Wednesday, February 8, 2023
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BusinessDraft proclamation proposes USD 75m capital threshold for Special Economic Zone

Draft proclamation proposes USD 75m capital threshold for Special Economic Zone

    –  Existing industrial parks will be designated as Special Economic Zones

    –  Minimum area of land for a Zone is 75ha

A minimum USD 75 million capital is needed to establish Special Economic Zone (SEZ) in Ethiopia, according to a draft proclamation unveiled last week. 

Applicants wishing to get approval to develop an SEZ from the government will have to commit the required capital threshold in the form of equity, debt access, as well as evidenced capital in due time.

However, the Ethiopian Investment Board, along with the Ethiopian Investment Commission (EIC) will determine through directives and regulations the maximum and minimum capital requirements depending on the unique features of the zones.  

Regional and federal governments, commercial developer, or public-private partnership can submit an application to create a Special Economic Zone. The request will be reviewed by the Board, which is led by Prime Minister Abiy Ahmed (PhD).

While already existing industrial parks aren’t required to go through the processes for designation of SEZ unless having a desire to expand type of business or area land, other companies wishing to upgrade and convert to SEZ are required to make application at the EIC.

According to an official at the EIC, the actual amount of money needed for establishment of an SEZ would in fact be larger than what was stated on the draft proclamation. However, the main intention behind the decision is to assure if the investor is a committed one with actual plan to break grounds.

“Of course there is no assumption that economic zones of such scales would be built with USD 75m. We have to have a way to filter and assure whether the investors are committed or not and the land won’t be idle,” the official said. “We shouldn’t block the chance from the get go.”

Appearing to be the new face of Ethiopian industrial sector, the planned Special Economic Zones will be serving as an umbrella for various industry elements such as free trade, logistics, agriculture, livestock zones, as well as parks for the industries, science and technology sectors.

The federal government owned 13 industrial parks as well as the three currently operational agro-processing industrial parks will be designated as SEZ, vertically having various specific zones under them.

“Even though there are seven privately owned industrial parks, the trend was that government was investing vastly through the Industrial Parks Development Corporation. For the SEZ, private participation will receive much focus,” he said.

Furthermore, the government had previously disclosed its plan to privatize industrial parks. Once approved, the draft proclamation will repeal the Industrial Park Proclamation and similar regulations, being the only legal framework to function for the existing industrial parks.

The minimum size of land offered for the SEZ developer will be not less than 75 hectares, but is determinable by the Board to go lower exceptionally depending on the nature of the zone. Only about 50 to 75 percent of the total land area allotted must be used for the buildings, sheds, and facilities.

According to the proclamation, foreign and local financial institutions will be permitted to provide their services in the zones. Moreover, the National Bank of Ethiopia will undergo reforms to establish procedures and issue directives for the financial services in the zones.

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