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Results Briefs April 2, 2019

Ethiopia Opens Logistic Industry for Foreign Companies

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Port in Ethiopia

Photo: World Bank Group


The Ethiopia Investment Policy and Promotion (IPP) project has been under implementation since 2014 with an overarching objective of improving Foreign Direct Investment (FDI) inflow to Ethiopia through reducing entry barriers to FDI, enhancing investor confidence, and strengthening targeted/proactive investment promotion. Improving Ethiopia’s logistics sector performance has been one of the key areas identified under the Ethiopia’s Second Growth and Transformation Plan (GTP II). The Logistics sector matters in several critical ways: as a supporting industry to the manufacturing sector to improve investment attraction/retention and to increase the country’s international trade performance by enhancing export competitiveness. At its client/Ethiopian Investment Commission’s (EIC) request, the project conducted a study on the logistics sector and submitted a memorandum that addresses several issues surrounding the investment law concerning logistics services in Ethiopia.

Challenge

One of the key shortcomings of the sector is related to policy and regulatory barriers that precluded participation of international logistics service providers. The Investment Regulation Number 270/2012 restricted the participation of foreign investors in the logistics sector that includes packaging, forwarding and shipping services. Not only this resulted in the underdevelopment of this sector, but it also imposed serious strains on the export manufacturing sector as it limited the availability of capital and technology intensive end-to-end logistics solutions, globally-competing manufacturing firms have time and again stressed that such limitations have deprived them of logistics options that are available to their competitors in the international market.

Approach

A reform should open the logistics sector for foreign investment as the market for logistics in the Ethiopia has huge potential for expansion to become a sector that underpins competitiveness and generates jobs.

The Ethiopia Investment Policy and Promotion Project’s value proposition to the reform:

  • Supported the Ethiopian Investment Commission (EIC) and the Ethiopian Maritime Affairs Authority (EMAA) to drive the agenda of logistics sector reform to be submitted to the Ethiopian Investment Board (EIB).
  • Supported EIC and EMAA in undertaking an extensive study of the logistics sector with the aim of stocktaking initiatives in the pipeline and preparing action points for overall reform of the sector.
  • Organized a conference that reviewed the critical challenges in the logistics sector in Ethiopia and proposed an action agenda to develop a logistics sector.

Results

In September 2018, the Ethiopian Investment Board, that is chaired by the Prime Minister of Ethiopia, approved the policy proposal to open the logistics services sector to foreign investment with foreigners allowed to invest in joint venture up to 49%.

  • Within days following the reform, major international logistics players are undertaking preparations to secure an investment permit from the Ethiopian Investment Commission. In December 2018, DHL Global Forwarding and Ethiopian Airlines have formally established a joint investment on cargo logistics services.   

Bank Group Contribution

The World Bank Group supported this reform initiative at different levels. Through its advisory program (funded by a multi-donor trust fund including UK Department for International Development, Sweden, Canada and Italy) International Finance Corporation closely supported the government of Ethiopia with technical assistance that comes in the form of sector diagnostics, articulation of investment climate constraints, and reform advocacy. Though its Development Policy Operation, the World Bank supported with highlighting logistics sector reform as vital component of the overall economic policy reform agenda of the government of Ethiopia.   

Partners

At the Ethiopian Investment Commission’s (EIC) request, and in coordination with several other government agencies, including the Ministry of Transport, Federal Maritime Affairs Authority, Ethiopian Shipping and Logistics service enterprise etc.

Moving Forward

Following a similar approach of evidence-based investment sector diagnostics and reform advocacy, the Investment Policy and Promotion project in Ethiopia contributed to the opening up of six investment sectors that were previously closed for foreign investment. The reform process also led to a more comprehensive review of the investment legal regime of Ethiopia, that is currently ongoing and is expected to further simplify and reduce investment entry barriers.   

Beneficiaries

 “A 27-year-old closed sector-logistics is now open for joint venture arrangements, a great move towards improving competitiveness of Ethiopia in manufacturing for export…This policy decision is significant and will improve the provision of high-end logistics services while local firms acquire world class knowledge, expertise, management, and systems by working jointly with globally reputed logistics service providers,” said Commissioner, Ethiopian Investment Commission.