The management teams of the country’s industrial parks have been given short notice to transition into Special Economic Zones following the federal government’s policy change.
Officials at the Ethiopian Investment Commission (EIC) revealed details of the transition plans during a recent round of discussions with foreign investors operating in the flagship Hawassa Industrial Park (HIP).
Investors told The Reporter the Commission has given all industrial parks that fulfill the requirements to be designated as SEZs 20 days to finalize the transition.
EIC officials declined to comment on the issue but their counterparts at the Industrial Parks Development Corporation (IPDC) confirmed the decision and the short window for transition.
“As per the new legislation, almost all existing industrial parks can fulfill the criteria to become Special Economic Zones. However, so far, IPDC has designated only Dire Dawa Industrial Park to become an SEZ. SEZs have additional features like logistics and other full-fledged economic activities integrated in one area. If other industrial parks fulfill all these, we will gradually designate other industrial parks to become zones,” said an official at IPDC, who spoke anonymously. “But the approach EIC is taking is a bit different from ours.”
Although IPDC is mandated to develop and administer industrial parks, there is also an industrial parks division department under EIC led by the Deputy Commissioner. Zeleke Temesgen (PhD), EIC deputy commissioner for industrial parks division and Dagato Kumbe, EIC deputy commissioner for investment operations division, traveled to Hawassa town and held meetings with HIP investors on august 20, 2024.
A new project office has been established to oversee the transition of industrial parks to SEZs.
The Special Economic Zone Proclamation recently ratified by Parliament lays out new criteria for an industrial park to be considered an SEZ.
It defines an SEZ as a geographical area designated so by the Ethiopian Investment Board and subject to customs control, and attended by business enabling policies, trade facilitation services, infrastructure and utilities, and amenities including a one-stop shop, duty and tax free privileges, and other special incentives.
An SEZ may comprise one or more industry parks, free trade and logistics zones, science and technology parks, service parks, agriculture and livestock zones, and similar investments.
An existing company that intends to be upgraded into an SEZ can apply to EIC, according to the proclamation. The legislation explicitly states an industrial park will not be required to submit a designation application or undergo designation procedures to attain a special economic zone status.
However, an industrial park must have ample land available (50 hectares minimum) and meet other critical infrastructure requirements to gain SEZ designation.
Applicants are also expected to commit a minimum equivalent exchange of USD 75 million as capital.
The capital may be financed through proven cash contribution, machinery, building, working capital, or debt financing, according to the proclamation.
Exporters operating within an SEZ are also eligible to retain 100 percent of the forex they generate, according to a recent directive from the National Bank of Ethiopia (NBE). Other exporters can only retain half of their forex earnings.
“The investors inside HIP were delighted. This is a big deal for investors,” said a HIP administrator.
However, both the administrators of industrial parks and investors observe the revised retention rate will benefit them only if Ethiopia is reinstated to the African Growth and Opportunity Act (AGOA).
Washington delisted Ethiopia from the preferential trade deal during the two-year northern conflict. The move proved detrimental to the tenants of industrial parks, particularly textiles manufacturers who benefited most from duty free exports to the US.
EIC officials hinted at renewed hopes for AGOA reinstatement during their discussions with HIP investors and administrators.
“Since Ethiopia is agreeing to the peaceful resolution of conflicts and also agreeing to open up its economy to foreigners, there is hope America will reinstate Ethiopia’s AGOA privileges. This was the reason why America delisted AGOA. America wants liberalization even more than the peace talks,” said the HIP administrator.
