PRIVATE EQUITY INVESTMENT REGULATION IN ETHIOPIA: THE ENTRY AND ESTABLISHMENT

Abstract

Private equity investment has been a driver of growth in the world economy for decades and is emerging in many countries especially in Africa. PE is under-developed in Ethiopia despite it is one of the most important source of finance for developing countries. It is confirmed that access to finance remains a top obstacle for business enterprises in the Ethiopia but the sector is not well developed the country. The existence of conducive legal and regulatory frameworks for the entry and establishment of PE contributed to successful development of the sector. As a new emerging investment in a developing economy to which Ethiopia not exception, regulatory frameworks can restrict the entry and establishment PE. Accordingly, the research aimed at examining the impact of Ethiopia legal regime on the development of PE by finding answer for the question what is the impact of existing regulatory frameworks on the entry and establishment of PE in Ethiopia. For this purpose, the study involves doctrinal/qualitative type which relies on both primary and secondary sources. It is found that PE is strictly regulated financial investment and has not been recognized as a form of institutional investment. Any financial institutions including PE cannot operate in Ethiopia unless they are established in accordance with the appropriate law of the country and as determined by the NBE and there is no law in effect to introduce the PE in Ethiopia. Plus PE firm is excluded from positive list sectors open for foreigners under working investment laws. For those reasons as any PE firm, whether nationals or foreigners cannot be licensed to establish, raise and manage PE fund in the country except the Ethiopia Capital the first and only domestic PE firm established in 2019. Practically some foreign based PE firms enter in Ethiopia through opening their CR office to invest foreign established fund in local companies by SPV channels. However, they are not required to be legally registered, licensed or obtain investment permits due to absence of appropriate legal framework enabling the regulatory body to regulate and license the existing PE. Thus it is recommended that Ethiopia needs to introduce legal frameworks allowing for the entry and establishment of domestic PE fully owned by nationals until liberalization of its financial sector. Further research is needed on how to regulate the existing foreign PE firms.