Ethiopia

Addis Ababa, Ethiopia – 5 March 2025   – Dablo Law Firm, one of Ethiopia’s premier full-service law firms, has officially joined LEX Africa, the continent’s largest and longest-standing legal alliance. This strategic move strengthens Ethiopia’s representation in LEX Africa’s expansive network of leading independent law firms across 30 African countries. Founded in 1993, LEX Africa is a Band 1 ranked legal alliance that provides cross-border and local African legal solutions to businesses, investors, and organizations operating across diverse sectors. The addition of Dablo Law Firm further enhances LEX Africa’s ability to offer world-class legal expertise across Africa. LEX Africa Chairperson Pieter Steyn says, "We are delighted and honoured to welcome Dablo Law Firm to LEX Africa.  Ethiopia is a key African jurisdiction and DABLO law firm expands our Pan African Team and presence to cover 30 African countries. We look forward to working together with our new Ethiopian colleagues". Commenting on the firm’s admission to LEX Africa, Managing Partner Dawit Kidane said: "Joining LEX Africa is a significant milestone for Dablo Law Firm and a testament to our commitment to delivering high-quality legal services with a Pan-African perspective. As Ethiopia continues to attract international investment, being part of LEX Africa allows us to offer clients seamless access to top-tier legal expertise across the continent." Deputy Managing Partner Addisu Hailegebrel added: We are honored to become LEX Africa’s exclusive Ethiopian member. This alliance not only expands our reach but also enables us to collaborate with some of Africa’s most respected law firms. Our clients will benefit from enhanced cross-border legal capabilities, and we look forward to contributing to the alliance’s continued success."* Deputy Managing Partner Bruk Geremew also commented, saying: “Becoming part of LEX Africa is a pivotal moment for our firm and the broader Ethiopian legal market. This alliance allows us to connect with Africa’s top legal minds, share knowledge, and enhance the services we offer to our clients—both local and international. As Ethiopia’s economy continues to evolve, having access to a trusted Pan-African legal network ensures that we remain at the forefront of delivering innovative, business-driven legal solutions.” DABLO Law Firm specializes in a broad range of legal areas, including corporate and commercial law, investment law, litigation and dispute resolution, employment law, real estate and construction law, intellectual property, banking and finance, regulatory compliance, tax and customs, NGO and civil society law, gaming and entertainment law, and public-private partnerships (PPP). With a strong understanding of Ethiopia’s evolving legal and business landscape, the firm is well-positioned to support both local and international clients navigating the country’s dynamic investment climate.   For media inquiries, please contact: Dawit Kidane [email protected] +251938888887  

DABLO Law Firm is pleased to announce the promotion of Mr. Iyasu Teketel to the position of Head of the Consultancy and Compliance Department.This decision reflects the firm’s confidence in Iyasu’s exceptional abilities, dedication, and proven track record of performance. In a statement, the Managing Partner of DABLO Law Firm, Mr. Dawit Kidane, expressed his enthusiasm for Iyasu’s new role, stating, “Iyasu’s extensive experience and outstanding contributions to the firm make him the ideal candidate for this position. His dedication and contribution have been instrumental to our success, and we are confident that he will lead the Consultancy and Compliance Department to new heights.” Iyasu’s promotion comes as a testament to his hard work, expertise, and commitment to the firm’s mission. His leadership is expected to further strengthen the Consultancy and Compliance Department, driving innovation and excellence in the firm’s operations. The firm also took the opportunity to acknowledge the remarkable contributions of Mr. Fitsum, the former Head of the Consultancy and Compliance Department. Mr. Dawit Kidane added, “We extend our heartfelt gratitude to Fitsum for his exceptional leadership and pivotal role in our firm’s achievements. We are pleased to share that Fitsum will continue to contribute to DABLO in another capacity, details of which will be communicated soon.” DABLO Law Firm invites its colleagues, partners, and clients to join in congratulating Iyasu on this well-deserved promotion and in expressing gratitude to Fitsum for his invaluable service. The firm remains committed to fostering talent and leadership within its ranks, ensuring continued growth and success in the legal and consultancy sectors.  

Introduction Ethiopia has embarked on a new era of economic policy, marked by currency devaluation and a significant revamp of the foreign currency exchange regime.The National Bank of Ethiopia (NBE) has revised its long-standing practice of fixing and controlling the exchange rate, opting for a market-based exchange regime. It has introduced a new Foreign Exchange Directive (FXD/01/2024) on July 29, 2024, which repealed all the previous sporadic directives governing the foreign exchange regime and consolidated the applicable rules into a single directive. This move is the fourth and by far the most radical currency devaluation measure taken by the government since the fall of the Derg regime in 1991.  DABLO has examined the content of the new Directive, and here are the key legal changes brought by the Directive. Market-Based Exchange Regime: The role of the NBE has been reduced to monitoring the overall operation while the foreign exchange regime is to be governed by the market. Banks are allowed to freely set exchange rates and trade currencies with their customers and among themselves.[1] The NBE will compile an Indicative Daily Exchange Rate based on reports of daily exchange rates used by the banks. This rate will serve as a reference to set exchange rates but is by no means binding on the banks, as they are free to negotiate the market rate. Banks are required to report their daily foreign exchange rates to the NBE using a predetermined format.[2] The directive has introduced a two-tier structure for spot foreign exchange markets. The first tier is the wholesale or inter-bank forex market, where authorized banks engage in foreign currency transactions with one another.[3] The second tier is the retail forex market, where authorized banks or foreign exchange dealers conduct transactions with their customers. In this market, banks are permitted to negotiate buying and selling rates freely with their customers, allowing for greater flexibility in pricing based on market conditions and customer agreements. Currency Surrender: One of the most notable changes in the Directive is the elimination of the requirement for commercial banks and exporters to surrender their export earnings to the NBE. This change aims to give exporters greater flexibility in managing their finances. Exporters are now permitted to retain 50% of their export earnings in foreign currency, up from the previous 40%.[4] Exporters are permitted to use the foreign currency solely for their own purposes and may retain it in their retention account indefinitely.[5] Import Restrictions and Currency Allocation: The Directive lifts the previously imposed import restriction on 38 product categories while maintaining the restriction on capital account outflows. It is interesting to note that while the Directive uncategorical lifts the restriction on the 38 product categories, a letter written by the Ministry of Finance on July 30, 2024, maintained the restriction imposed on imports of fully assembled automobiles that run on fuel and three-wheel vehicles. The Directive also removes the rules governing banks’ allocation and distribution of foreign exchange, which was previously managed through a waiting list system for various import categories. Engagement of Non-Bank Actors: The Directive paves the way for non-bank actors to engage in foreign currency transactions at market rates. These entities must obtain prior authorization or a license from the NBE.[6]  Accordingly, on October 2, 2024 the National Bank has announced that five companies who applied for licenses and fulfilled the minimum requirements set by the Bank have been granted licenses to operate as Independent Foreign Exchange Bureaus. Franco Valuta Imports: Although the directive initially lifted restrictions on Franco valuta imports[7],  the Ministry of Finance has reinstated the ban on imports that do not utilize foreign exchange from the banking system. In a letter sent to the Customs Commission and the National Bank of Ethiopia on November 8, 2024, the Ministry announced its decision to reimpose the restriction. As a result, the Franco valuta ban has been reinstated just three months after it was lifted by the directive. Foreign Currency Accounts: The directive significantly relaxes the regulations governing foreign currency accounts for foreign institutions, foreign direct investment (FDI) companies, international organizations, embassies, foreign NGOs,[8] and the Ethiopian diaspora.[9] It permits the opening of three types of foreign currency accounts: Foreign Currency (FCY) Accounts for Foreign Entities, FCY Accounts for Residents and Non-Resident Ethiopians, and Retention Accounts for exporters of goods and services. Foreign entities are now allowed to maintain multiple accounts across different financial institutions, unlike the previous times where they were allowed to maintain a single foreign currency account.[10] Additionally, foreign nationals employed by these entities can fully utilize their accounts without being required to surrender any portion of their foreign currency earnings. For Ethiopians, both resident and non-resident, the directive broadens the scope of foreign currency accounts, enabling them to receive funds from international remittance service providers, salaries, rental income, and other legitimate sources. These accounts can also be used to make payments for foreign services, further enhancing financial flexibility. Repatriation of Capital: To enhance Ethiopia’s appeal as a destination for foreign direct investment, the directive establishes clear and streamlined procedures for the repatriation of capital and earnings. It explicitly recognizes the rights of foreign investors to transfer funds abroad in convertible currency, ensuring ease of capital movement. Under this directive, foreign investors can repatriate profits and dividends earned from their investments, proceeds from the sale or liquidation of an enterprise, and funds obtained from the transfer of shares or ownership in a business.[11] Additionally, investors who are unable to commence operations are entitled to reclaim their initial investment, while profits from portfolio investments in equity or debt securities can also be repatriated. Eased Rules for External Loans and Supplier Credit: The directive introduces significant reforms to enhance financial flexibility and investment opportunities. It removes the previous interest rate ceiling on foreign borrowings, allowing banks and companies to negotiate competitive financing terms with external creditors freely. Additionally, it expands the list of eligible entities that can access foreign loan, now construction companies can now access supplier credit to import machinery. However, to maintain regulatory oversight and financial stability, all loan agreements with external creditors must be registered and approved by the National Bank of Ethiopia (NBE). [12] Foreign Investments in Security Market: The Directive opens the Ethiopian Securities Market to foreign investments, paving the way for international participation and investment. However, its implementation is to be governed by specific regulatory requirements established by the National Bank of Ethiopia and the Ethiopian Capital Market Authority (ECMA).[13] Special Privileges for Companies in Special Economic Zones: Under the Directive, Companies operating in Special Economic Zones (SEZ) are granted special foreign exchange privileges, including the ability to retain 100% of their foreign exchange earnings. [14] Limits on Foreign Currency: The rules governing the amount of foreign cash travelers could carry while traveling to and from the country have been relaxed.[15] The Directive also stipulates specific time limits for holding and converting foreign currency for individuals entering the country. Off-Shore Accounts: The Directive also allows the opening of off-shore accounts for Strategic Foreign Direct Investment projects.[16] Projects with special significance and contribution in terms of size, job creation, import substitute, foreign exchange inflows, technology transfer, or sector-specific impact could be allowed by NBE’s Executive Management to own off-shore accounts. Sanction: The Directive imposes a sanction of USD 2,500.00 (two thousand five hundred US Dollars) per violation on banks and other licensed entities for any violation of the Directive. In addition, NBE has also been given the discretion to impose further sanctions. Conclusion In conclusion, the introduction of the Foreign Exchange Directive (FXD/01/2024) represents a transformative shift in Ethiopia’s economic landscape, signaling a move towards greater market flexibility and financial openness. By removing restrictions on foreign exchange and creating a more liberalized environment for both domestic and foreign investors, the directive aims to foster economic growth, attract foreign direct investment, and improve financial stability. While the transition to a market-based exchange rate system and other key reforms offers significant opportunities, ongoing regulatory adjustments, such as the reimposition of the Franco valuta import ban, highlight the complex balancing act the government faces in managing the country's economic interests. As Ethiopia continues to adapt to these changes, the ultimate success of these reforms will depend on how effectively they are implemented and their ability to generate sustainable growth in the evolving global economy. Footnotes [1] Article 4, The Foreign Exchange Directive No. FXD/01/2024 (herein under FXD 01/2024) [2] Article 5, Id. [3] Article 4.3, Id. [4] Article 6.2, Id. [5] Previously, the directive permitted exporters to retain 50% of their foreign currency earnings for only one month, after which they were required to sell it to commercial banks at a freely negotiated rate. However, as of November 14, 2024, the National Bank of Ethiopia has revised this policy, allowing exporters to retain the 50% indefinitely, providing greater flexibility in managing their foreign exchange holdings. [6] Article 4.2, FXD 01/2024. [7] The importation of goods for which foreign exchange from the domestic banking system is not payable. [8] Article 13, FXD 01/2024. [9] Article 14, Id. [10] Article 13.2.1, Id. [11] Article 16.2, Id. [12] Article 17.1, Id. [13] Article 20, Id. [14] Article 21.3, Id. [15] Article 22.7, Id. [16] Article 19, Id.

I. Introduction Ethiopia has recently enacted the Special Economic Zone (SEZ) Proclamation No. 1322/2024, marking a pivotal legislative milestone designed to bolster investment opportunities and drive economic growth. The proclamation provides a refined definition of SEZs, characterizing them as designated areas under the oversight of the Ethiopian Investment Board. These zones are equipped with customs control mechanisms, business-friendly policies, streamlined trade facilitation, robust infrastructure, and attractive tax incentives. The framework encompasses a diverse range of investment zones, including industrial parks, free trade zones, and agricultural hubs, positioning Ethiopia as a competitive destination for both domestic and foreign investors.[1] The legislation is designed to stimulate private sector engagement, attract foreign direct investment (FDI), and generate employment opportunities. By fostering export growth, promoting import substitution, and integrating Ethiopia into global value chains, the proclamation aims to position the country as a key player in the international economy. Additionally, it introduces a comprehensive policy framework for economic reforms within Special Economic Zones (SEZs), aimed at enhancing the business climate and boosting competitiveness. The legislation also establishes a robust regulatory framework to govern the operation, management, and oversight of these zones, ensuring transparency, efficiency, and sustainable development. This strategic initiative underscores Ethiopia's commitment to driving economic transformation and creating a more dynamic and investor-friendly environment. II. Key Provisions of the SEZ Proclamation The SEZ Proclamation introduces a structured approach to the establishment, operation, and governance of special economic zones in Ethiopia. Some of its core features include: Designation of SEZs: The law provides clear criteria for designating and developing SEZs, including industrial parks, free trade zones, logistics hubs, and service-oriented economic zones.[2] Regulatory Oversight: A dedicated regulatory authority is established to oversee SEZ operations, ensuring compliance with national economic policies, the primary body being the Ethiopian Investment board[3] of the Ethiopian Investment Commission. Other Regulatory bodies such as the National Bank of Ethiopia (NBE) and the Ministry of Trade and Regional Integration (MoTRI) will also be involved as per their scope and authority of regulation. Investment Incentives: In addition to incentives provided in the Investment Incentives Regulation Number 517/2022, businesses operating in SEZs benefit from tax, import and export exemptions within the SEZ, customs duty waivers, relaxed foreign exchange regulations, zero rated VAT and exemptions from other indirect taxes, and duty-free construction material and capital goods importation into SEZs and more. Further, it also provides non-fiscal incentives such as exemption from expropriation (excluding for the reason of public interest), work permits, remittance and opening of foreign currency accounts.[4] Simplified Business Environment: The law introduces streamlined procedures for business registration, licensing, and dispute resolution within SEZs.[5] Infrastructure and Private Sector Involvement: The proclamation encourages private sector participation in SEZ development and management through public-private partnerships (PPPs) as well as domestic and foreign private investors. Involved Entities: The law introduces SEZ Enterprise[6], SEZ developers[7], SEZ Sub-developers[8] and the SEZ operators[9] as individuals contributing to the design, construction, operation, ownership and maintenance of the SEZ. III. Comparison with the Previous Legal Framework Prior to the enactment of the SEZ Proclamation, Ethiopia’s industrial and economic zones were primarily governed by the Industrial Parks Proclamation No. 886/2015 and various sectoral regulations including the Industrial Parks Regulation Number 417/2017. The new SEZ law introduces several key changes: Scope and Classification: The previous framework focused primarily on industrial parks in federal regions, whereas the new law expands the scope to include free trade zones[10], logistics parks[11], and service hubs within the territory of Ethiopia offering a more diversified economic model. Regulatory Structure: The old framework lacked a centralized authority for economic zones beyond industrial parks, whereas the new law establishes a dedicated regulatory body to oversee all SEZs. The Ethiopian Investment Board[12], with cooperation of the NBE, MoTRI and the Ministry of Labour and Skills will oversee the entry, operation and exit of SEZs. Investment Incentives: While the Industrial Parks Proclamation provided tax incentives, the new SEZ law enhances these benefits by introducing more flexible foreign exchange rules[13] and broader tax relief measures[14] in addition to non-fiscal incentives. Business Operations and Facilitation: The new law simplifies administrative procedures for investors, reducing bureaucratic hurdles and enhancing ease of doing business within SEZs by introducing one-stop services within the SEZs.[15] IV. Implications and Future Prospects The SEZ Proclamation is expected to attract increased foreign direct investment and enhance Ethiopia’s global trade competitiveness. By offering a more structured and investor-friendly environment, the law aligns with Ethiopia’s broader economic liberalization agenda. With effective implementation, infrastructure development, and coordination among relevant stakeholders, the law is bound to achieve its economic objectives. V. Conclusion Ethiopia’s adoption of the SEZ Proclamation No. 1322/2024 marks a progressive shift in its economic policy framework. By addressing limitations in the previous regulatory regime and expanding the scope of economic zones, the law lays a solid foundation for sustainable economic growth. Investors and businesses should closely monitor regulatory developments and implementation strategies to maximize the opportunities presented by Ethiopia’s evolving SEZ framework. Footnotes [1] Article 2(1), Special Economic Zone Proclamation No. 1322/2024. [2] Articles 5 –12,Id. [3] Article 13 and 2 (41), Id. [4] Articles 57 and 58, Id. [5] Article 14(1) (x) Id. [6] Article 2(17) Id [7] Article 2(14) Id. [8] Article 2(15) Id. [9] Article 2(16) Id. [10] Article 2(5) Id. [11] Article 2(9) Id. [12] Article 2(41), Article 13 Id [13] Article 34 (3), (4) Id. [14] Article 57 – 58, Id. [15] Article 14 (1) (x) Id.