Investment Incentives:

1) Policy: For the last 10 years, the Government started encouraging pharmaceutical industry through appropriate policies and incentives like the Growth Transformation Plan (GTP), thus, few joint ventures were set-up. Now, in line with African Union’s Pharmaceutical Manufacturing Plan for Africa, Ethiopian Government put pharmaceutical products into the priority sector list in GTP II (2015-2020) to support its development, enjoying at most 8 years’ fiscal and tax incentives and other supporting policy. With the support from WHO, Ethiopia published the National Strategy & Plan of Action for Pharmaceutical Manufacturing Development in Ethiopia (2015-2025), “to transform the Ethiopian pharmaceutical manufacturing sector into a fully GMP-compliant, competitive and innovative industry that meets the national needs of essential medicines through local production by 2025.” It will push the rate of local pharmaceutical manufacturing to 60% from current 20% and the export amount to 30 million US dollars by 2020 and 80 million US dollars by 2025 from current 2 million US dollars.

Also of particular importance is the FBPIDI, established by the Ethiopian Government in 2013 with the objective to transform the development of food, beverage and pharmaceutical industries through accelerated technological development and transfer by providing these industries comprehensive, knowledge-based, innovative, and accessible support and to make them internationally competitive so that they have a significant contribution towards import substitution as well as exports in terms of variety of goods and volume[1].

The Ethiopian Investment Commission (EIC) gives investment permit for qualified foreign investors to invest in Ethiopia either on their own or in partnership with domestic partners. To get the permit, they are required to allocate minimum capital categorized by their investment types as following, USD 200,000 for a wholly foreign owned single investment project, USD 150,000 for joint investment with a domestic investor, USD 100,000 for technical consultancy for a wholly owned investment or USD 50,000 for a joint with a domestic investor. There is no restriction on equity share ownership in joint0venture pharmaceutical investment projects.

2) Pharmaceutical Value Chain: According to the National Strategy & Plan, a Pharmaceutical Value Chain will be established covering 5 areas of import, packaging and labelling, product manufacturing, API manufacturing, and research and development (R&D). It clarifies the specific goals for Ethiopian companies to achieve by 2020 and by 2025. For example, there will be 4 WHO prequalified products by 2020 and 15 by 2025; 4 API manufacturing companies by 2020 and 20 by 2025; 1 R&D company by 2020 and 3 by 2025.

The implementation of Good Manufacturing Practice (GMP) Road Map for Ethiopia is another part contributing to the Value Chain. It requires all pharmaceutical manufacturers to be GMP-complaint, the current situation of which is that only 4 of 9 pharmaceutical manufacturers are certified.

At the same time, due to the implementation of Social Health Insurance (SHI). About 690 medicines are included in the list of medicines for SHI, which will stimulate the manufacturing.

3) Strategy: The specific strategy includes 7 objectives: improve access to medicines through quality local production – implement the GMP Roadmap; strengthen the national medicine regulatory system; create incentives designed to move companies along the value chain; develop human resources through relevant education and training; encourage cluster development and production of active pharmaceutical ingredients, create a research and development platform; and attract foreign direct investment in the pharmaceutical sector.

The last objective put foreign direct investment in a very important position, considering that foreign direct investment plays a very important role in facilitating the transfer of technology, expertise and relevant capacity-building initiatives.

4)  Industrial Zone: To support the development of industries, the government is planning to establish independent pharmaceutical industrial zone near capital Addis Ababa to attract international pharmaceutical companies and produce 2 million jobs in next ten years. Ethiopia welcomes support and promotion form China on manufacturing investment, industrial zone construction, skills training, third-party testament, and information database construction.

5) Finance: The law does not discriminate between domestic and foreign investors with regard to the provision of incentives. The Government exempts their payment of import customs duties levied on imported capital goods, construction materials, and spares parts worth up to 15% of the value of the imported capital goods. Generally, Ethiopia exempts the import customs duties and value added tax (VAT) levied on imported pharmaceutical.

6) Tax: In Addis Ababa & Special Zone of Oromia, manufacture of inputs of basic pharmaceutical products and pharmaceutical preparations enjoys 5 years, and manufacture or formulation of Pharmaceuticals enjoys 4 years; those in other areas enjoy one extra year. In addition, if at least 60% of the products are exported, there would be 2 more year extension. Pharmaceutical manufacturing enjoys income tax exemption for 2-6 years and 2 extra years and free land if invested in industrial zone. What’s more, for half of income tax exemption period, investors enjoy tax loss carry forward.

7) External Markets: There are also incentives like duty draw-back scheme, voucher scheme, bonded manufacturing warehouse scheme and export credit guarantee scheme in Ethiopia to attract export-orientated investment.

[1] National Strategy and Plan of Action for Pharmaceutical Manufacturing Development in Ethiopia (2015–2025): Developing the Pharmaceutical Industry and Improving Access (Abridged Version), p.4.