The term ‘investment’ may mean different things in different disciplines and contexts. Thus, it may mean “expenditure to acquire property or assets to produce revenue”.[1] Fisher and Jordan[2] define investment as commitment of funds made in the expectation of some positive rate of return. According to them, the return will commensurate with the risk the investor assumes if the investment is properly undertaken. We observe from this definition that investment is a commitment of funds. Thus, a person would commit fund on something. In addition, the commitment is made with the expectation of some positive rate of return. This positive rate of return is a profit gained from the commitment of the fund. However, it is important to bear in mind that investment carries with it a risk, i.e. the commitment of the fund might end up with no profit. Thus, the investor needs to properly manage the investment to make sure that it will be profitable.

From the legal point of view, investment is defined as:

Every kind of asset and in particular shall include though not exclusively:

a) movable and immovable property and any other property rights such as mortgages, liens and pledges;

b) shares, stocks and debentures of companies or interests in the property of such companies;

c) claims to money or to any performance under contract having a financial value;

d) intellectual property rights and goodwill;

e) business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources.[3]


According to many international investment agreements investment is something established in accordance with the laws of host countries.[4] This is intended to ensure that the investment has been properly registered and licensed and that it complies with the laws and regulations of the host countries.

Under a bilateral investment treaty to which Ethiopia is a party, investment is defined as: “Any kind of asset and any direct or indirect contribution in cash, in kind or in services, invested or reinvested in any sector of economic activity.”[5] As per this Agreement though not exclusively, it includes:[6]

movable and immovable property and rights in rem like mortgages, liens, pledges, and usufruct;


bonds, claims to money and to any performance having an economic value;

copyrights, industrial property rights, technical processes, trade names and goodwill;

concessions granted under public law or contract to explore, develop, extract or exploit natural resources.

In general, investment may be defined as making an outlay of money or capital for profit. The definition given under our investment law is in line with this definition. The provision of Art 2(1) of Proclamation No. 280/2002 (as amended) reads as:

“Investment” means expenditure of capital by an investor to establish a new enterprise or to expand or upgrade one that already exists.

There are some essential elements in defining the term investment under our law. Now let us consider them turn by turn.

A. Expenditure of capital- To have an investment there must be an expenditure of capital. ‘Capital’, according to Article 2(3) of Proclamation No 280/2002 (as amended), means “local or  foreign currency, negotiable instruments, machinery or equipment, buildings, initial working capital, property rights, patent rights, or other business assets.” Capital includes currency. What does currency mean? Currency is a system of money used in a country or sometimes an economic block. In other words, currency is money or cash as represented by notes, which are known by various designations in different countries. A currency could be local or foreign. Local currency means Ethiopian Birr whereas foreign currency denotes money other than Ethiopian Birr such as Euro, the Chinese Renminbi (people’s money), the Israeli Shekel, US Dollars Nigerian Naira, etc. Thus, money is capital, and expenditure of money is investment so long as all other elements of the definition of the investment are fulfilled.[7]

In addition to money, negotiable instruments also constitute capital according to the definition of the term under our law. Have you taken the law of banking and insurance? If you have, you must be familiar with negotiable instruments.


The word ‘negotiable’ means ‘transferable by delivery’, and the word, ‘instrument’ means ‘a written document by which a right is created in favour of some person’. Therefore, the term ‘negotiable instrument’ literally means ‘a written document transferable by delivery.’[8]


Negotiable instruments are defined as “documents representing legal claims which are regarded by law as transferable and which give to the purchaser in the ordinary course of business a  good title even though that of the seller may have been defective”[9]

In light of this definition, a negotiable instrument transfers a good title to the purchaser. Good title means better right, better protection. It is only a holder in good faith, a holder in due course who can acquire better title, better rights, and better protection than the transferor can. A transferor is one who transfers/sells/the negotiable instrument to the holder. For example, W/o Almaz has a cheque from Ato Melaku after paying the price, in good faith. She is a holder.

What is essential is that it is possible for a person to contribute a negotiable instrument, i.e. a bill of lading, a document of title to goods shipped, warehouse certificate, a cheque, a promissory note instead of contributing the goods or money to an enterprise.

What is more, things like machinery, equipment, buildings are regarded as capital according to Article 2(3) of Proclamation No 280/2002 (as amended).

Furthermore, incorporeal things, like patent right, are also considered as capital under our law. Thus, business assets like trademark, trade name, goodwill etc… are regarded as capital. In general, what is important is that the thing being contributed or otherwise invested should have economic value and help in the attainment of the purpose of the enterprise, i.e. making profits.

An Investor- A person who invests in Ethiopia is an investor. The person may be local or foreign investor.[10]

Domestic investor’ is defined as “an Ethiopian or a foreign national permanently residing in Ethiopia, who has made an investment, and includes the Government, public enterprises as well as a foreign national, Ethiopian by birth and desiring to be considered as a domestic investor.”[11]

An Ethiopian is a domestic investor so long as s/he invests in our country. A foreign national may also be regarded as domestic investor if s/he is Ethiopian by birth and willing to be considered as a domestic investor. Persons who are Ethiopian by birth may acquire foreign nationality. Such persons may invest in Ethiopia. If they need to be treated as domestic investor, the Ethiopian Government will consider them as domestic investors. On the contrary, if they are not willing to be considered as domestic investor, they could not be considered as domestic investor. Thus, the option is given to them to choose whether to be treated as a domestic investor or not because they have foreign nationality and they are Ethiopian by birth.

Nevertheless, what is the advantage of being considered as a domestic investor? There are some advantages to being considered as a domestic investor related with the privileges granted under the investment law. Therefore, if a foreigner who is Ethiopian by birth chooses to be considered as a domestic investor, s/he would be legible to exercise the privileges granted to domestic investors while they are not granted to foreigners.


Foreign investor is “a foreigner or an enterprise owned by foreign nationals, having invested foreign capital in Ethiopia, and includes an Ethiopian permanently residing abroad and preferring treatment as a foreign investor.”[12]


According to this definition, a foreign investor could be an individual or an enterprise (business organization) who has foreign nationality. An enterprise that is owned by foreigners is a foreign investor. This means the enterprise may be established in Ethiopia according to our law(s). An enterprise that is established here in Ethiopia is considered as Ethiopian. However, such enterprise is regarded as a foreign investor notwithstanding its establishment in Ethiopia. What is important, according to our law, is that the enterprise should be owned by foreign nationals. Here it is essential to raise a question: should the enterprise be owned wholly or partially by foreigners? This is not clear from the law. However, the intention of the legislature seems that the enterprise should be wholly owned by foreigners.

The definition also includes an Ethiopian who permanently resides abroad and chooses to be treated as a foreign investor, i.e. s/he is a foreign investor. Here nationally does not seem to be a criterion to categorize a person as foreign investor, because an Ethiopian who permanently resides in a foreign country may not necessary be a foreigner. Here, what is the determining factor is the choice of the Ethiopian who resides permanently abroad to be treated as a foreign investor. Consequently, an Ethiopian who permanently resides abroad and chooses to be treated as a foreign investor is not allowed to invest in the financial sector, for example. However, what do we mean by an Ethiopian? Does it include an artificial person, i.e. an enterprise or only an individual? The law of investment does not clearly respond to this issue.

C. Enterprise- is another essential term in the definition of the term investment. What does an enterprise mean? The term “enterprise” is defined as “an undertaking established for purpose of gaining profit”.[13] In other words, an enterprise is an undertaking whose purpose is profit making. This means the enterprise should accrue an economic benefit for those who invest upon the sector. An enterprise whose purpose is profit is a trader according to Article 5 of the Commercial Code of Ethiopia. However, if an enterprise is established for the purpose of cultural, religious or political goals, but not obtaining economic benefits for the person(s) who make capital available for it, such an entity is not an enterprise. Consequently, expending capital in such entity cannot be regarded as an investment.

D. Expansion and upgrading- is also regarded as an investment under our law of investment.[14] There could be an expenditure of capital on an already existing enterprise to expand it or upgrade the same. “Expansion /upgrading” means increasing in value, by more than 25% the full production of service capacity of an existing enterprise, be it in variety, volume, or both.”[15]


Let us assume that XYZ Share Company is an enterprise established with Birr 200,000 to produce leather products, such as bags. Now, the sector is promising and the demand of the consumers increases. Thus, the owners decided to upgrade the production capacity of the Share Company by more than 25%. Accordingly, the capital of the company is increased to Birr 275,000. Such an upgrading or expansion of the company is regarded as an investment.


Let us consider another example. Cheque Share Company is an enterprise investing on flower on the road to Nazareth on 2,500 hectares. The capital of the Company is 2.5 Million Birr. Now the owners of the Company reached a decision to invest more to expand the investment. The Government has granted them 1,000 square hectares for expanding the investment on flower. The shareholders agreed to expend some 325,000 Birr for each the expansion. This expansion of the investment with Birr 325,000.00 on additional 1000 square hectares is an investment pursuant to Article 2(2) of the Investment Proclamation No 280/2002(as amended).

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[1] Bryan A. Garner,(Editor-in-Chief), Black’s Law Dictionary,(Eight Edition), Thomson, West, United States of America, 2004, p.844

[2] Fisher and Jordan

[3] ASEAN Agreement for the Promotion and Protection of Investments, Article 1(3), from UNCTAD, 1996a, Volume II, p. 294.

[4] UNCTAD International Investment Agreements, Volume I, (2004), p 122

[5] The Reciprocal Promotion of Investments Agreement between The Belgian-Luxemburg Economic Union and the Federal Democratic Republic of Ethiopia, Article 2.

[6] Ibid

[7] See Seyoum; A Partial Work, (unpublished),  2007, Pp. 2-3

[8] M.C. Kuchhal; Mercantile Law, Vikas Publishing house PVT LTD, New Delhi, 1992, P 359

[9] A lecture by Zekarias, 2005

[10] Proc. No 280/2002 (as amended). Re-Enactment of the Investment Proclamation, Federal Negarit Gazeta, 8th Year No. 27, Addis Ababa, 2nd July, 2002, Art. 2(4)

[11]Ibid; Art. 2(5)

[12] Proc No 280/2002, Ibid, Art. 2(6)

[13] Proc. No 280/2002 (as amended), Ibid, Art. 2(2)

[14] Ibid, Art. 2(1)

[15] Ibid; Art. 2(8