How to Invest in Agroindustrial Zone Development in Ethiopia

Last updated March 14, 2015

Do you know private investors like you can start and run an industry zone in Ethiopia? Once a restricted investment area, industry zone development has come to be more and more open as a result of a serious of amendments of the Investment Proclamation and its implementing Regulation. If you are keen to invest in this new area, you need to learn all the basics on how to start and run an agroindustry zone in Ethiopia. To do so, you may start by reading this article.

1

Start with understanding the whats and whys

Be aware that agroindustrial project is a high priority area of the government and thus eligible for comprehensive incentive packages. While there exist high potentials in the agriculture sector, value addition and agro processing opens much wider room for investment in order to harness the opportunities for development. That makes investment in the agroindustrial development sector crucial, among other manufacturing industries.

 If you are interested in investing in agroindustry zone development in Ethiopia, you should also be aware of the investment policy and legal reforms that have been taking place in favor of the private sector. According to Investment Proclamation (Amendment) No 849/2014), industrial development zone means:

 

“an area with distinct boundary designated by the appropriate organ to develop identical, similar or interrelated industries together or to develop multifaceted industries, based on a planned fulfillment of infrastructures and various services such as road, electric power, and water, and having special incentive schemes, with a broad view to achieving, planned and systemic development of industries, mitigation of the environmental pollution and  development of urban centers, and includes special economic zones, industrial parks, technology parks, export processing zones, free trade zones, and the likes designated by the Investment Board.”

 

In addition, you need to know what is going on thus far to translate the legal and regulatory framework in to practice. For instance, the government of Ethiopia is undertaking industrial zone development projects at various selected sites in major cities such as Addis Ababa, Dire Dawa and Kombolcha.  The zones currently operating harbor an increasing number of private business establishments within them.

2

Know the applicable investment regime

The investment regime of Ethiopia with regards to industrial zone development provides for three forms (Investment Proclamation (amendment) N. 849/2014). These include:

 Investment by the Government

  1. Joint Investment of the government and a private investor
  2. Investment by private investors

 To that effect, a new item has been added in the list of investment areas specified in the Schedule attached with the regulation. That is:

 “Industrial development zone (including private industrial development zone investment, the establishment of which is agreed with the government prior to the issuance of the Proclamation)”

You need to note that the entitlement to the tax incentive for industrial zone development is very generous. The income tax exemption period is:

  • 10 years in Addis Ababa and Special Zone of Oromia surrounding Addis Ababa
  • 15 years in other areas
3

Visualize what your establishment would look like if you wish to invest in integrated agroindustry parks (IAIPs)

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4

Come up with a feasibility study and action plan

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5

Prepare adequate feasibility study report

Take note that conducting feasibility is one thing while writing a good study report is another. Therefore, you should make sure the report is prepared in an acceptable format particularly in accordance with guidelines for the intended investment areas. According to a guide by EIA and EKN, the feasibility study should in general contain the following:

  1. Project summary
  2. Background information: brief history and details of the enterprise/promoter, type of project, scope and objective, legal form of business
  3. Numbers and certificates, including registration number and date, license number and date, tax payer identification number (TIN), value added tax (VAT) registration certificate
  4. Updated market study and marketing arrangements
  5. Technical study: location, project design and engineering
  6. Organization and management study
  7. Financial statements (balance sheet, income statement, cash flow)
  8. Financial analysis
  9. Social and economic aspects of the project
  10. Conclusions and recommendations
  11. Implementation program
6

Submit the feasibility study and action plan for approval and follow up

According to a senior expert of Ministry of Industry (Hunegnaw 2014), you should submit the feasibility study and action plan to the concerned institutions for approval and follow up. The institutions include:

  • Ministry of Industry (MoI)
  • Food, Beverage & Pharmaceuticals Industry Development Institute (FBPIDI)
  • Ethiopian Investment Commission (EIC)
  • Banks
7

Follow up the process

You need to follow up the approval process by the concerned bodies for the administration of industry zone development investment. This may require frequent contacts with the concerned body, particularly in the Ministry of Industry and FBPIDI. In case of delays, you may need to contact EIC that provides overall facilitation and assistance to investors.

8

Establish and run the industrial zone

Upon approval of the investment project, you need to start implementing the action plan according to the timeframe. Delays in project implementation may lead to cancellation of your investment permit and business license.

Notes
Take note that this article was prepared by Amare Molla, Information Hub Coordinator for ABSF, and as such does not reflect the views and opinions of the institutions involved in funding or managing the AGRIbiz.et website. The article is written with utmost care by referring available and reliable information sources on the agribusiness and investment situation of Ethiopia. It is also thoroughly reviewed by Gertjan Becx, the ABSF project coordinator, and other experts of the project. Despite that, you are advised to check the accuracy of the information as agroindustry zone development investment opportunities and requirements or other related conditions in Ethiopia may change over time with, for instance, changes in related policies or regulations.
Tips
As noted, industry zone development is a relatively new investment area. You are therefore advised to read more and benefit from the supportive policy environments. It will be good to consult the relevant government institutions, particularly the newly established FBIDI that is directly responsible specifically for administration and supervision of agroindustrial development zones.
Warnings
Be the first to invest. Industry zone development is a relatively new investment area opened for private investors. Besides, it is conditionally open for undertaking by joint investment of the government and a private investor or by private investors, only “where deemed necessary” in both cases (Investment Proclamation (amendment) No 849/2014). You should also understand that the approach is on a “first comes first served” basis.
References
EIA and EKN (Ethiopian Investment Agency and Embassy of the Kingdom of the Netherlands). October 208. Investing in the Agricultural Sector of Ethiopia: A Guide for New Investors.  http://edepot.wur.nl/13. Accessed on December 12, 2014. Hunegnaw Abebaw. Manufacturing industry investment opportunities in Ethiopia. paper presented at the Third Spices, Herbs and Aromatics Subsector Stakeholders Platform Meeting Organized by Agribusiness Support Facility (ABSF) held on October 2014. Investment incentives and Areas Reserved for Domestic Investors Regulation No 84/2012. Investment incentives and Areas Reserved for Domestic Investors (Amendment) Regulation No 312/2014. US Department of State. Ethiopia Investment climate 2013. http://www.state.gov/e/eb/rls/othr/ics/2013/204639.htm. Accessed on January 6, 2015.