4 September 2018

Ethiopian Investment Board Lifts Restrictions On Logistics Industry Reserved Exclusively for Ethiopians, Opens Sector for Joint Venture

Photo: Addis Fortune
Pile of containers at Modjo Dry Port, which has a capacity of holding 14,500 containers at once.

A landmark decision by the Ethiopian investment board has decided to reverse a major regulation that restricts foreign investors from engaging in parts of Ethiopia's Investment Incentives and Investment Areas reserved for domestic investors by lifting the restriction in logistic industry which was exclusively reserved for Ethiopian nationals.

Accordingly, the board, which comprises of key ministries and the National Bank of Ethiopia and is led by PM Abiy Ahmed, has lifted the restrictions imposed under Article 3.1(b) of the Investment Regulation No. 270/2012, "including the provision of bonded warehouse, consolidation and de-consolidation services, and allow joint venture participation of international logistics service providers holding up to 49% or less stakes," according to a statement from the board which was exclusively obtained by Addis Standard.

Article 3.1(b) of the Investment Regulation states that "packaging, forwarding and shipping agency services" are "exclusively reserved for Ethiopian nationals."

"Improving Ethiopia's logistics sector performance has been one of the key areas identified under the Second Growth and Transformation Plan (GTP II). The Logistics sector matters in several critical ways: as a supporting industry to the manufacturing sector, to improve investment attraction/retention and for increasing the country's international trade performance by enhancing export competitiveness. However, to date, no significant improvement in cost or speed to market has been achieved. The country's low performance against its peers under international benchmarks is a key testament in this regard," the board's statement said.

The statement added that "National Logistics Strategy has been approved last week by the Council of Ministers. In addition, the Ethiopian Investment Commission, in cooperation with the relevant government agencies and through the support of the World Bank Group has spearheaded several studies and consultations with industry stakeholders with the aim to identify the key binding constraints facing the sector and provide policy recommendations. These initiatives have recognized that in addition to its role as a supporting industry to other sectors of the economy, the logistics sector can be developed as a thriving and productive cluster that serves as another pillar of industrialization and driver of growth."

A 2014 Regulation No. 313-2014 of the Council of Ministers has provided for the establishment of the Ethiopian Investment Board and the Ethiopian Investment Commission, "two public institutions which have respective mandates, powers and duties with regard to investment. It provides that the Commission will have the objective to implement transparent and efficient investment administration system and thereby encourage and expand investment."

The two public institutions have reviewed that one of the key shortcomings of the sector relates to policy and regulatory barriers that precluded participation of international logistics service providers. "Among others this has imposed serious strains on the export manufacturing sector as it limited the availability of capital and technology intensive end-to-end logistics solutions. Globally competing manufacturing firms have time and again stressed that such limitations have deprived them of logistics options that are available to their competitors in the international market," the statement reads.

Speaking to Addis Standard, Getachew Mekuria, Commissioner of the Ethiopian Investment Commission, said, the commission has been working on this for a long time. "Today's decision tops any of the policy shifts introduced recently since Prime Minister Abiy Ahmed came to office. A 27 year old closed sector-logistics is now open for joint venture arrangements. A great, move towards improving competitiveness of Ethiopia in manufacturing for export."

The Ethiopian Investment Commission, the secretariat of the board, on its part said "the move to a modern logistics sector that serves the needs of cargo owners and at the same time delivers as another source of productive and sustained growth requires addressing constraints arising from current regulatory framework that prevents the participation of international logistics service providers." The commission also noted that it was "imperative to ensure that such reform objectives do not impose undue burden on the growth of the domestic logistics industry. In doing so one key consideration has been the promotion of joint venture investments between international players and their Ethiopian counterparts, the former holding minority stake participation. This will not only promote the transfer of technology and know-how to Ethiopia but also ensure that domestic players will retain key decision-making powers."

Getachew lauded the decision as "significant" and said "it will improve the provision of high-end logistics services while local firms acquire world class knowledge, expertise, management, and systems by working jointly with globally reputed logistics service providers." AS

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