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Cablegate: Ethiopia: 2008 Investment Climate Statement

VZCZCXRO1403
RR RUEHROV
DE RUEHDS #0105/01 0141345
ZNR UUUUU ZZH
R 141345Z JAN 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 9142
INFO RUCNIAD/IGAD COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 08 ADDIS ABABA 000105

SIPDIS

SIPDIS

DEPARTMENT EB/IFD/OIA JNHATCHER AND AMKAMBARA
DEPARTMENT PLEASE PASS TO USTR BILL JACKSON

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ECON KTDB USTR OPIC ET

SUBJECT: ETHIOPIA: 2008 INVESTMENT CLIMATE STATEMENT

REF: STATE 158802
1. As requested in Reftel, post is pleased to submit the 2008
Investment Climate Statement for Ethiopia.
Begin Text:
2. Openness to Foreign Investment
2006/2007 HIGHLIGHTS

-- In a bid to curb increasing food prices the Government of
Ethiopia (GoE) levied a 10 percent surtax on selected imports as of
April 2007 and used the proceeds to distribute subsidized wheat to
urban areas.

-- The UN Investment Guide to Ethiopia indicated that, according to
the private sector, routine bureaucratic corruption is virtually
non-existent in Ethiopia. However, Transparency International
recorded a decline in Ethiopia's ranking from 114th out of 145
countries rated in 2004 to 130th out of 160 countries rated in 2006
and 138th out of 180 countries rated in 2007 in its Corruption
Perception Index, where a higher number indicates a higher level of
corruption.

-- Ethiopia has double taxation treaties with 15 countries, but not
with the United States.

-- The nation's central bank, the National Bank of Ethiopia (NBE),
has ordered that all bank processes concerning items being exported
to China shall be undertaken and overseen by the state-run
Commercial Bank of Ethiopia (CBE) effective November 14, 2006.

-- NBE revised the monetary and banking proclamations and the
banking business proclamation 1994. These draft laws are
distributed to commercial and banks and other stakeholders for
comments. The laws are expected to be approved by Parliament during
2008.

-- The World Bank's 2008 Doing Business Report ranks Ethiopia as 9th
in Sub-Saharan Africa. Factors considered include starting a
business, registration, and credit facilities, while macroeconomic
conditions and level of infrastructure development are not
considered.

-- A National Foreign Investment Promotion Advisory Council has been
established with to the aim of conducting focused foreign investment
promotion on textiles and garments, leather and leather products,
fruits and vegetables and agro-processing areas. Its major tasks
are to collect, organize and make available basic data regarding
land allocation, utilities connection, investment opportunities,
market and other relevant information. The next step is to track
potential foreign investors and convince them to invest in Ethiopia
in the priority areas.

-- The GoE has publicly stated that the private sector will be an
engine of development and that private capital should play an
important role in the economy. The GoE has eliminated most of the
discriminatory tax, credit and foreign trade treatment of the
private sector, simplified administrative procedures, and
established a clear and consistent set of rules regulating business
activities.

--Ethiopia continues in the WTO accession process. The Memorandum
of Foreign Trade Regime (MFTR) was submitted to the WTO Secretariat
in December 2006. Ethiopia is currently preparing responses to the
questions posed by member states, and the responses are expected to
be delivered in January 2008.

-- Though bureaucratic hurdles continue to affect implementation of
projects, the Ethiopian Investment Agency (EIA), the main contact
point for foreign investors, has improved its services and is now
providing a highly expedited "one-stop shop" service that
significantly cuts the time and cost of acquiring investment and
business licenses.

3. OVERVIEW:

In June 1996, the Ethiopian Government issued a revised Investment
Code which provided incentives for development-related investments,
reduced capital entry requirements for joint ventures and technical
consultancy services, created incentives in the education and health
sectors, permitted the duty-free entry of capital goods (except
computers and vehicles), opened the real estate sector to expatriate
investors, extended the losses carried forward provision, cut the
capital gains tax from 40 to 10 percent, and gave priority to
investors in obtaining land for lease.

Amendments to Ethiopia's Investment Proclamation (Law) were issued
in September 1998 and July 2002, further liberalizing the investment
regime and removing most of the remaining restrictions. In the

ADDIS ABAB 00000105 002 OF 008


latest amendment, areas solely reserved for government investment
were reduced to the transmission and supply of electricity through
the Integrated National Grid System, postal services with the
exception of courier services, and passenger air service using
aircraft with more than 20 seats. Manufacturing of weapons and
ammunitions and telecommunications services can only be undertaken
as joint ventures with the government.

Ethiopia's revised investment code prohibits foreign firm
participation in domestic banking, insurance and micro-credit
services. Other areas of investment reserved for Ethiopian nationals
include broadcasting, financial services, air transport services
using aircraft with a seating capacity of less than 20 passengers,
travel agency services, and forwarding and shipping agency services.
Professional service providers must be licensed by the Government to
operate in Ethiopia. Also a foreign investor intending to buy an
existing enterprise to operate it or buy shares in an existing
enterprise needs to obtain prior approval from the Investment
Agency.

In addition to those mentioned above, the amendment reserves the
following areas of investments for domestic investors:
retail trade and brokerage; wholesale trade (excluding supply of
petroleum and its by-products as well as wholesale by foreign
investors of their locally-produced products); import trade
(excluding LPG, bitumen and upon approval from the Council of
Ministers, material inputs for export products); export trade of raw
coffee, chat, oilseeds, pulses, hides and skins bought from the
market and live sheep, goats and cattle not raised or fattened by
the investor; construction companies excluding those designated as
grade 1; tanning of hides and skins up to crust level; hotels
(excluding star-designated hotels), motels, pensions, tea rooms,
coffee shops, bars, night clubs and restaurants excluding
international and specialized restaurants; trade auxiliary and
ticket selling services; car-hire, taxi-cabs transport services;
commercial road transport and inland water transport services;
bakery products and pastries for the domestic market; grinding
mills; barber shops, beauty
salons, and provision of smith, workshop and tailoring services
except by garment factories; building maintenance and repair and
maintenance of vehicles; saw milling and timber making; custom
clearance services; museums, theaters and cinema hall operations;
and printing industries.

Another important change made in the 2002 amendment has been the
reduction in the minimum capital requirement of foreign investors
from $500,000 to $100,000 per project for wholly foreign owned
investments and from $300,000 to $60,000 for joint investments with
domestic investors. The minimum capital required of foreign
investors in the areas of engineering, architectural, accounting and
auditing services;
business and management consultancy services; and publishing is
reduced from $100,000 to $50,000 for wholly foreign owned
investment; and to $25,000 for joint ventures undertaken with
domestic partners. A foreign investor reinvesting profits or
dividends, or exporting at least 75 percent of the output will not
be required to meet minimum capital requirements. The 27 percent
equity requirement of local partners in joint ventures is also
repealed.

Most, but not all of the tenders issued by the Privatization and
Public Enterprises Supervising Agency (PPESA) under Ethiopia's
privatization program are open to foreign participation. In some
instances the Government promotes joint ventures with Ethiopian
private companies rather than outright sales. Some sectors are
closed to foreign investment.

Foreign firms participate through consultancy services preparatory
to privatization, or through tendering on advertised privatization
opportunities. Of the 360 public
enterprises and branches pegged for privatization, 294 have been
offered between 1994 and December 2007. 254 properties
approximately worth in excess of $460 million have been sold; 18
returned to their original owners, while 10 retail shops and 1 state
farm have been closed. These enterprises are mostly small
enterprises in trade and other service sectors. 24 enterprises were
privatized from October 2006 through December 2007.

While PPESA would not provide the value of privatized companies,
research indicates that companies owned by or affiliated with
prominent Ethio-Saudi businessman Sheik Mohammed Al-Amoudi were
awarded enterprises worth over $400 million, over half of all
privatizations by value.

There are no discriminatory or excessively onerous visa, residence,
or work permit requirements regarding foreign investors. Foreign
investors do not face unfavorable tax treatment, denial of licenses,

ADDIS ABAB 00000105 003 OF 008


discriminatory import or export policies, or inequitable tariff and
non-tariff barriers. However, some Ethio-American investors who
acquired privatized properties have experienced difficulties
obtaining title deeds to the properties because of difficulties
created by local level authorities. Some had problems acquiring land
for investment purposes. Although federal officials have at
times intervened to resolve these problems, a lasting solution
requires policy level changes.

4. Conversion and Transfer Policies
-- Ethiopia's Investment Proclamation (Law) allows all foreign
investors, whether or not they receive incentives, to remit freely
profits and dividends, principal and interest on foreign loans, and
fees related to technology transfer. Foreign investors may also
remit proceeds from the sale or liquidation of assets, from the
transfer of shares or of partial ownership of an enterprise, and
funds required for debt service or other international payments. The
right of expatriate employees to remit their salaries is granted in
accordance with the foreign exchange regulations of the
National Bank of Ethiopia (NBE). U.S. businesses represented in
Ethiopia do not encounter difficulties in the repatriation of
dividends.

-- The NBE retains a monopoly on all foreign currency transactions.
The NBE supervises all payments or remittances made abroad. The
local currency (Birr) is not
freely convertible. Ethiopia issued several proclamations (laws) in
September 1998 that somewhat liberalized the country's foreign
exchange market. NBE issued a directive in 2004 that allows
non-resident Ethiopians and non-resident foreign nationals of
Ethiopian origin to establish and operate foreign currency accounts.
The minimum deposit is U.S. $100 and since 2006 the maximum amount
is $50,000. The directive also allows them to open a minimum of
$5,000 in a fixed foreign currency account. The Bank issued two
other directives in 2006 regarding Flower Export and Foreign
Exchange Repatriations and Provision for International Remittance
Services. In general, firms complain that they are facing
difficulty in obtaining needed foreign exchange at competitive
rates.

-- In contrast to recent years, the Birr has undergone a sharp
depreciation, from Birr 8.65 per dollar in January 2005 to Birr 9.2
per dollar in December 2007. Over this period, the differential
between the inter-bank determined rate and the parallel (or "black
market") exchange rate has been steadily increasing. The rate in
the parallel market began to diverge beginning in 2005 due to
speculation owing to
loss of investor confidence and excess demand for foreign exchange.
Currently, the official exchange rate is Birr 9.2 per dollar while
Birr 9.55 in the parallel market.


5. Expropriation and Compensation
-- Per Ethiopia's 1996 Investment Proclamation (Law) and subsequent
amendments, no assets of a domestic investor or a foreign investor,
enterprise or expansion may be nationalized wholly or partly, except
when required by public interest and
in compliance with the laws and payment of adequate compensation.
Such assets may not be seized, impounded, or disposed of except
under a court order.

-- No confirmed acts of expropriation have occurred under either
the
Transitional Government of Ethiopia (1991-95) or the Federal
Democratic Republic of Ethiopia, which assumed power in mid-1995.
Nevertheless, a few cases of U.S. citizens whose business properties
were expropriated by the Marxist Derg
government in power between 1974 and 1991 remain unresolved.

-- There is no right of private ownership of land. All land is owned
by the state and can be leased for up to 99 years. A few textiles
factories privatized in recent years were repossessed by the
government because the new owners failed to pay debts owed to the
government and other commercial banks.

6. Dispute Settlement
-- According to the Investment Proclamation (Law), disputes arising
out of foreign investment that involve a foreign investor or the
state may be settled by means agreeable to both parties. A dispute
that cannot be settled amicably may be submitted to a competent
Ethiopian court or to international arbitration within the framework
of any bilateral or multilateral agreement to which the Government
and the investor's state of origin are contracting parties.

-- Ethiopia's judicial system remains underdeveloped, poorly staffed
and inexperienced, although efforts are underway to strengthen its
capacity. While property and contractual rights are recognized and

ADDIS ABAB 00000105 004 OF 008


there are written commercial and
bankruptcy laws, many judges lack understanding of commercial
matters. There is no guarantee that the decision of an international
arbitration body will be fully accepted and implemented by Ethiopian
authorities. The Embassy routinely
advises investors to specify that disputes will be settled by
arbitration either in Ethiopia (the Chamber of Commerce now runs an
arbitration center) or abroad due to the lack of experience of
domestic courts.

-- Ethiopia is not a member of the International Center for the
Settlement of Investment Disputes.

7. Performance Requirements and Incentives
-- The 2003 amendment to the Investment proclamation gives
investment incentives for investors in specific areas.

-- Investors engaged in manufacturing, agro-industrial activities or
the production of certain agricultural products and who export at
least 50 percent of their products or
supply at least 75 percent of their product to an exporter as
production input are exempt from income tax for five years. An
investor who exports less than 50 percent of his product or supplies
his product only to the domestic market is income
tax exempt for two years. Under special circumstances, the Board and
the Council of Ministers could extend the tax exemption.

-- The government has also set up a special loan fund of $174
million through the Development Bank of Ethiopia and made available
land at low lease rates for priority export areas such as
floriculture, leather goods, textiles and garments, agro-processing
and related products. An investor can borrow up to 70 percent of the
cost of the project from this special fund without collateral upon
presenting a viable business plan and a 30% personal equity.

-- An investor who invests in the relatively under-developed regions
of Gambella, Benshangul and Gumuz, South Omo, Afar and Somali will
be eligible for an additional one-year income tax exemption.
However, an investor who exports hides and skins after processing
only up to crust level will not be entitled to the income tax
incentive.

-- Investors who expand or upgrade existing enterprises and export
at least 50 percent of their output or increase production by 25
percent are eligible for income tax exemption for two years.

-- Investors are allowed to import duty-free capital goods and
construction materials necessary for the establishment of a new
enterprise or for the expansion of an existing enterprise. Also
spare parts worth 15 percent of the value of the capital good can be
imported duty free. This privilege may be denied if the capital good
and construction materials are locally produced and have competitive
prices, quality and
quantity.


8. Right to Private Ownership and Establishment
-- Both foreign and domestic private entities have the right to
establish, acquire, own and dispose of most forms of business
enterprises.

-- State-owned enterprises have considerable de facto advantages
over private firms, particularly in the realm of Ethiopia's
regulatory and bureaucratic environment, including ease of access to
credit and speedier customs clearance.
Local businessmen as well as foreign investors complain of the lack
of a level playing field when it comes to state-owned and
party-owned businesses, also known as "endowment companies." While
there is no report of credit advancement to them, there are
indications that they receive incentives such as foreign exchange
allocation, preferences in government tenders, and marketing
assistance.
9. Protection of Property Rights
-- Secured interests in property are protected and enforced,
although all land ownership remains in the hands of the state.

-- One pending issue is the return of properties seized, "lawfully"
or "unlawfully" during the Mengistu Haile-Mariam, or Derg, regime
(1974-91). The Government's position is that property seized
"lawfully," that is, by court order or government proclamation
published in the official gazette, remains the property of the
state. The state may choose to sell such property if deemed
appropriate. In most cases, property seized by oral order or other
informal means is gradually being returned to lawful owners or their
heirs through a lengthy judicial appeals process. Claimants are
required to pay for any additions (buildings, generators, etc.) or
improvements made by the Government.

ADDIS ABAB 00000105 005 OF 008

-- Land for investment purpose is leased, with prices set by
periodic auctions for urban land with established market floors.
Land leasehold regulations, however, vary in form and practice by
region. The June 1996 Investment Proclamation and
subsequent amendments charge the Investment Authority with locating
and facilitating the leasing of property by licensed investors.

-- Loan terms are generally quite short and very few mortgages are
made. There is no system of recording security interests.

-- Also see section on Intellectual Property Rights.

10. Transparency of Regulatory System
Ethiopia's regulatory system is generally considered fair, though
there are instances in which burdensome regulatory or licensing
requirements have prevented the local sale of U.S. exports,
particularly personal hygiene and health care products. Investment,
business and other licenses for foreign investors can now be
obtained from the Ethiopian Investment Agency in a matter of hours.
11. Efficient Capital Markets and Portfolio Investment
-- Ethiopia does not have a securities market, although a private
sector initiative to establish a mechanism for buying and selling
company shares is under discussion.

--The government of Ethiopia is in a move to launching a commodity
exchange to help alleviate food shortages and encourage the
commercialization of agriculture. The Ethiopia Commodity Exchange
(ECEX) is expected to be opened in Spring 2008. Given the myriad
weaknesses of Ethiopia's agriculture sector and the government's
insistence on maintaining a tight grip on ECEX, market participants
who profit from price opacity will have other incentives to keep
trading off the exchange.

-- While credit is available to investors on market terms, the 100
percent collateral requirement limits the ability of some investors
to take advantage of business opportunities. Export oriented
investors can borrow from the special fund at
the Development Bank of Ethiopia without collateral for up to 70
percent of the project cost.

-- Foreign banks are not permitted to provide financial services in
Ethiopia. Currently eleven banks; three state-owned and eight
privately owned, are licensed to operate in the country. Four more
private banks are under formation but not yet given license. Some
of the banks used to have extremely high non-performing loan (NPLs)
portfolios. Due to their risk-averse behavior and NBE's stringent
supervision, currently the NPLs ratio is declining and is below 20
percent. The state-owned Commercial Bank of Ethiopia has
approximately two-thirds of the assets of the banking sector, but is
reported to have NPLs in excess of 70 percent.

-- The Ethiopian Government partially controls interest rates. NBE
determines the floor bank deposit rate. Because there are no real
securities markets, the Government cannot affect interest rates
through market actions and retains the
right to set interest rates. Loan interest rates are allowed to
float. The minimum deposit interest rate is now 4 percent; adjusted
upwards from 3 percent in July 2007. Real interest rates remained
negative over the past three years mainly driven by the increase in
the inflation rate. The Government offers a limited number of 28
days, 3-month and 6-month Treasury bills, but prohibits the interest
rate from exceeding the savings deposit rate. In September 1998,
Ethiopia reduced the minimum denomination of Treasury bills to about
$600 (5,000 Birr) in view of accommodating the private sector and
individuals in the market. The yield on these T-bills is very low,
0.638 percent for 28 days, 1.091 percent for 91 days and 1.028
percent for 182-days bill in the first quarter of 2007/08.

-- There are no laws or regulations authorizing private firms to
adopt articles of incorporation/association that limit or prohibit
foreign investment, participation or control. There are no private
sector or Government efforts to restrict foreign participation in
industry standards setting consortia or organizations. There are no
known instances of private firms attempting to restrict foreign
investment,
participation, or control of domestic enterprises.

-- There are no "cross-shareholding" or "stable shareholder"
arrangements used by private firms to restrict foreign investment
through mergers or acquisitions.

12. Political Violence
Ethiopia is relatively stable and secure for investors. Sporadic
ethnic and religious violence in Oromia, Southern and Somali regions
in recent years has not seriously affected foreign or domestic
investors, although an insurgent attack on Chinese workers at an oil

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exploration site in Somali region in April 2007 has prompted China
to suspend exploration operations there.

There was political unrest, violent protests and numerous arrests
following the distputed May 2005 elections. While the unrest had
largely subsided by 2007, local level elections in April 2008 hold
the potential of re-sparking political unrest.


13. Corruption

-- The UN Investment Guide to Ethiopia published in 2004 points out
that, according to the private sector, routine bureaucratic
corruption is virtually non-existent in
Ethiopia. The guide adds that bureaucratic delays and difficulties
certainly exist, but they are not devices by which officials strive
to line their pockets.

-- Ethiopia's Transparency International corruption rating has
declined. Ethiopia ranked 114th out of 146 countries rated in 2004
(a higher number indicates a higher level of corruption), 137th out
of 159 countries rated in 2005, 130th out of
160 countries rated in 2006 and 138th out of 180 countries rated in
2007 suggesting a worsening corruption trend. There are suspicions
that the frequent cancellation of telecommunications, power and
other infrastructure tenders may be a result of corruption. In
addition, state- and party- owned businesses are widely perceived to
receive preferential access to land leases and credit.

-- The Federal Ethics and Anti-Corruption Commission was established
in 2001. Since its establishment, the Commission has arrested many
officials, including managers of the Privatization Agency, the
state-owned Commercial Bank of Ethiopia, and private businessmen and
charged them with corruption. There were some arrests in 2007 such
as officials from the Ethiopian Telecommunications Corporation,
Addis Ababa City Land Administration, Ministry of Mines and the
National Bank of Ethiopia.

-- Money laundering controls do not apply to non-banking financial
institutions or intermediaries and there have been no significant
arrests for money laundering or terrorist financing in 2007. There
is no distinct 2007 recording of terrorist-related financing arrests
or convictions.


-- It is a criminal offense to give or receive bribes, and bribes
are not tax deductible. The Embassy has no knowledge of foreign
investors ever being charged with corruption. The Ministry of
Justice and the Anti-Corruption Commission are
the Government entities with the primary responsibility to combat
corruption.

14. Bilateral Investment Agreements
-- To date, Ethiopia has bilateral investment agreements and
treaties with China, Denmark, Italy, Kuwait, Malaysia, Netherlands,
Russia, Sudan, Switzerland, Tunisia, Turkey Yemen, and recently with
Djibouti. The Investment Agency has expressed interest in discussing
a bilateral investment treaty with the United States. A Treaty of
Amity and Economic Relations, which entered into force on October 8,
1953, governs economic and consular relations between the U.S. and
Ethiopia. Ethiopia also has double taxation treaties with Italy,
Kuwait, Romania, Russia, Tunisia, Yemen, Israel and South Africa.
There is no double taxation treaty between the U.S. and Ethiopia.
15. OPIC and Other Investment Insurance Programs

-- The Overseas Private Investment Corporation (OPIC) offers risk
insurance and loans to US investors in Ethiopia. In October 2000,
the Ethiopian Investment Authority and OPIC signed an Investment
Incentive Agreement and the agreement was ratified by the Ethiopian
Parliament on April 8, 2003. OPIC provided political risk insurance
in 1995 for a US$ 48 million project by a US firm to construct a
sugar refinery. It also provided risk insurance to a US firm
involved in a road design project. OPIC also provided loan and risk
insurance in 2003 for MedPharm project, a medical laboratory
established by a US company led by a US citizen of Ethiopian origin.
The project is now operational. Ethiopia is a member of the
Multilateral Investment Guarantee Agency (MIGA).

16. Labor

-- Ethiopia's labor force is estimated at 35 million, of which 85
percent are employed in subsistence agriculture, mostly as farmers.
The Government and armed forces are the most important sectors of
employment outside agriculture and provide work for almost 3 million
people. The number of permanent and temporary workers employed in
public sector manufacturing increased from 78,000 in 1978 to over
300,000

ADDIS ABAB 00000105 007 OF 008


in 1999 and currently remains at about the same level. Approximately
40 percent of the urban workforce is unemployed. The high urban
underemployment is partially
offset by an informal economy. According to a May 2006 ILO survey,
the informal sector constitutes 70-80% of the workforce. The
economy is growing but does not generate enough jobs for the 600,000
new entrants per year.

-- Labor remains readily available and inexpensive in Ethiopia.
Skilled manpower, however, is scarce in many fields.

-- Only about 300,000 workers are members of labor unions. Civil
sector employees are not allowed to form unions. Most ILO Core Labor
Standards have been enacted into law; the Ethiopian Parliament
ratified ILO Convention 182 on the Worst
Forms of Child Labor in May 2003.

-- Child labor is widespread in Ethiopia. While not a pressing issue
in the formal economy, child labor is common in rural agrarian areas
and the informal economy in urban areas. Employers are statutorily
prohibited from hiring youngsters under the age of 14. There are
strict labor laws defining what sectors may hire "young workers,"
defined as workers aged 14 to 18, but these are not always
enforced.

-- Ethiopia has ratified all eight core ILO conventions. Ethiopia's
Labor Proclamation (42/93) prohibits children below the age of 14
from working. The same proclamation limits conditions of work for
children between the ages of 15 and 18. Children in the 15-18 year
old age bracket are allowed to work so long as it is not hazardous
to their health or developmental progress. Prohibited activities
include transporting goods by air, land, or sea; working with
electric power generation plants; and performing underground work.
Article 176 of Ethiopia's Criminal Code identifies minors as age 15
or younger, identifies age 18 as the age of legal majority, and
notes that those between age 15 to 18 belong to an "intermediary age
group."

-- The Ethiopian Penal Code outlaws work specified as hazardous by
the International Labor Organization (ILO) convention, but the labor
law of Ethiopia does not define or specify the worst forms of child
labor. The GOE ratified Convention 182 on May 8, 2003. As the
Ethiopian constitution states that all international conventions and
covenants ratified by Ethiopia are an integral part of the law of
the land, the list of occupations listed by the ILO Convention also
apply in Ethiopia.

-- Ethiopia generally enjoys labor peace. There was no formal labor
strike in 2006/07. The Government re-certified the Confederation of
Ethiopian Trade Unions (CETU) in April 1997. Since its
re-certification, CETU (with a constituent membership of 182,000)
has focused on fundamental workers' concerns, such as job security;
pay increases, severance pay, and health and retirement benefits.
The right to form labor associations and to engage in collective
bargaining is granted in the constitution. The new labor law that
went into effect in February 2004 is generally considered
pro-employer by labor unions. ---- Workers who perform essential
services are not permitted to strike. Organizing workplaces is
difficult because the courts are slow. According to the Ministry of
Labor and Social Affairs (MOLSA) and ILO staff, the 2003 labor laws
are considered to be a positive step, however implementation remains
weak. While there is supposed to be an industrial court in each of
the nine regions, they exist only in Addis and three regions.

-- Tri-partism emerged in May 1998 when the Government licensed the
Ethiopian Employers' Association (EEA). The EEA is dedicated to
maintaining labor peace and works in harmony with the ILO, CETU and
the Ministry of Labor and Social Affairs. Its leadership supports
the adoption of all ILO Core Labor Standards. In general,
entrepreneurs believe that cooperating with labor is in their
self-interest.

17. Foreign-Trade Zones/Free Ports

-- There are no areas designated as foreign trade zones and/or free
ports in Ethiopia. Because of the 1998-2000 Ethio-Eritrean war,
Ethiopian exports and imports through the Eritrean port of Assab are
now prohibited. As a result, Ethiopia is conducting almost all of
its trade through the port of Djibouti with some trade via the
Somaliland port of Berbera. Despite Ethiopia's efforts to clamp down
on small-scale trade of contraband, unregulated exports of coffee,
live animals, khat (a mildly narcotic amphetamine-like leaf), fruit
and vegetables, and imports of cigarettes, alcohol,textiles,
electronics and other consumer goods continues. The Government of
Ethiopia provides support to exporters of textiles, leather and
horticultural products, including plots of land at low lease prices
and a line of

ADDIS ABAB 00000105 008 OF 008


credit of $174 million (1.5 billion Birr) to finance exports.


18. Foreign Direct Investment Statistics
-- Foreign direct investment in Ethiopia has gradually increased in
the last few years. It increased from $40 million in 2002 to $70
million in 2004. Floriculture, horticulture in general, and leather
are the sectors that have lately attracted FDI. Cumulated US
capital inflow in the form of FDI to Ethiopia in the past 15 years
has surpassed an estimated amount of $4.0 billion. Current U.S.
direct investment in Ethiopia is estimated at about $60 million.

-- U.S. companies with the significant presence and participation
in Ethiopia's economy include Boeing, Cargill, Sheraton Hotels,
Lucent Technologies, Cisco, Coca-Cola, Pepsi-Cola, Schaffer &
Associates, Pioneer Hi-Bred Seeds, DHL International, Federal
Express, United Parcel Service, Caterpillar, Mack Trucks, General
Motors, Rank/Xerox Corporation, John Deere, Navistar and Hughes
Network.


End Text

YAMAMOTO

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  • PMC