16 September 2012

Ethiopia: Bureau Vets Potential Investors' Bank Statements

The Addis Abeba Investment Bureau began requesting bank statements attesting that potential investors have 30pc of the capital to be registered in the permit, although it admitted that this would not prove anything.

The Bureau also expressed confusion about how to handle the cases of Ethiopian nationals in the Diaspora that come seeking investment permits as it is not asking bank statements for such clients.

The criterion became mandatory starting September 12, 2012, both for individuals and company applicants. The bureau adopted the new criterion after experience sharing discussion with regional investment bureaus, whose requirements are more stringent. However, whereas the Oromia Investment Bureau requires bank statements that go back one year to make sure that the potential investors actually owned the money their documents show, the Addis Abeba Bureau has failed to include that element.

"If we had implemented a system like Oromia, which required showing a balance going back a year, it would have been better," said Getamesay Kassaye, Investment Registration and Licensing Officer.

The Bureau has been more benevolent to Small and Micro Enterprises (SMEs), which only have to show evidence for having only 20pc of the capital. Asked why the Bureau had to ask bank evidence in the first place, Yohannes Kassaye, another Investment Registration and Licensing Officer, said that the 30pc and 20pc requirements were simply copied from other government practices.

The Development Bank of Ethiopia (DBE) grants 70pc loan to investors in priority areas such as agriculture and manufacturing, while SMEs get up to 80pc loan from the city administration's Micro Enterprises Development Bureau. The Investment Bureau just took these conditions as a bench mark, according to Getamesay. But the investment bureau offers no financial assistance.

However, the bureau says that it needed the new measure to control those applicants who do not have the required capital as well the large number of applicants which are trying to avoid the stricter regional requirements, according to Yohannes.

Before the new criterion, the requirements for a sole proprietor seeking investment permit were an identification card, photograph and a service charge of 600 Br, while companies above had to bring their memoranda and articles of association and a principal registration certificate, in addition to the same 600 Br service charge.

While an exception is made for those applicants who have made down-payments for machinery purchase, the Bureau said that the new measure is not without its own problems. The Bureau wants to get bank information using its own slip instead of the bank's sending the document using their own formats. Because of this, it has found it difficult to require the Diaspora community to come and take its slips and get the foreign banks to fill the required information, according to Getamesay.

Currently such applicants who come in person or through representatives are given permits without any evidence.

But the requirement would still not be watertight even for local applicants "as it is possible for someone to save the 30pc capital by collecting money from different sources just for the sake of showing the balance for the Investment Bureau."

The bureau gives investment license in manufacturing, construction, real estate, machinery rental, agriculture, education, hotel and tourism, health and others.

Out of these the lion's share is taken by machinery rental. In the first half of 2011/12, the bureau gave 1,615 investment permits, 714 of which were in machinery rental.

The bureau has an internal procedure whereby investors are required to register at least 200,000 Br for construction consultancy and 350,000 Br for other investments, according to Getamesay, which is lower than Oromia's minimum of 2.5 million Br. Oromia goes further requiring evidence that a land permit has been given, according to Seleme Abebe, Support and Inspection Bureau Head at the Oromia Investment Bureau.

There were 3,668 licenses given by the bureau with a total capital of 24.8 billion Br in 2011/12.

From these, the service sector took 79.4pc, with a total capital of 17.4 billion Br; manufacturing accounted for 19.9pc of the permits with a total of 732. There were only 23 permits given in the agriculture sector, with the investors registering 117 million Br; a low figure attributed to limited available land in Addis Abeba.

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