We have released the first and second issues of the "Investing in Africa" series of articles, introducing Ethiopia's overall foreign investment policy orientation, basic investment access requirements, and major foreign investment incentive policies. This article will further expand on the basis of the signing, focusing on a series of reform and opening-up measures that Ethiopia has taken in recent years to attract foreign investment. Combined with the development trends of key industries, it will sort out and analyze the background, progress, and actual impact of relevant institutional changes on foreign investors.

In recent years, the Ethiopian government has continuously promoted reforms related to foreign investment in multiple key areas, gradually improving the overall investment environment through adjusting industry access policies, introducing private capital, and optimizing regulatory frameworks. Here is a brief introduction to several representative reform measures in key areas and their phased achievements:

1、 Conditional opening up in the fields of trade and retail

For a long time, Ethiopia has implemented a strict industry negative list management system for foreign investment. Among them, import and export trade, as well as wholesale and retail business, were classified as only open to domestic investors in principle for a considerable period of time. Foreign funded enterprises can usually only engage in physical investment activities such as manufacturing, agriculture, and infrastructure, and it is difficult for them to directly enter the commercial and trade circulation links such as wholesale and retail.

In 2024, the Ethiopian Investment Commission issued Directive No. 1001/2024 (hereinafter referred to as the "2024 Directive"), which for the first time allowed foreign investment to participate in certain specific sub items in the import, export, wholesale, and retail sectors previously "reserved for domestic investors" in a clear regulatory form, and systematically stipulated the corresponding admission conditions and regulatory rules, providing a clear legal basis for foreign investment to enter the commercial circulation sector.

It should be pointed out that the 2024 directive does not fully open up related industries, and its core institutional design is to allow foreign investment to engage in specific and restricted sub item investment activities through the "sub item access" method. At the specific implementation level, the 2024 directive sets high additional conditions and entry thresholds for foreign investment. Specifically, although foreign investors may participate in some import, export, and circulation processes, the relevant activities should be directly related to the approved investment projects of the foreign investment in Ethiopia, or wholesale or distribution activities supporting manufacturing, agricultural processing, or export-oriented projects, or trade or retail business involving specific commodities, specific scales, or specific business models. In addition, the 2024 directive also sets a series of substantive conditions for foreign investment to enter the field of commercial circulation, including but not limited to minimum registered capital requirements, substantial connections between investment projects and export earnings, industrial chain integration or supply chain localization, and in some cases, the need to meet local value-added or employment contribution requirements. Compared to manufacturing projects, foreign investment in trade and retail business in Ethiopia may face higher frequency of regulation, including continuous dynamic review of investment permits and business registration certificates by regulatory authorities, as well as checking whether the actual business scope of enterprises is consistent with the approved scope.

Overall, the significance of the 2024 designation for foreign investment access may lean more towards "policy based access" rather than achieving market-oriented free access to relevant market sectors. However, the 2024 directive still has certain practical significance: on the one hand, the 2024 directive reflects the Ethiopian government's gradual shift from absolute restrictions on foreign investment to conditional openness, and begins to incorporate the field of commercial circulation into the government's refined management; On the other hand, the 2024 directive also provides legal basis and institutional interface for foreign investment to enter the local market, which to some extent enhances the predictability and feasibility of relevant investment arrangements. However, we believe that for Chinese companies, if they plan to use Ethiopia as a regional trade node, pure trade based investment may still face high policy and compliance restrictions at this stage.

2、 Gradual opening up of finance and banking industry

For a long time, finance and banking have been one of the highly protected sectors in Ethiopia. Commercial banks, insurance, and financial intermediary services are generally only open to domestic investors. Foreign banks are not allowed to establish branches, subsidiaries, or representative offices in Ethiopia, and foreign investors are also not allowed to directly or indirectly participate in local commercial banks.

In this context, starting from 2023, the Ethiopian government has begun to systematically promote financial sector reforms and has successively proposed and promoted institutional plans for the opening up of the banking industry to the outside world during 2024-2025, aiming to improve the domestic financing environment, introduce international financial resources, and promote the overall deepening of the financial system. Overall, the Ethiopian government has adopted a gradual reform path, gradually introducing international financial resources through limited access, strong industry regulation, and strict control of access quantities, while also avoiding systemic risks to the financial system in the short term due to comprehensive opening up.

According to the disclosed reform proposals and policy discussions for 2024-2025, the Ethiopian government intends to allow eligible foreign banks to establish wholly-owned or controlling subsidiaries or branches in Ethiopia, but they need to meet higher requirements, including higher minimum registered capital requirements, foreign banks' parent banks should have good international ratings and robust regulatory records, and be subject to strict supervision by the Ethiopian Central Bank. In the equity participation mode, foreign investors are generally only allowed to participate in existing local commercial banks by holding a minority stake. At the same time, the Ethiopian government has also implemented strict control over the number of foreign bank licenses issued, and plans to evaluate the impact of foreign bank access on financial stability through a "pilot first, then promotion" approach.

In terms of regulatory requirements, foreign banks need to meet higher capital adequacy ratios and liquidity ratios compared to local commercial banks, and must comply with strict foreign exchange control rules, so the scope of foreign exchange business is significantly limited. In practice, foreign banks may initially focus their business scope on corporate finance, trade financing, or project financing, while personal banking and retail finance businesses may still be difficult to fully develop in the short term. Overall, the short-term goals of this round of reforms are more inclined towards service trade and investment activities, rather than a comprehensive reshaping of the retail finance market structure.

3、 State owned enterprise reform and partial sale of telecommunications

For a long time, Ethiopia has implemented a highly centralized state-owned monopoly model in key infrastructure and public services, with telecommunications, electricity, aviation, logistics and other industries being the most representative. Taking the telecommunications industry as an example, Ethio Telecom has long been the only state-owned telecommunications operator in Ethiopia, integrating fixed communication, mobile communication, and data services, and enjoying exclusive operating status in the fields of fixed communication, mobile communication, and data services. With the expansion of economic scale, the release of demographic dividends, and the rapid growth of demand for the digital economy, this single state-owned entity dominated model has gradually exposed problems such as insufficient investment capacity, slow technological updates, and limited service efficiency. In this context, the Ethiopian government has officially launched the SOE Reform process since 2018, which explicitly proposes to enhance the market-oriented operation capabilities of state-owned enterprises by introducing private capital and strategic investors. This includes issuing new telecommunications operation photos to private capital, as well as the plan to sell and list a portion of the equity of Ethio Telecom (the proposed share ratio has been adjusted multiple times and IPO/allocation operations have been carried out). It should be emphasized that Ethiopia's state-owned enterprise reform is not a comprehensive privatization in the traditional sense, but a more cautious approach. The Ethiopian government injects capital, technology, and management through the sale of minority stakes or the introduction of strategic investors, but still maintains strong regulation on industry access, pricing, and cybersecurity at the legal and regulatory levels.

According to the reform plan announced by the Ethiopian government for Ethio Telecom, Ethio Telecom plans to sell no more than 40% of its equity, with a portion to be sold to strategic investors and a portion to be opened to social capital through initial public offerings or targeted placements. After the reform is completed, the Ethiopian government will continue to serve as the controlling shareholder and retain control over Ethio Telecom's strategic direction. At the same time, in order to support the reform of Ethio Telecom, the Ethiopian government has also introduced competition mechanisms by issuing new national telecommunications operating licenses to foreign consortia and allowing foreign investors to hold controlling or significant equity in new operators, in order to promote the overall market-oriented reform and opening-up of the telecommunications industry. For Chinese enterprises, the above reforms may mean that the legal and institutional space for direct investment or equity participation in areas such as infrastructure, communication services, and digital economy is expanding, but related investments still need to pay close attention to key factors such as industry regulation, national security reviews, and government control arrangements.