By Joëlle TRAORÉ, PhD in tax law from the University Paris 1 Panthéon-Sorbonne.
SPECIAL ECONOMIC ZONES IN ETHIOPIA
In April 2024, Ethiopia adopted Proclamation No. 1322/2024, repealing the industrial parks regime established by Proclamation No. 886/2015. This text establishes a new legal framework for special economic zones (SEZs), expands their sectoral scope, and strengthens the tax incentives offered to investors. For an investor, the question is not so much about what the text provides, but rather about evaluating the actual impact of the fiscal mechanism on the decision to establish a presence.
A change in framework, not just terminology
The transition from industrial parks to SEZs is not simply a terminological reform. Under the old regime, the parks were mainly focused on the manufacturing sector, with an export-oriented logic. The 2024 Proclamation expands the scope to include agricultural, logistics, service, and commercial activities, while redefining the access and governance conditions of the zones. A dedicated regulatory authority is established under the Ethiopian Investment Commission (EIC). This change in framework aims to attract a more diversified investor base and address the structural limitations of the previous system.
An articulated fiscal mechanism
The SEZ regime is based on a combination of benefits that should be viewed in its entirety. Goods entering or leaving the zones benefit from exemptions from customs duties and a zero-rated value-added tax (VAT), directly altering the cost structure of import-export operations. Revenues from investments in SEZs are exempt from dividend tax during the tax holiday period. Foreign employees employed by exporting companies in SEZs are exempt from income tax for five years from the date of issuance of the operating license. Additionally, exporters operating within a SEZ benefit from a significantly more favorable foreign exchange retention regime, as per the directive of the National Bank of Ethiopia, compared to the common law. This differential, in a context of pressure on the national currency, is one of the most structuring advantages of the regime.
Effects on investment decision
The fiscal architecture of SEZs influences several dimensions of the investment decision. From a legal structuring perspective, it directs towards a direct establishment within the zone rather than under common law, in order to capture all the benefits of the regime. In terms of returns, the exemption of dividends and the tax holiday on salary income ease the tax burden during the start-up phase, a period often crucial for the viability of a project. The foreign exchange retention regime also introduces a dimension of exchange rate risk management, particularly important for investors whose costs are denominated in foreign currencies.
A tension not resolved by the text
However, the mechanism raises a tension that cannot be ignored in the analysis. Ethiopian industrial parks had achieved a notable level of performance around the turn of the 2020s, driven in particular by the textile sector and the preferential access to the American market offered by the African Growth and Opportunity Act (AGOA). The suspension of this program in 2022, following the armed conflict in the northern part of the country, deprived companies established in these parks of their main export outlet, leading to a significant contraction in activity. This turnaround illustrates a structural mismatch: the fiscal mechanism, no matter how attractive, only produces its effects in interaction with external factors, such as market access, political stability, and operational reliability. The 2024 Proclamation strengthens the incentive framework, but does not directly address these variables. This interaction practically determines the real impact of the mechanism.
Beyond the mechanism
The 2024 reform marks a structural evolution of investment law in Ethiopia. It consolidates and expands a fiscal mechanism that, formally, offers competitive establishment conditions. It also highlights a constant: the fiscal mechanism, no matter how well designed, never operates in isolation. Its real effectiveness depends on how coherently it is articulated with operational conditions.
About Joëlle TRAORÉ
Joëlle TRAORÉ holds a PhD in tax law from the University Paris 1 Panthéon-Sorbonne. She specializes in international and African taxation, with expertise in illicit financial flows, global tax reforms, and mobilization of national resources. She has collaborated with African and international institutions on fiscal governance issues in Africa.
