The Problems of Incentive Regimes of Private Foreign Investments in Ethiopia: The Law and the Practice

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Addis Ababa University


For a large country- the seco nd mos t populous in Africa- with grea t potential, in terms of re so urce e nd owment and geographi ca l position , it should be considered an attTactive location for fore ign private in vestment. However , the qu an ti ty of foreign private in vestm ent that entered the co untry in the past decad e was disappointedly small when co mpared to other counh' ies in the reg ion . The cu mulative foreign private in vestment in flo w to Ethiopia for the period 1994 to 2000, a tim e of economic growth and rapid private se ctor development , illustrate s thi s point clearl y. Thi s is because th e problems the nation ha s in the area s of policies, laws practices and incen tive sc he mes of fo reign pri vate in vestment. The propo sal serves as a fi 'a m ework to di scuss pri vate foreign in ves tme nt inflow to Ethio pia; the parti cular probl em , th e evolution and CUlTent form s of incentive regimes and the experience of enacting and implemen t in g these sche mes. It is argued in thi s study that c urrent in centive sc heme s problems are rooted in th eir ina bility to become a means of attracting private fore ign inves tment-foreign ca pita l inflow . Certain l y, competi tion is one major reason for the dramatic increase in in ves hnent induceme nts. Whethe r n ation is pitted against nation, or rc g ion again st region, govel11m e nt s want to brin g to the ir own specific areas of jurisdiction t he jobs, tec hnology trans fe r, and oth er beneficial parts of the s o-called pac ka ge, which acc ompani es foreign direct investment. Consequently, just as the export s ubsid y war ha s heated up in recent year s, so ha s th e inves tment-incenti ve battle. Sim pl y for the sake of re maining in th e incentive ba ll ga me, nations, which already have high ly attract ive market systems, are no w offerin g oth er in vestm e nt sweeten ers. In certain re spects, th e incentive war is ludi crous. Thus the lure of investment in centi ves is the number on e "weapon" to win th e batt le o f gra nt ing in vestme nt- incenti ve sc hemes . The second moti vation for governme nts to o ffer investme nt incenti v e s is to attempt to offset condition s w ithin the host country, which ar e wOlTi s ome to multinational enterpri ses. Thus the study tTaces theoretica l and legal fi'ameworks of developin g countries w hi ch woul d serve a s a standard against which Ethiopian policy, legislation and prac ti ce in the area should be judged; and the prob lem s of the in centive reg im es of pri vate foreign i nvestme nt in Ethiopian in vestm en t laws and practices, outlining the areas in whi c h both the lega l system a nd practice of pri vate fo r eign investment fails both businesses and individ uals in the three successive regimes