Supporting Investment and Trade in Africa Ethiopia and investment provisions in AfCFTA: issues and challenges Alemayehu Geda and Guta Legesse, with inputs from Yohannes Ayele and Martha Belete December 2022 Key messages Commitments to investment in the African Continental Free Trade Area (AfCFTA) can help to attract foreign direct investment (FDI), which has various benefits for the Ethiopian economy. FDI can help catalyse domestic investment, lead to transfer of technology and managerial skills, and create jobs and reduce poverty. However, there are challenges. One, synchronising national investment laws. Two, the proper implementation of laws. Three, the lack of a stable political and macroeconomic environment. Four, the costs of doing business in Ethiopia. As such, this report suggests possible actions for the Government of Ethiopia and others around AfCFTA and Investment Issues to overcome these challenges. 1 Table of contents 1 Acknowledgements. 3 List of acronyms 4 Executive summary. 5 1. Introduction. 9 2. Background on investment and investment policy in Ethiopia . 10 2.1. Recent FDI performance 10 2.2. National investment policy, laws and FDI promotion. 13 2.3. International investment-related obligations 16 3. The AfCFTA Investment Protocol: status, issues and expected impacts . 19 3.1. Status and negotiation issues. 19 3.2. Expected impacts for Ethiopia: broad view, industrialisation. 24 4. Interactions between AfCFTA provisions and domestic law 27 4.1. Points of convergence 27 4.2. Points of divergence. 28 5. Conclusions: priority actions and support measures 32 References . 35 2 Acknowledgements This briefing has been prepared by Alemayehu Geda and Guta Legesse (Addis Ababa University), with inputs from Yohannes Ayele (ODI) and Martha Belete (Addis Ababa University) and coordination by Dirk Willem te Velde (ODI). We are grateful to the UK Department for International Trade staff in Addis Ababa, Melaku Desta, Fikremarkos Merso, Government of Ethiopia staff and a number of companies that invested in Ethiopia for insightful discussions and suggestions. The briefing has been funded under the Rapid Research Window, as part of the Supporting Investment and Trade in Africa programme, funded by the UK Foreign, Commonwealth and Development Office (FCDO). All views provided are those of the authors and not the responsibility of ODI or UK FCDO. 3 List of acronyms AfCFTA APHA AU African Continental Free Trade Area Animal and Plant Health Agency African Union BIT Bilateral Investment Treaty COMESA DEFRA EIC FCDO FDI Common Market for Eastern and Southern Africa Department for Environment, Food & Rural Affairs Ethiopian Investment Commission Foreign, Commonwealth and Development Office foreign Direct Investment FDRE FET Federal Democratic Republic of Ethiopia Fair and Equitable Treatment GDP GFCF IGAD MFN NBE Gross Domestic Product Gross Fixed Capital Formation Intergovernmental Authority on Development Most-Favoured Nation National Bank of Ethiopia PAIC REC SEZ Pan-African Investment Code Regional Economic Community Special Economic Zone SIVEP UAE Service d'inspection vétérinaire et phytosanitaire aux frontières United Arab Emirates UK United Kingdom UNCITRAL United Nations Commission on International Trade Law UNCTAD UNECA US United Nations Conference on Trade and Development United Nations Economic Commission for Africa United States WTO World