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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:
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- 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:
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- 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.