market.  The new Proclamation acknowledges the key role of a skilled and disciplined workforce to Ethiopia’s industrialization efforts and improve its global competitiveness by expressly stating in its preamble the need to create a favorable environment for investment. In this issue of our legal update, we present some of the key changes introduced by the new law with our observations included at the end.

Last month, the Ethiopian parliament approved the Communication Service Proclamation (“Proclamation”) which, for the first time, liberalizes the telecom sector in the country. Article 54 of the Proclamation declares that ‘telecommunications services, including ownership of a Telecommunications Operator or a Telecommunications Network, shall be open without limitation to private investors including both domestic investors and foreign investors.” This provision signifies a policy breakthrough on the telecom sector by introducing private ownership of either or both of the telecom infrastructure and services. The Proclamation further introduces the establishment of an independent, transparent, and accountable institution that will regulate all players in the sector. In this issue of our legal update, we present to our readers a summary of the main features of the Proclamation with some observations at the end.

The Council of Ministers recently adopted the Energy Regulation No. 447/2019 (“Energy Regulation”) repealing and replacing the Electricity Operations Regulation No. 49/1999. This follows the amendment of the Energy Proclamation No. 810/2013 in June 2018. In this issue of our legal update, we present the main aspects of the Energy Amendment Proclamation and Energy Regulation with particular emphasis on licensing and tariff regulation. This is particularly informative for private sector energy developers as Ethiopian embarks on a public private partnership (PPP) with power as one of the priority sectors for PPP investments.

Ethiopia is believed to have large untapped mining resources. The Ethiopian government has planned to leverage this potential by increasing the mining sector’s contribution to the national economy by reforming and enhancing the implementation capacity of the sector and improving policy, legal and regulatory frameworks.

1. Introduction

In the current era of unparalleled technological advancement and the growing use of Information and Communication Technology in all spheres of communication, most commercial transactions are conducted in the framework of the e-commerce system. Electronic and digital signatures have been recognized by e-commerce laws of several countries replacing handwritten signatures and traditional means of authentications.

In Ethiopia, there has been a limited recognition of E-signatures under Art 25(8) of the Ethiopian commodity Exchange Proclamation No 550/2007 and Art. 23 of the National Payment System Proclamation No. 718/2011.

The Ethiopian Investment Board (the “Board”), established by Council of Ministers Regulation No. 313/2114 and presided by the Prime Minister, authorized the opening up of packaging, forwarding and shipping agency services (otherwise referred to as “Logistic Services”) for foreign investors. The Investment Regulation No. 270/2012 (“Investment Regulation’) had restricted Logistics Services exclusively for Ethiopian nationals. The Board’s decision capped the liberalization at 49% of foreign shareholding. Written text of the Board’s decision has not been made public and further details are yet to be disclosed. However, this comes as part of broader economic reforms that is being executed by the new administration of Prime Minister Abiy Ahmed, including the planned privatization of key state owned enterprises.

In Part One,  our review of the legal framework for the privatization of Public Enterprises (PEs) in Ethiopia has shown a legal vacuum on who holds the authority to privatize  PEs such as Ethiopian Airlines, Ethio-Telecom and Ethiopian Electric Power (EEP). Nevertheless, other PEs targeted for privatization falling under the jurisdiction of the Ministry of Public Enterprises (MOPE) will likely be subject to the Ministry’s existing regulations.

In the second part our legal update, we discuss these rules and procedures as they may be applicable to PEs such as the Ethiopian Shipping and Logistics Services Enterprises (ESLSE), the Sugar Corporation and Railway Corporation. We also highlight some of the post-privatization regulatory requirements that are likely to emerge.

1. Introduction

In this issue of our legal update, we share with our readers how the Ethiopian government’s recent policy drive to privatize key state-owned enterprises, referred to in the Ethiopian legal regime as Public Enterprises (PEs), may be implemented legally and the broad regulatory issues that may need to be considered. The decision to privatize is a reflection of the policy that is current at the time of its making. It is inherently a political decision and demonstrates a major shift in policy at the highest executive organ of the government. Execution of this decision may necessitate the amendment of existing laws. It may also require a gap filling exercise on the assumption that existing laws do not cater for some of the PEs targeted for privatization. Such is the case, in our considered view, on the privatization of, for example, the Ethiopian Airlines, Ethio-Telecom and Ethiopian Electric Power (EEP). On the other hand, the privatization of Ethiopian Shipping and Logistics Services Enterprise (ESLSE), the Sugar Corporation and Railway Corporation, may be executed on the basis of existing laws on privatization.  Further, legislative amendment of current investment laws including relaxation of rules restricting sectors for private and foreign investment, and enhancing clarity on regulatory mandates will be critical.

Under Ethiopia’s national development program, i.e. the Growth and Transformation Plan (GTP II) (2015-2020), the country has set an ambitious target to become a middle-income country by the year 2025.   GTP II plans to execute massive manufacturing, industrial and infrastructure projects in road, railway, power, energy, telecommunication, housing and industrial parks. To date, the majority of infrastructural projects have been financed by the government through the national budget, loans and development assistance fund. In order to meet the growing demand for infrastructure and public service delivery, the government sought to mobilize finance from the private sector through public private partnerships (PPPs). Aside from introducing private sector efficiency, innovation and knowledge, PPPs are considered as key instruments to fill in gaps in infrastructure financing.

Since 2016, the Ministry of Finance and Economic Cooperation (MoFEC) has spearheaded efforts to design a PPP legal framework by drafting a national PPP policy and draft proclamation which culminated in the enactment of the PPP Proclamation No. 1076/2018. (“PPP Proclamation”).  We discuss this law in this issue of our legal update.

The National Bank of Ethiopia (NBE) is the central agency with the mandate of regulating the financial sector and, among others, foreign exchange. The NBE formulates and implements exchange rate policies. As part of this mandate, the NBE issues regular directives and circulars with the aim of regulating the foreign exchange regime. This legal update will provide you with a short summary of the relevant directives of the NBE that amended existing directives in connection with foreign exchange regulation in Ethiopia from the period August 2016 – December 2017.

The year 2016- 2017 saw lots of legislative activities from the Federal House of Representatives (HoPR) and the Council of Ministers (COM). A total of 114 proclamations and regulations were collectively enacted by the COM and HoPR. In this issue of our legal update, we will summarize the key legislations that were passed in this period with particular focus on commericial matters. We also have the full list of legislations available for download.