The Legal Regime on Industrial Parks in Ethiopia

A Prelude

In this part, we set the stage for the discussion of the legal regime governing industrial park in Ethiopia. In particular, we begin by throwing light on the genesis, meaning and purpose of industrial parks. We then give a brief account of how they surfaced in Ethiopia.

1.1 The Genesis, Meaning and Purpose of Industrial Parks

An industrial park is a type of special economic zones (SEZs). The origins and goals of industrial parks can, thus, be best understood by shedding light on SEZs. A number of countries have launched special economic zones (SEZs), known by different appellations, over the last three hundred years. The earliest special economic zones mostly took the form of citywide zones located on international trade routes as were those established in Gibraltar (1704), Singapore (1819), Hong Kong (1848), Hamburg (1888) and Copenhagen (1891).[1] The first modern SEZ was established in Ireland in 1959.[2]

Today, special economic zones come in many forms and shapes like free trade zones (FTZ) that are typically fenced-in duty free areas, export processing zones (EPZ) where industries focused on the export market locate, specialized zones including science and technology parks, freeports that accommodate all types of activities including tourism and retail sales etc.….[1]  Whatever its form or name a modern special economic zone may be understood as a geographically delimited space (usually fenced-in) that is considered a separate customs area with streamlined customs procedures. Yet another feature of SEZs is that enterprises located within them are offered some

sorts of incentives by law. A special economic zone is generally operated under a single management.[1]

Governments strive to accomplish various things through SEZs. They aim to develop exports, create jobs and cause transfer of technology. Besides, they use such zones to pilot new policies and regulations, for instance, in areas like customs administration, labour, public-private partnership and utilization of hard currency.[2]

Development of special economic zones has both infrastructural and policy rationales.[3] To start with the former, developing countries find it very difficult to provide a competitive institutional and physical infrastructure that attracts investment across the length and the breadth of their countries. They, thus, attempt to attract investment by providing state-of-the-art physical infrastructure in geographically delimited areas of the country. They also cut bureaucratic red tape in such areas by providing one-stop shop service to businesses that physically locate in the area.[4] In short, SEZs are meant to be islands of excellence.

1.2 The Introduction of Industrial Parks in Ethiopia

The creation of an institutional and infrastructural island of excellence in a developing country such as Ethiopia requires making a high level policy choice to that effect and spending significant portion of the country’s meagre resources to the development of such area. More pertinently, it also requires coming up with a special legal regime that helps provide business-friendly operations, minimize red tape, foster competition, streamline regulation, make procedures flexible, and provide for efficient one-window interface between, at least, the government and businesses.[1] This kind of understanding was developed in the policy making circles of the Ethiopian Government close to a decade ago.

The idea of special economic zones was, therefore, introduced in the Investment Proclamation 769/2012 and its Amendment Proclamation No. 849/2014 though both use the term ‘industrial development zone’ rather than special economic zone. Although the term ‘industrial development zone’ sounds like only a type of special economic zone the Ethiopian law takes it as even broader concept. Proclamation No 849/2014l clearly indicates that the term industrial development zone includes ‘special economic zones, industrial parks, technology parks, export processing zones and free trade zones.’[1]  

That said, the two proclamations do not go much beyond floating the idea.[2] It appears from the earliest Ethiopian laws that the idea at the time was that such zones would not be developed by private actors alone. They were to be developed by the Federal Government of Ethiopia, in partnership with the private sector, if need be.[3] About a year after the issuance of the Investment Proclamation, the Ethiopian Industrial Development Zones Corporation was established by the Council of Ministers Regulation No. 297/2013 with the aim of developing, administering and promoting industrial development zones.[4] This entity was very short-lived. It was replaced by the Industrial Parks Development Corporation in 2014 as will be seen below

2, The Core Laws Governing Industrial Parks in Ethiopia

Ethiopia has carved out a special normative framework for industrial parks. Of course, the regime on industrial parks is complemented by the ordinary commercial and investment laws on which we do not dwell in this piece. The principal laws that focus on industrial parks are:

2.1 Industrial Parks Proclamation No. 886/2015;

2.2 Industrial Parks Regulation No. 417/2017;

2.3 ndustrial Parks Development Corporation Establishment Regulation No. 326/2014 and

2.4 Investment Board Directive and Incentives Package for Industrial Parks.

In what follows, we shall highlight some of the most pertinent features of these laws.

2.1 The Industrial Parks Proclamation No. 886/2015

2.1.1 Purpose and Core Matters Regulated

This legislation forms the bedrock of the legal regime on the subject of industrial parks. It is augmented by the Industrial Parks Regulation and Industrial Parks Directive issued by the Council of Ministers and the Board, respectively. It has been issued with the objective of ‘regulating the designation, development and operation of industrial parks,’ according to Article 4(1) of the proclamation.

It identifies three principal players in the context of an industrial park. These are the industrial park developer, industrial park operator and industrial park enterprise. An industrial park developer is a for-profit entity that develops a park. It could be a public enterprise, public-private partnership entity or a wholly private entity, according to Article 2(10) of the Proclamation. An IP operator is similarly a for-profit entity that operates and maintains a park. Interestingly, the proclamation states that the operator also promotes the industrial park.[1] An IP enterprise is a for-profit entity that engages in manufacturing or rendering service in a building rented from the developer or erected by itself within the industrial park.[2]

The proclamation allocates rights and obligations to industrial park developers, operators and enterprises. Article 4 of the proclamation confers on an IP developer the right to develop a park, let factories, and even sell separately the different sheds and factories that it constructed. It may also participate in the financial markets to secure loans, guarantees and similar resources for the venture. Besides, it may operate the park itself so long as it meets the technical, personnel and related requirements for securing license as an operator.[1] So, it is conceivable for the developer to wear the hat of an operator too.[2] The obligations of a developer include construction of the park infrastructure per the terms of the investment agreement and permit, including the requisite facilities for the customs area and office space to be used for the provision of one-stop shop

service.[1] The proclamation explicitly prohibits transfer of undeveloped land to any person or entity.[2] Speculation in land under the guise of park development is a serious concern on the part of the state.

An industrial park operator manages and operates a park on behalf of the developer. Its duties fundamentally emanate from the park operator agreement it concludes with the developer of the park. The law envisages as possible duties sub-leasing factory space to investors, maintaining in operational conditions all the shared facilities in the park and promoting the park.[3] Interestingly, the proclamation also imposes on the operator duties that are not particularly suited to its for-profit nature. A case in point is the obligation that the law lays down on an IP operator to ‘link domestic manufacturing enterprises with industrial park enterprises in order to develop their technological capacities and to benefit them from international markets.’[4]

Coming to an industrial park enterprise, the Proclamation does not vest in it meaningful new substantive rights. Essentially Article 9 that is supposed to deal with the matter states that an IP enterprise ‘will obtain tax, customs duty and other incentives as provided in [the] applicable laws….[1] Its obligations include carrying out ‘investment activities’ in compliance with the terms of the investment permit in a timely manner.[2] Moreover, it is under obligation to ‘replace expatriate personnel or professionals by Ethiopian nationals.’[3] Curiously, it has also the obligation to allow the placement of persons in the enterprise for technical, vocational and entrepreneurship trainings.[4] It has to support educators in providing technical, vocational and entrepreneurial education, in other words

2.1.2 Investment Administration in the Context of a Park

The Industrial Parks Proclamation also attempts to put in place a comprehensive, transparent and predictable map of investment administration in the context of industrial parks. The foundations

of the extensive powers vested in the Ethiopian Investment Board and Ethiopian Investment Commission relating to the establishment, management and operation of industrial parks are also provided in some detail under this Proclamation.

It vests in these organs regulatory[1] and complaints handling duties. The proclamation requires the establishment of a one-stop shop service within an industrial park. It envisages the relevant government agencies providing their services in one facility within each park while retaining their mandate regarding the subject matter. The Ethiopian Investment Commission is tasked with the coordination of the service delivery by these entities.[2] The proclamation anticipates that further details regarding the services and operation of the one-stop shop will be provided by a regulation to be issued by the Council of Ministers.[3]

2.1.3 Scope of Application

Article 3 that deals with the scope of application of the proclamation states that the proclamation applies to ‘the federal industrial park activities or activities undertaken in connection with them as well as to any person conducting any activity in the federal industrial parks.’ (Emphasis added). The proclamation does not, however, define what a ‘federal park’ is.[1] That being said, this may imply that the Proclamation does not apply to Agro-Industrial Parks that are being established in different parts of the country by the Regional States unless they obtain designation as industrial parks by the Federal Investment Board.[2] The regulation of such parks could, thus, raise lots of issues unless the regional states concerned come up with detailed rules governing the rights and obligations of the stakeholder in such parks or somehow incorporate into their own state laws federal laws that govern industrial parks.

2.2 Industrial Parks Council of Ministers Regulation No. 417/2017

This is the regulation that was anticipated to be issued by the Council of Ministers by Article 32(1) of the Industrial Parks Proclamation. It fleshes out some of the provisions of the proclamation. In particular, it spells out the requirements for the designation of an industrial park, the supporting evidence that the investor should submit with his application and the time frame within which decision should be given on its application.[1] It also specifies some basic requirements for construction and land utilization within the park by the developer and industrial park enterprises that may wish to construct facilities or make changes to existing structures.[2] Besides, it spells out the requirements for and timeline for securing investment permits for industrial park operator and enterprise.[3]

A major import of the regulation is that it tries to cut bureaucratic red tape that park developers, operators and enterprises face. To this end, it aims at streamlined and well-coordinated provision of services by almost all pertinent government agencies in the one-stop shop service at the level of each industrial park. It establishes a one-stop shop service that is coordinated by the Ethiopian Investment Commission. It lists down some 26 major services that should be made available at the level of each park.[1] These include:[2]

  • amendments to investment permit and commercial registration;
  • issuance and renewal of business license;
  • issuance and renewal of visa, residence permit and wok permit;
  • tax related registration, decisions on exemption from payment of customs duty, and assessment of income tax;
  • issuance of certificate of origin and other supporting documents regarding products destined for export and
  • approval of environmental assessment studies and the is
  • uance of pertinent certificates.

Notable measures have been taken by the Ethiopian Investment Comission to simplify, outline, standardize and codify the provision of services through the one-stop shop scheme. That being said, reports indicate that the work-process map regarding certain categories of services is yet to be developed by the mandate-holding institutions.

The Achilles heel of the one-stop shop service envisaged by the Ethiopian laws is that each service is to be provided by a government agency that has mandate regarding the relevant service. Of course there is no prohibition against delegation of powers and mandates by the relevant agency to the EIC or another agency of its choosing. EIC has the legal mandate of only coordinating delivery of services by the relevant agencies, for which it seems to have limited institutional and human resource capacity. A draft internal study by the EIC identifies as major problems in this regard the following:[1]

(a) Many agencies have yet to establish internal structure and comprehensive working procedures to accommodate the special requirements of industrial parks;

(b) Institutional reluctance and tension between various agencies that are required to provide service in the OSS continue to undermine the effectiveness of the overall service and

(c) Institutional segregation and bickering over issues of mandate/responsibility, and lack of shared vision, initiative and wholesale commitment still remain.

2.3 Industrial Parks Development Corporation Establishment Regulation No. 326/2014

Regulation No.326/2014 establishes the Industrial Parks Development Corporation (IPDC). This is a state owned enterprise that develops parks and administers the parks developed.[1] It has

developed a number of parks including Hawassa Industrial Park, Kombolcha Industrial Park and Mekelle Industrial Park. It is like any other developer in this sense though the fact that it is a public enterprise implies that it also strives to attain some public goals besides profit making.

The IPDC does, however, have roles that go beyond the foregoing. Its establishment regulation indicates it doubles as a land bank from which other developers take land to develop. Particularly, Article 5(2) imposes on it the duty to develop a national spatial plan for the development of industrial parks and establishing a land bank by taking land from the regional states of Ethiopia. The Industrial Parks Regulation No. 417/2017 attempts, under Article 8, to provide the modalities that the IPDC should follow in executing its mandate as a land bank. It provides that the IPDC should conclude an agreement with the relevant regional state when it takes land into the land bank. The agreement should be such that it enables the IPDC to either develop the land by itself or transfer it under leasehold to another park developer. It does not appear that IPDC is issued leasehold title certificate for land it takes in its role as land bank. Particularly, Article 8(2) states that the corporation shall secure leasehold certificate as regards land in the bank that it itself wants to develop into a park. This seems to imply that it does not have title to all land in the bank. Hence, transfer of land to which it, itself does not have title deed could prove problematic if we stick to the laws. Other issues that could prove problematic include payment of compensation to, for example, farmers when taking land into the land bank, and determination of the lease price when the IPDC transfers land to another developer, which could effectively be a competitor.

What is more, it has the obligation to ‘make the necessary infrastructure accessible to other industrial park developers’ in ‘collaboration with the concerned bodies.’[1] The infrastructure that the IPDC is supposed to make accessible to other developers cannot be on-site infrastructure. That is to be provided by the other developers themselves. If a developer expects provision of infrastructure within the perimeters of its own park form the IPDC, what makes it a developer? So, the infrastructure envisaged must be off-site infrastructure, it appears. A more fundamental question that raises its head at this juncture is who provides the funding? Does the IPDC only coordinate relevant government entities and utility companies to make roads, water, electricity, telecom and other infrastructure accessible to a park being developed by a private developer or does it have to go beyond this and foot the expenses?

2.4 Industrial Park Directive and Incentives Package

The Ethiopian Investment Board has also issued a directive that complements the Industrial Parks Proclamation and Regulation. It has also approved fiscal and non-fiscal incentives for industrial park developers, operators and enterprises. While some of the incentives apply to many other investors quite a few are peculiar to those investing in industrial parks. The fiscal incentives that are unique to industrial parks include, for example, exemption from income tax for 15 years that is given to an investor that develops a park in areas outside Addis Ababa and the special zone of Oromia surrounding Addis Ababa.[1] The duration of the income tax exemption period that is given to an investor that develops a park in Addis Ababa or its surrounding is only ten years. Besides, expatriate employees of industrial park enterprises are exempt from paying income tax for five years.[2]

Industrial park investors are also accorded a number of non-fiscal incentives including expedited visa procedures, customs facilitation and the one-stop shop service discussed already.[1] These are, of course, on top of a number of other incentives that apply to many other investors, depending on the sector of investment and the part of the country in which they have invested.[2]


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