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On Liberalization of the Logistics Sector

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.

The Board, under Art. 29(7) of the amended Investment Proclamation No. 849/2014, is empowered to authorize the opening of investment areas for foreign investors, otherwise exclusively reserved for domestic investors. It is not clear on what legal ground the Board restricted the participation of foreign investors to 49% or less, given the fact that the law does not seem to empower the Board to determine the domestic-foreign participation ratio.

In terms of what constitutes as “packaging, forwarding and shipping agency services”, the Freight Forwarding and Ship Agency License Issuance Council of Ministers Regulation No.37/1998 (“Freight Forwarding Regulation”) provides insight. Art. 2(10) defines freight forwarding as “the representation of a consignor or consignee locally or internationally in fulfilling customs, port and other formalities for import and export cargo at port and includes the transportation and delivery of same.” Article 3 of the same regulation further provides list of activities that are considered as functions of a freight forwarder. Furthermore, “Shipping Agency” is defined as “the representation of an owner, charterer or operator of a ship in canvassing and booking cargo or passenger and providing services to the ship inland and at port as necessary and includes the coordination of stevedoring and shore handling services.” The list of activities which are considered as the functions of the shipping agency are also enumerated under Art. 4 of the Freight Forwarding Regulation.

“Packaging” is not clearly defined like that of freight forwarding and shipping agency services. When we look at the English version of the Investment Regulation, the areas which has been exclusively reserved for Ethiopian nationals are “packaging, forwarding and shipping agency services”. The Amharic version of the Investment Regulation, however, provides that the reserved areas are “goods packaging, forwarding, and shipping agency services.” Moreover, Art. 3(9) of Freight Forwarding Regulation provides that “ዕቃዎችን ማሸግ (packing services)” are functions of a freight forwarder. Therefore, taking into consideration the Amharic text of the Investment Regulation “ዕቃዎችን ማሸግ” (“goods packaging”) and Art. 3(9) of Freight Forwarding Regulation i.e., “ዕቃዎችን ማሸግ” (packing services)” the word “packaging” in the Investment Regulation can be interpreted to form part of the freight forwarding activities. Therefore, those activities that constitute the above mentioned services are now open for foreign investors in joint venture with domestic investors.

It is worth mentioning here that the restriction to foreign investment is not only provided under the Investment laws. Art. 6(1) of Freight Forwarding Regulation provides that an applicant for freight forwarding and shipping agency license must have an Ethiopian nationality. It may be argued that the decision of the Board cannot amend Art. 6(1) of Freight Forwarding Regulation as this will need to be amended by another Council of Ministers Regulation. Alternatively, it can also be argued that, the decision of the Board can serve as a valid instrument to also amend Art 6(1) of the Freight Forwarding Regulation given that the legal authority of the Board to open up sectors emanates from a regulation, which is on equal footing to that of the Freight Forwarding Regulation.

However, we are of the view that it is necessary to formally amend the Freight Forwarding Regulation in line with the decision of the Board as, in the rules of the hierarchy of laws in Ethiopia, a Board decision cannot amend an existing Regulation in the absence of an explicit mandate.

In practical terms, the decision of the Board will pave the way for the privatization of the Ethiopian Shipping and Logistics Services Enterprise (ESLSE), the state owned shipping and logistics service provider. As the state owned shipping monopoly, ESLSE was established through the merger of the Ethiopian Shipping Lines SC, Maritime and Transit Service Enterprise and the Dry Port Services Enterprise through Ethiopian Shipping and Logistics Services Enterprise Establishment Council of Ministers Regulation No.255/2011(as amended). It carries out, among others, (i) coastal and international marine and internal water transport services, (ii) freight forwarding agency, multimodal transport, shipping agency and air agency services iii) services of dry port, warehousing and other logistics services for import and export goods, and (iv) container terminal services.

Assuming that the Board’s decision only applies to “packaging, freight forwarding and shipping services”, the question of whether services such as international marine, internal water transport services, multimodal transport, dry port warehousing and the provision of container terminal services are open to foreign investors remains. It is not clear whether foreign investors would be allowed to engage in these sectors or not. 

Therefore, further action is required by the Government to liberalize these activities of ESLSE in order to bring a strategic foreign partner to ESLSE. Given the ESLSE is engaged in activities other than freight forwarding and shipping, it is not clear whether Government is going to sell minority share of ESLSE or whether government is going to split ESLSE into different entities and maintain a monopoly on services outside of freight forwarding and shipping. In any event, with this decision of the Board, it is now possible that other private logistics service providers to partner with foreign global logistics companies for the provision of Logistics Services.

 

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