The Ethiopian Investment Commission (“EIC”) has issued Directive No. 772/2021 (“EIC Directive”) relating to the issuance of work permits to expats employed by foreign investors and the implementation of knowledge and skill transfer from expats to Ethiopians which came into enforce after its publishing on EIC and Federal Attorney General’s website on April 14, 2021. The EIC Directive is a follow up of the reform initiatives taken by the government in the foreign investment sector that resulted in the promulgation of the Investment Proclamation No. 1180/2020 (For more on the Investment Proclamation, please click here) and Investment Regulation No. 474/2020 (For more on the Investment Regulation, please click here).
In this edition of our legal update, we highlight the key changes introduced by the EIC Directive. One must note that the sector has so far been governed by the Revised Directive for Determining of Issuance for Work Permit for Expats, 2018 (“MoLSA Directive”) issued by the Ministry of Labour and Social Affairs ("MoLSA”).
Scope of application
The MoLSA Directive has a broad scope of application as it applies to all expats working in Ethiopia[1]. On the contrary, the EIC Directive has a narrow scope of application and it is applicable on expats employed in foreign investments that are administered by EIC. In addition, the EIC Directive is applicable to recognized refugees who hold a valid identity paper and are engaged in paid employment.[2]
Further, the EIC Directive excludes from its scope of application expats employed by investment enterprises engaged in air transport services, electric power generation, transmission or distribution services and communication services. Expats working in these sectors will continue to be governed by the MOLSA Directive.
Issuance of work permit for top management officials
The EIC Directive reiterates the guarantee provided under the Investment Proclamation for the employment of expats in top management positions by relaxing the rule stated under the MoLSA Directive that provided foreigners may be employed only when it is ascertained that Ethiopians possessing similar qualification or experience are not available.
The EIC Directive treats the employment of top management officials in two categories based on the phase of the investment enterprise in which the expat is employed. The first phase is the project construction phase. In this phase, the project manager and deputy project manager are automatically regarded as top management employees who are entitled to the privileges under the EIC Directive. In the implementation phase of the investment, the EIC Directive expands the domain of top management employees by extending the privilege to Chief Executive Officer or General Manager, Deputy General Manager, Chief Operation Officer, Deputy Operation Officer, Chief Finance Officer, Marketing Manager, and as appropriate, the Board Chairman.
It must be noted that the nomenclature of job positions within the investment enterprise needs to be tailored to fit the names described above in order for expats to qualify for a work permit under the EIC Directive. Discordance in the ways jobs are named carries the risk that the expats in question may not be regarded as top management officials and their applications could be rejected as non-compliant with the EIC Directive.
The work permit of top management members is issued and renewed annually based on the request submitted by the employer without the need to comply with preconditions set for other expats particularly those concerning the requirement of preference for qualified Ethiopians and duties pertaining to knowledge and skill transfer.
Employment in job positions other than top management positions.
The EIC Directive sets forth the rule that that a foreign investor to employ expats in job positions other than top management job position is dependent up on the phases of its investment as described below:
1. Project Phase
A foreign investor can employ expats not exceeding 10% of the total number of Ethiopians employed by it and holding permanent project positions. This threshold may be increased by EIC up to 15% if the investor expands or upgrades its existing investment by reinvesting its profit or other capital. The investor must make an application for each stage as follows:
a. Machinery Installation Phase: An application for this phase should include documents supporting shipment or importation of the machinery into the country apart from general requirements provided under the EIC Directive.
b. Commissioning Phase: An application for this phase should include proof showing the importation or local availability, or shipment of inputs required for commissioning apart in addition to the general requirements.
2. Implementation/Operation Phase
The number of expats employed in the enterprise shall not exceed 10% of the total number of Ethiopian employees. EIC may however decide, based on a study, to raise the threshold to up to 12% taking into account investment sectors that require an exceptionally high number of expat employees.
Despite the above restrictions, EIC is empowered to decide not to apply the restrictions for high-tech investments, consultancy investments, and high-skill agricultural investments, which, because of their unique nature, do not require engagement of large work force. This rule is applicable on investors that hired expats before the coming to effect of the EIC Directive. Investors that have surpassed this threshold are required to prepare a clear action plan and confirm with requirements of the directive within one year. Also, exceptionally expat employees engaged in repair, maintenance, training and audit and similar positions will only be given non-renewable work permits that are valid only for three months. This is because these types of employment are considered as temporary and needed for a short duration.
Application process
- The EIC Directive has reduced the timeline within which an application for a work permit has to be made after the expat enters Ethiopia. The 90 days provided under the MoLSA Directive for applying is reduced to 30 days under the EIC Directive. If the application period lapses, EIC is entitled to reject the application.
- A work permit under both directives is given for three years and it is required to be renewed annually except in cases where EIC provides an exception to investors that have invested a capital of at least 40 million USD or hired more than one thousand five hundred employees.[3]
- Any expat applying for a new work permit shall submit the following documents: duly completed application form, description of personal profile, academic credentials, professional license or certificate of competence and certificate of service authenticated by a competent, government body, passport valid for not less than three months, valid work visa (WV) or business visa (BV) and employment contract.
- Conditions for the renewal of work permit provided under both directives are pretty much the same. Application for renewal of a work permit may be approved only if it is proven that the expat is relevant for the position and that the particular work is continuous, or when it is proved that there is no Ethiopian who can cover the position. In addition, the EIC Directive also requires proof that the enterprise has executed the training of Ethiopian replacements appropriately, which is a bold move to ensure that the transfer of knowledge and technology takes place as intended by the directive.
Emphasis on Knowledge Transfer
One of the major changes introduced by the EIC Directive relates to the detailed and particular regulation of knowledge and technology transfer to local employees. Training, knowledge and skills transfer are required to be provided to Ethiopian replacements, except for management and non-permanent employees. The employer is required to prepare and submit to EIC a report and a training program on the training and knowledge transfer that consists of the timeline for the replacement of expat employees, nature and schedule of trainings, and quarterly performance report of trainings offered or due to be offered as per the schedule.
EIC is empowered to conduct field monitoring and supervision every three months to assess the implementation and effectiveness of on-the-job trainings offered to Ethiopians. The extent of monitoring and supervision even goes as far as to demand an explanation why the replacement Ethiopian trainees failed to acquire knowledge and skills in required levels and within the stipulated timeframe. Through this approach, the EIC Directive seems to introduce a more rigorous approach to ensure technology and knowledge transfer. To what extent EIC will be in a position to implement this in practice is yet to be seen.
[1] Art. 5, MOLSA expat work permit directive 2011.
[2] Art. 3 (1&2) of EIC expat work permit directive 2021.
[3] Art.11(5) of the EIC expat work permit directive.