Identifier
Created
Classification
Origin
07ADDISABABA238
2007-01-26 07:14:00
UNCLASSIFIED
Embassy Addis Ababa
Cable title:  

ETHIOPIA: INVESTMENT CLIMATE STATEMENT 2007

Tags:  EINV EFIN ETRD ELAB KTDB PGOV ET 
pdf how-to read a cable
VZCZCXRO9073
RR RUEHROV
DE RUEHDS #0238/01 0260714
ZNR UUUUU ZZH
R 260714Z JAN 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 4261
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 08 ADDIS ABABA 000238 

SIPDIS

SIPDIS

TREASURY FOR DO/JWALLACE, USDOC FOR ITA/SMATHEWS, USTR FOR
DWEINER, OPIC FOR ROSULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV ET
SUBJECT: ETHIOPIA: INVESTMENT CLIMATE STATEMENT 2007

REF: STATE 178303

UNCLAS SECTION 01 OF 08 ADDIS ABABA 000238

SIPDIS

SIPDIS

TREASURY FOR DO/JWALLACE, USDOC FOR ITA/SMATHEWS, USTR FOR
DWEINER, OPIC FOR ROSULLIVAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV ET
SUBJECT: ETHIOPIA: INVESTMENT CLIMATE STATEMENT 2007

REF: STATE 178303


1. Begin Ethiopia's 2007 Investment Climate Statement:

OPENNESS TO FOREIGN INVESTMENT
--------------

There are few changes since last year's Investment Climate
Statement report. The 2005/2006 highlights include:

-- A new proclamation governing trademark registration and
protection was issued in July 2006

-- Despite relative stability and security for investors,
sporadic political, religious and ethnic violence continued
in some parts of the country, including the capital.

-- A recently published UN Investment Guide to Ethiopia
indicated that, according to the private sector, routine
bureaucratic corruption is virtually non-existent in
Ethiopia. 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 in its
Corruption Perception Index, where a higher number indicates
higher level of corruption.

-- Ethiopia signed a double taxation treaty with, Algeria,
Tunisia, and France in 2006 which made the total signed
agreements about fifteen.

-- Ethiopia and Djibouti on November 18, 2006 signed a
multi-modal transport agreement which enables the effective
utilization of the port of Djibouti for the coming 20 years
and a door-to-door cargo transit between the two countries.

-- A bilateral investment agreement was preliminarily signed
between Ethiopia and Djibouti which allows citizens of both
countries to invest in areas only restricted for domestic
investors/nationals. This agreement does not cover areas of
banking, insurance, micro-financing institutions,
broadcasting and press. This agreement will be official after
it is passed by the House of Peoples Representatives.

-- 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 Commercial Bank of Ethiopia (CBE) effective November 14,


2006.

-- A National Foreign Investment Promotion Advisory Council
has been recently established with a view to conducting
focused foreign investment promotion on textile and garment,
leather and leather products, fruits and vegetables and
agro-processing areas. Its two major tasks to collect
organize and make available basic data with regard to land
allocation, utilities connection, investment opportunities,
market and other relevant information. The next step is to
track potential foreign inventors and convince them to invest
in Ethiopia in the priority areas.
-- Ethiopian Telecommunications Corporation is about to
embark on $1.5 billion expansion project through a vendor
financing scheme signed with a Chinese company called ZTE.

The Government of the Federal Democratic Republic of Ethiopia
(GFDRE) 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. To that end it 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. In
2003, Ethiopia formally applied for membership to the World
Trade Organization (WTO) and a Memorandum of Foreign Trade
Regime (MFTR) was submitted to the WTO Secretariat in January

2007. 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.

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

ADDIS ABAB 00000238 002 OF 008


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 latest amendment, areas solely reserved
for government investment were reduced to the transmission
and supply of electricity through the Integrated National
Grid System and postal services with the exception of courier
services. 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, air transport services using
aircraft with a seating capacity of more than 20 passengers
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; travel agency,
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
saloons, 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, and
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.

The Ethiopian Government reviews investment proposals in a
non-discriminatory manner. Foreign investors do not regard
the screening process as an impediment to investment, a limit
to competition, or a means of protecting domestic interests.

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 end of October 2006, 230
properties approximately worth $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.


ADDIS ABAB 00000238 003 OF 008


The privatization process is back on its track again. PPESA
has put out a tender for 41 state enterprises in the past one
year. Out of the 41 enterprises 20 are tendered for a
partnership and outright sale. Among them are 9 food and
beverage factories, 5 agro-industry and agriculture firms,
and 6 transport and chemical enterprises

None of Ethiopia's utilities have been privatized to date,
though the government is looking for foreign investor
partners in selected telecommunications sectors. At the
moment the Government has 91 state enterprises under its
control.

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

CONVERSION AND TRANSFER POLICIES
--------------

-- Ethiopia's Investment Proclamation (Law) allows all
foreign investors, whether or not they receive incentives, to
freely remit 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. U.S. businesses represented in
Ethiopia do not encounter difficulties in the repatriation of
dividends.

-- The National Bank (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 maximum $5,000. The Bank amended the directive
in 2006 that the maximum amount to be deposited in a current
account shall be $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 the last three years, the Birr has been fairly stable,
undergoing a gradual depreciation from 8.57 birr per dollar
in June 2004 to birr 8.75 per dollar in December 2006. Over
this period, the differential between the inter-bank
determined rate and the parallel (or "black market") exchange
rate has been nearly narrowed significantly, though rates
began to diverge in late 2005 due to speculations owing to
domestic unrest and loss of investor confidence.

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 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.


ADDIS ABAB 00000238 004 OF 008


-- There is no right of private ownership of land. Land is
leased from the state for up to 99 years. A few textile
factories privatized in recent years were repossessed by the
government because the new owners failed to pay debts owed to
the government.

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 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.

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 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.

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.


ADDIS ABAB 00000238 005 OF 008


-- 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.

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's
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.

-- 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.

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.

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.

-- 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 the
amount up to 70 percent of the project cost.

-- Foreign banks are not permitted to operate in Ethiopia.
Currently eleven banks; three state-owned and eight privately
owned, are licensed to operate in the country. 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-third of the assets of the
entire banking system.

-- 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 3 percent;
adjusted downward from 6 percent in March 2002. Real
interest rates remained negative in the past two years driven
by the increase in the inflation rate. The Government argues
this move was necessary to lower lending rates to encourage
economic activity. The Government offers a limited number of
28 days, 3-month and 6-month Treasury bills, but prohibits

ADDIS ABAB 00000238 006 OF 008


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, 0.051 percent
for 28 days, 0.048 percent for 91 days and 0.025 percent for
182-days bill in the first quarter of 2006/07.

-- 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.

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.

In fact the pace of both domestic and foreign investments
particularly in Oromia has picked up in recent years.
However, following the May 2005 elections, there was
political unrest across the country and two incidents of
demonstrations in Addis Ababa that turned violent, resulting
in numerous arrests. Strikes, demonstrations, boycotts and
shutdown of businesses by the government affected production,
employment, trade, transport and other aspects of the
national economy. By the year 2006, the unrest had largely
subsided.

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 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 and 130th out of
160 countries rated in 2006, 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 receive
preferential access to land leases and credit.

-- In May 2001, the Government launched an anti-corruption
campaign in which a number of Ethiopian Government and
private sector officials were detained. On May 24, 2001, the
Government passed a proclamation on anti-corruption
procedures and rules, and an Anti-Corruption Commission has
been established. 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 no major arrests in the last two years.

-- 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.

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

ADDIS ABAB 00000238 007 OF 008


Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel and
South Africa. There is no double taxation treaty between the
U.S. and Ethiopia.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------

The Overseas Private Investment Corporation (OPIC) offers
risk insurance and loans to U.S. investors in Ethiopia. In
October 2000, the then called Ethiopian Investment Authority
(now Investment Agency) 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 $48 million project by
a U.S. firm to construct a sugar refinery. It also provided
risk insurance to a U.S. firm involved in a road design
project. OPIC also provided loan and risk insurance in 2003
for Med-Pharm project, a medical laboratory established by a
U.S. company led by a U.S. citizen of Ethiopian origin. The
project is now operational. Ethiopia is a member of the
Multilateral Investment Guarantee Agency (MIGA).

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
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.

-- 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 not a pressing issue in the formal economy,
but 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 generally enjoys labor peace. There was no formal
strike in 2005/06. The Government re-certified the
Confederation of Ethiopian Trade Unions (CETU) in April 1997.
Since its re-certification, CETU 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.

-- 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.

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. 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,

ADDIS ABAB 00000238 008 OF 008


including plots of land at low lease prices and a line of
credit of $174 million (1.5 billion birr) to finance exports.

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 $400 million. 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.
YAMAMOTO