Officials of the Ethiopian Customs Commission have drastically tightened the rules for duty-free import privileges. According to Commissioner Debele Kabeta, only army and national intelligence chiefs, along with the Minister of Finance, would retain granting these benefits. Effective July 22, 2024, the Commissioner ordered his subordinates to halt processing duty-free imports, reserving the right of final approval solely for his office.

The decisive action disrupts a broad array of incentives instituted for alluring domestic and foreign investors.

Customs officials say they want to impede the widespread misuse of duty-free privileges, claiming it has created systemic and regulatory issues in revenue collection. According to Mengistu Gizaw, a senior team leader at the Customs Commission, the tightening measure responds to long-held abuse of the privileges. He attributed the entry of various machinery and goods in the market to the pretext of duty-free imports, causing revenue losses.

Ethiopia offers several incentives to domestic and foreign investors, such as importing duty-free capital goods and construction materials deemed necessary to establish businesses or expand existing enterprises. Businesses with investment licenses could import vehicles duty-free depending on the areas of their investments. Three years ago, duty-free permits were granted by city and regional investment commissions before being approved by the Ministry of Finance. During this period, illicit goods flooded the market, exacerbating the problem.

"The country has been losing a lot of revenues," said Mengistu, whose Commission disclosed last week that it has collected nearly 200 billion Br in duty tax in the past budget year.

Beginning last week, duty-free privileges for investors were suspended pending an investigation into recent allegations of illicit imports of two weeks. The Commission's investigators were gathering information from 16 customs branches and two branches in Djibouti.

"Requests from investors are put on hold in the meantime," disclosed Mengistu.

The online duty-free request platforms run by regional investment bureaus have been frozen, causing delays for investors.

Hailesellassie Tadele, director of the One-Stop Service Directorate at the Tigray Investment Commission, noted that the past two months have been difficult for investors who could not import duty-free goods. Only seven investors have received permits for the privilege.

"Our online system has been frozen," he told Fortune. "We're not fully operating."

Officials at the Ethiopian Investment Commission confirmed that their system has also stopped working, leaving them unable to process any requests. With the approval left to federal customs officials, the embargo is feared to create backlogs at Djibouti and Mojo dry ports, a situation mismatched with the Ethiopian Investment Commission's (EIC) strategic plans. Commissioner Hanna Arayasellasie was not available for comment last week, despite repeated attempts.

A week before the embargo, Hanna announced over 3.8 billion dollars in foreign direct investment (FDI) in the past fiscal year, an 11.5pc growth compared to the previous year. She unveiled a two-year strategic plan to improve logistics operations and rolled out competitive incentives to attract foreign investments. However, her predecessor, Abebe Abebayehu, expressed scepticism about the effectiveness of granting full authority to customs and federal officials, citing the need for proper supervision mechanisms.

"Busy officials won't have time to assess applications properly," said Abebe. "They'll eventually delegate someone else."

He believes the issue lies in the construction and raw material imports, which are prone to misuse and corruption. Abebe urged reinstating the EIC's authority over duty-free grants, supported by a technological system for transparency and security. He would rather see the Finance Ministry and Customs Commission monitor imports through timely audits.