Insights from EuroCham’s March CEO Networking Event: Exploring the Ethiopia-Somaliland Memorandum of Understanding
Insights from EuroCham’s March CEO Networking Event: Exploring the Ethiopia-Somaliland Memorandum of Understanding
EuroCham’s CEO Networking Event provided a platform for an insightful panel discussion on the recent Memorandum of Understanding (MoU) between Ethiopia and Somaliland. Dr. Paul-Simon Handy of the Institute of Security Studies shared nuanced perspectives on the geopolitical implications of the agreement. Attendees engaged in a robust dialogue, exploring the challenges and opportunities arising from the MoU, including its potential impact on regional stability and Ethiopia’s strategic interests. The event facilitated meaningful networking opportunities and deepened participants’ understanding of the complex dynamics surrounding the agreement.
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CEO Networking Event Unveils Ethiopia's Macroeconomic Update amid Forex Liquidity Crisis
CEO Networking Event Unveils Ethiopia's Macroeconomic Update amid Forex Liquidity Crisis
In a recent EuroCham CEO networking event, industry leaders convened to discuss Ethiopia’s economic landscape, shedding light on crucial macroeconomic indicators and challenges facing the nation. The event featured a presentation by a senior macroeconomist, drawing his extensive experience in various global markets, including Angola and India, to provide insights into Ethiopia’s current situation.
One of the keynote points highlighted was Ethiopia’s impressive economic growth, with macroeconomic indicators showcasing a remarkable 6% increase over the last six years. Accordingly, the total population of the country as IMF estimates to be 107,000,000 million the nation’s GDP is thought to stand at USD 163 billion, boasting a per capita income of USD 1,500. Despite the absence of significant oil and gas exports, Ethiopia has managed its foreign debt effectively, totaling USD 27 billion, with a substantial portion sourced from multilateral and bilateral lenders the panelist asserted.
However, the country faces a significant challenge in generating foreign exchange, prompting the National Bank of Ethiopia to implement policies such as enforcing a 20% loan disbursement cap among local banks.
Additionally, Ethiopia has defaulted on Euro Bond repayments, albeit claiming the capacity to honor obligations uniformly across lenders prompting the country to be kicked out of the international capital market.
Key creditors such as China, the G20, and bilateral lenders play a crucial role in Ethiopia’s debt profile, facilitating negotiations for temporary relief programs to reschedule repayment obligations. The International Monetary Fund (IMF) is poised to assist Ethiopia in stabilizing its monetary policy as a going concern in light of the negotiations going on but demands stringent conditions, including aligning foreign exchange rates with the black market, broadening the tax base and reducing subsidies on imports.
Ethiopia’s investment decisions, particularly in industrialization efforts, aim to boost export revenues, notably in textile specialties seems to fail as the investment did not worth the return partly due to the challenge posed in relation with AGOWA. However, the challenges in forex reserve persist, due to dwindling forex remittances, lack of transparency in forex allocation as well as export commodities notably coffee used as a tool to generate forex and increased import appetite with a foreseeable decrease in reserves of forex denominations amidst rising foreign expenditure.
The ongoing civil unrest, notably in the Oromia and Amhara regions, exacerbates economic woes, with estimates suggesting a 3% GDP loss due to conflict in the earlier Tigray conflict. Negotiations with the IMF underscore the urgency for deregulation to avert a looming forex crisis, with calls to align official exchange
rates with those of the black market.
As Ethiopia navigates through these economic challenges, stakeholders emphasize the need for swift action to mitigate the adverse effects on the nation’s economic landscape.
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EuroCham Engages in Constructive Dialogue with National Bank of Ethiopia
EuroCham Engages in Constructive Dialogue with National Bank of Ethiopia
On February 9, 2024, His Excellency Mamo Mihretu, the Governor of the National Bank of Ethiopia (NBE), welcomed EuroCham Board members to his office for a pivotal technical meeting. This meeting served as a platform forfruitful discussions on a wide array of fiscal policies and mattersfalling underthe jurisdiction of the NBE.
During the engagement, challenges faced by the European Foreign Direct Investment (FDI) community were candidly addressed. These challenges included hurdles in the clearance process from the delinquency list, lack of forex priority allotment for importing raw materials and capital expenditure (CAPEX) investments to substitute imports, transparency in foreign exchange (FX) allocation, and the exploitation of export commodities especially coffee for generating FX, alongside issues related to dividends repatriation and the potential offsetting of receivables versus payables.
Governor Mihretu acknowledged these challenges and highlighted ongoing efforts by NBE to address them. He emphasized NBE’s commitment to ensuring strict adherence to directives issued for managing FX allotment, while also stressing the need for fundamental solutions to address forex allocation challenges comprehensively.
In response to concerns about importers engaged in coffee exports, participants proposed reviewing certain business pathways, such as treating import and export performances separately. This proposal aims to prevent sustained losses from export activities leading to business liquidation or bankruptcy, thereby promoting sustainable export practices.
Regarding dividends repatriation, NBE recognized the longstanding challenges faced by FDI entities and proposed to look into backlogs as will be compiled by the European Chamber in a bid to allocate a certain percentage of dividends to signal commitment the Ethiopian Government in supporting FDI and enhance
investor confidence.
Discussions also explored the possibility of offsetting receivables versus payables, with NBE citing precedents like local currency swaps as potential solutions to explore further. NBE welcomed innovative proposals for intra-company arrangements, promising thorough examination on a case-by-case basis.
Finally, Governor Mihretu touched upon broader macroeconomic challenges and upcoming policy revisions in the forex regime aimed at ensuring price stability and the soundness of financial institutions.
The technical meeting between EuroChamber and NBE underscored the commitment of both parties to fostering a conducive investment environment in Ethiopia while addressing the concerns of the European FDI community
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Customs Commission Revised Approval Process for Goods Imported on Franco Valuta
In a significant development affecting importers, exporters, and freight forwarders, modifications have been made by the Ethiopian Customs Commission to the approval process for goods imported on franco valuta under special conditions. The changes, mandated by a directive issued by the Commission, are poised to reshape how services are sought and delivered in this domain.
As of February 20, 2024, a revised protocol dictates that customers seeking approval for cases falling outside the established parameters must now direct their requests to the Head Office. This pivotal shift, outlined in Directive No. 66/2004, marks a departure from the previous practice of branch offices overseeing such approvals.
The directive, which cites Article 8(1) and Article 8(2) as its legal basis, underscores the necessity for compliance with the updated approval framework. Importers, exporters, and freight forwarders are urged to familiarize themselves with these amendments to ensure seamless adherence to regulatory requirements.
This progression will compel the European Chamber to voice its apprehensions regarding the obstacles encountered in importing Franco Valuta, attributable to Customs-related issues and delays. Additionally, the centralized application process for imports, directed to the Head Quarters, has exacerbated the situation, resulting in a significant portion of applications being denied. These impediments not only disrupt trade but also undermine the benefits linked with European Foreign Direct Investment (FDI) in Ethiopia. The Chamber calls upon authorities, including the Ethiopian Customs Commission, Ethiopian Investment Commission, and the Ministry of Finance, to swiftly tackle these challenges.
This development underscores the dynamic nature of regulatory frameworks governing international trade and underscores the need for stakeholders to remain vigilant and adaptable in navigating evolving compliance landscapes.
For further details regarding the revised approval process and pertinent regulatory documentation, concerned parties are encouraged to refer to the official communication issued by the Commission in the following links in original and unofficial interpretation of the document. Download File
Access to Land: Streamlining Land Acquisition For Investors Outside Industrial Parks
On March 12, 2024, the European Chamber in Ethiopia launched a policy brief addressing challenges related to land access for investors outside industrial parks in Ethiopia. Titled ‘Access to Land: Streamlining Land Acquisition for Investors Outside Industrial Parks,’ the document identifies bureaucratic delays, insufficient pre-allocation of land, and coordination gaps between federal and regional authorities as key obstacles. It offers recommendations to the Ethiopian government, including establishing clear and consistent policies, enhancing land administration capacity, and fostering federal-regional coordination. The brief aims to create a conducive environment for private sector growth and attract foreign investment to Ethiopia. EuroCham, representing the European business community in Ethiopia since 2012, is committed to supporting Ethiopia’s business environment. With 180 members, EuroCham facilitates information exchange, networking platforms, and dialogue with government stakeholders to improve the business climate. More information is available on EuroCham’s website: http://eurochamethiopia.eu/.
The European Chamber in Ethiopia launches 2 Policy Briefs, on Forex Disbursement and Customs Administration to Propel Public Private Dialogue for improving Business Environment and Investment Climate in Ethiopia
The European Chamber in Ethiopia launches 2 Policy Briefs, on Forex Disbursement and Customs Administration to Propel Public Private Dialogue for improving Business Environment and Investment Climate in Ethiopia
A technical meeting between the Ethiopian Ministry of Finance and representatives from the European Chamber in Ethiopia (EuroCham) and the European Union Delegation was held on July 24, 2024, aiming to address key challenges faced by European foreign direct investors in the country. The meeting was attended by H.E. Ahmed Shide, Minister of Finance, alongside senior officials from the Ministry and EuroCham Board members, including leaders from various sectors such as agriculture, logistics, and manufacturing.
The Minister opened the meeting by extending a warm welcome to the Charge d’affaires of the European Union Delegation to Ethiopia, Dr. David Krivanek. He acknowledged the EU’s role as a vital trade partner, emphasizing the significance of the ‘Everything But Arms’ (EBA) initiative, which allows Ethiopian goods to enter European markets tariff-free. He noted that Ethiopia’s exports to the EU reached EUR 688 million in 2023, marking a 40% increase over the last five years and that Europe collectively constitutes the largest and most consistent development partner.
Dr. David expressed appreciation for the opportunity to engage with the Ministry and highlighted the EU’s ongoing commitment to supporting Ethiopia amid various challenges. He pointed out that the EU remains the second largest trade partner for Ethiopia and a significant source of Foreign Direct Investment (FDI). However, he outlined persistent issues hindering investment, including limited access to foreign exchange, inconsistent customs valuations, and bureaucratic hurdles.
During his remarks, Ben Depraetere, Board Chair of EuroCham, outlined several key issues impacting the investment landscape for European companies operating in Ethiopia. Among the foremost challenges are difficulties related to customs valuation and tax assessment and audit challenges that European businesses encounter. It was pointed out that the current processes often lack transparency and consistency, creating uncertainty for investors. Furthermore EuroCham stressed that the current audit appeal procedure is problematic as companies are required to deposit 50% of the tax claim in case they want to appeal and a further 25% if further appeal is required. EuroCham highlighted that unfounded tax claims can severely strain company liquidity, potentially leading to business closures. This would have detrimental consequences for employment and sustainable revenue generation. Furthermore it may open doors for corruption with auditors seeking personal gains. The Minister responded that while everyone has a responsibility to contribute to revenue generation, it should not hinder legitimate businesses. The Minister invited EuroCham to propose suggestions and best practices on tax appeal procedures. EuroCham also highlighted challenges in accessing foreign loans due to the 5% interest rate cap.
Regarding VAT, the minister explained that the increase in VAT on consumer goods is part of the drive to increase the tax to GDP rate from its current 7% to 11% in 4 years time. He emphasized that the strategy is being implemented with a focus on protecting the poor. EuroCham noted that the recent VAT reforms have removed the exemption for animal feed and vegetable seedlings. This change will affect smallholder farmers and consumers as VAT will now be passed on to end consumers for animal products and vegetables. The Minister acknowledged the remarks and assured EuroCham that the matter would be investigated further.
Finally, EuroCham pointed out significant logistical challenges within Ethiopia’s coffee sector, emphasizing the need for improved infrastructure and support systems to facilitate smoother operations for foreign investors in this vital industry. This is particularly urgent given the impending EU Deforestation Regulation, which necessitates timely shipments. The Minister took note and expressed his commitment to address the booking and system issues related to ESLE and Ethiopian Railway Corporation with the Ministry of Transport and Logistics.
The Minister concluded by emphasizing that the issues raised affected not only European investors but also all foreign investors and local businesses. Hence addressing these topics will lead to improving the business climate for all.
The meeting served as a platform for open dialogue, with participants agreeing to systematically address these challenges to enhance the investment climate in Ethiopia. During the meeting, EuroCham handed a copy of its policy briefs on tax, customs, foreign exchange and land access to the Minister. EuroCham members expressed optimism about the potential for collaboration between the chamber and the Ministry of Finance, aiming to create a more conducive environment for European FDI in the country.