Authored By: Betelhem Tikue Hailu
Abstract
This article examines the complex legal regime governing foreign access to land in Ethiopia, where all land is constitutionally mandated as public property. It analyzes the statutory leasehold system as the primary mechanism for foreign investment, juxtaposing its theoretical design against practical implementation challenges. The article argues that the current framework, while intended to protect national sovereignty, creates significant tenure insecurity for investors and fosters social conflicts with local communities. Through an analysis of the legal provisions, judicial interpretations, and ground-level criticisms, this article concludes that systemic reforms aimed at strengthening leasehold rights, enhancing transparency, and promoting inclusive investment models are urgently needed to balance economic growth with social equity, without necessitating a constitutional amendment.
- Introduction
In the global competition for foreign direct investment (FDI), a nation‘s legal framework governing land access is a critical determinant.1Ethiopia presents a unique case study, characterized by a constitutional prohibition on private land ownership—a legacy of its socialist past. 2The theme of this article is the intricate and often contentious interplay between Ethiopia‘s sovereign commitment to public land ownership and its economic ambitions driven by foreign capital. The issue is of paramount importance, as land is not merely an economic asset but a source of livelihood, identity, and political contestation.3This article provides the legislative history of land nationalization and traces its evolution into the current investment-led leasehold system. It posits that while the leasehold model is legally viable, its operational deficiencies undermine investment security and socio-economic rights, necessitating pragmatic legal and policy reforms.
- Research Methodology
This article employs a doctrinal research methodology. The analysis is primarily based on a critical examination of primary sources of Ethiopian law, including the Constitution, federal proclamations, and regulations. Secondary sources such as academic commentaries, reports from international organizations, and credible news articles are used to contextualize the practical challenges. The approach is analytical, evaluating the gaps between the law as written (lex lata) and the law in practice, with suggestions for future reform (de lege ferenda).
- The Architecture of State Ownership and Leaseholds
The Ethiopian legal system is unequivocal on the issue of land ownership. The Constitution of the Federal Democratic Republic of Ethiopia (FDRE) vests the right of ownership of all land and natural resources exclusively ―in the State and in the peoples of Ethiopia,‖ explicitly prohibiting sale or exchange.4
The federal government has operationalized constitutional principles through legislation such as the Rural Land Administration and Use Proclamation No. 456/2005.5This Proclamation outlines rules for land allocation, use rights, and dispute resolution, while explicitly prohibiting land sales. Regional governments have enacted complementary laws, for example, Oromia‘s Proclamation No. 130/2007,6creating a dual system where both federal and regional authorities regulate land administration. This decentralized framework allows regional adaptation but also introduces complexity for investors navigating multiple legal regimes.7
While the FDRE Investment Proclamation8prohibits land ownership by foreign investors, it permits access through leasehold or usufructuary rights. Investors can secure leases ranging from 50 to 99 years for agricultural, industrial, and large-scale projects.9The law grants regional authorities custodial power over land and requires investors to obtain permits from the Ethiopian Investment Commission (EIC) or relevant regional bureaus before applying for leases.10 This legal structure establishes a conditional pathway for foreign participation, balancing investment promotion with national sovereignty.11
Lease agreements specify duration, permitted land use, rent, and renewal terms. Typically, agricultural and industrial leases extend from 50 to 99 years.12 Leases grant investors usufructuary rights rather than ownership, ensuring that ultimate land control remains with the state.13 While the law allows long-term planning, uncertainties regarding renewal, compensation in case of expropriation, and administrative discretion weaken the perceived security of these arrangements.14
The lease acquisition process is multi-layered.15 Investors must first secure an investment permit from the EIC or regional bureaus, followed by negotiation with regional authorities for land allocation.16 Approvals often require coordination with local administrations and compliance with zoning, environmental, and social requirements. While the EIC aims to function as a one- stop-shop, procedural inefficiencies and lack of standardized timelines result in delays and increased transaction costs.17
Federal and regional authorities act as custodians and regulators of public land. Regional bureaus manage lease allocation, monitor compliance, and adjudicate disputes.18 This dual system reflects constitutional principles but can generate conflicts, particularly where local priorities diverge from federal directives. Investors frequently report inconsistent practices between
regions, further undermining the predictability of leasehold arrangements.19
4. Judicial Interpretation and State Sovereignty
Ethiopian courts have consistently upheld the principle of state ownership. While there are few cases directly challenging the core of Article 40, judicial reasoning in expropriation and compensation cases reinforces the state’s paramount authority.
For instance, in cases involving the revocation of land use rights, courts have often deferred to the administrative discretion of the state, emphasizing that what is being protected is the user‘s usufructuary right, not a right of ownership.20 The compensation required by law is thus for the loss of improvements on the land (e.g., buildings, crops) and not for the land itself.21 This judicial stance solidifies the fundamental power imbalance inherent in the leasehold system: the state, as the absolute owner, retains a right of reversion that can, and has been, exercised in ways that investors perceive as unpredictable.22
The judicial stance illustrates the tension between national sovereignty and the need for foreign investment. While investors require security to justify long-term capital deployment, courts maintain that the state‘s interest in land preservation supersedes private or foreign claims. 23Legal scholars argue that this approach, though constitutionally consistent, discourages foreign participation in sectors like agriculture and manufacturing due to uncertainty over tenure continuity.24
- Implementation Challenges and Criticisms: Law and Practice
The leasehold system inherently limits security, with finite terms and uncertain renewal conditions. Capital-intensive projects with long gestation periods face risks of non-renewal or expropriation, often without predictable compensation. 25Such risks deter potential investors and affect project financing and operational planning. The theoretical leasehold model collapses under the weight of practical implementation, revealing three core criticisms:
- Tenure Insecurity Deters Investment: A leasehold , by its nature, is less secure than ownership. The finite term of a lease (even 99 years) and uncertainty about renewal conditions deter capital-intensive, long-gestation investments in sectors like agriculture and manufacturing. Investors fear the risk of non-renewal or expropriation without fair and predictable compensation, a concern validated by the judiciary’s deferential stance towards the state.26
- Bureaucracy and Opacity Foster Corruption: The process of securing a lease is fragmented across federal, regional, and local (woreda) authorities. This multi-layered bureaucracy is often slow and non-transparent, creating fertile ground for rent-seeking behavior and corruption. 27The lack of a clear, standardized, and publicly accessible land lease registry further exacerbates this problem.
- Social Conflict and Human Rights Concerns: The legal framework prioritizes state-led allocation over community rights.28 Large-scale land transfers often occur on land used by smallholder farmers and pastoralists.29 The process of Free, Prior, and Informed Consent (FPIC) is not robustly legally mandated or enforced.30 Consequently, communities are frequently displaced with inadequate compensation, leading to social unrest, as seen in conflicts in Gambella and Oromia regions.31 This undermines the very “peoples of Ethiopia” whom Article 40 of the constitution seeks to protect.
6.Recent Developments: A Shift towards Liberalization?
The administration of Prime Minister Abiy Ahmed has pursued a policy of economic liberalization. The government has opened sectors previously reserved for domestic investors to foreign participation. While this promotes economic growth, the constitutional prohibition on land ownership remains unchanged.32 Consequently, liberalization focuses on easing procedural hurdles rather than fundamentally altering tenure structures.33
The EIC has introduced initiatives to streamline investment processes, including lease applications.34 Efforts include reducing bureaucratic layers, improving coordination among authorities, and exploring digitized recordkeeping. While progress is evident, the reforms primarily address administrative efficiency rather than legal certainty.35
Policy discourse centers on creating a more transparent and competitive lease market and strengthening investor protections.36 Discussions include potential legislative measures to codify leasehold rights, enhance renewal predictability, and integrate robust community engagement mechanisms. These debates indicate a recognition of the need to balance economic development with social equity and national sovereignty.37
- Suggestions / Way Forward
To reconcile the constitutional model of public ownership with the imperative for foreign investment, Ethiopia must pursue a package of targeted legal and institutional reforms. First, legislative action is required to strengthen leasehold rights; Parliament should enact a law that codifies these rights as strong, transparent, and transferable property interests. This law must guarantee renewal options under clear, predetermined conditions and establish independent arbitration mechanisms to fairly resolve lease-related disputes, thereby providing the tenure security that long-term investors require.
Second, bolstering this framework requires a mandate for radical transparency and community engagement. This includes the creation of a publicly accessible online registry for all large-scale land leases and the legal incorporation of a rigorous Free, Prior, and Informed Consent (FPIC) process for projects affecting local communities. This ensures that investment does not come at the cost of social equity, giving communities a decisive voice and guaranteeing equitable benefit
sharing agreements. Furthermore, the government and the Ethiopian Investment Commission should actively promote inclusive investment models, such as out grower schemes and joint ventures with local cooperatives, which provide investors with reliable supply chains while keeping productive land under community control and mitigating displacement risks. Finally, the success of these reforms hinges on significant capacity building for regional land administration institutions, ensuring they have the technical resources and monitoring capabilities to manage leases fairly, enforce environmental standards, and resolve disputes effectively.
- Conclusion
Ethiopia‘s land and investment framework reflects a delicate balance between constitutional sovereignty and economic development imperatives. While the leasehold system allows foreign investors conditional access to land, its current implementation is characterized by tenure insecurity, bureaucratic inefficiency, and social tensions.38
The path forward lies not in privatizing land but in strengthening leasehold rights, enforcing transparency, and prioritizing community welfare. Codifying predictable lease conditions, institutionalizing independent dispute resolution, and embedding inclusive investment practices will enhance investor confidence without undermining national sovereignty.
By addressing administrative inefficiencies and social concerns, Ethiopia can convert the leasehold model from a source of conflict into an instrument for sustainable, inclusive economic growth. A reformed leasehold system has the potential to attract foreign capital, protect local communities, and uphold the constitutional principle that land belongs to the state and the people.
Bibliography
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1 The Oakland Institute, Understanding Land Investment Deals in Africa: Country Report: Ethiopia (2011).
2 Art.40 (3) of the FDRE constitution declared that “The right to ownership of rural and urban land, as well as of all natural resources, is exclusively vested in the State and the peoples of Ethiopia. Land is a common property of the Nations, Nationalities and Peoples of Ethiopia and shall not be subject to sale or to other means of exchange
3 Getachew Diriba, ‗The Evolving Question of Land in Ethiopia: Tenure Preferences, Property Rights and Land Governance‘ (2022) 1(1) Ethiopian Journal of Land and Property Rights
4FDRE Constitution, art 40(3).
5Rural Land Administration and Use Proclamation No 456/2005, Federal Negarit Gazeta, 11th Year No 44, art 5.
6 Oromia Rural Land Administration and Use Proclamation No 130/2007, Oromia Negarit Gazeta, 16th Year No 27, art 7.
7 Daniel Hailu, ‗Ethnic Federalism and Public Land Ownership in Ethiopia‘ (The Elephant, 29 May 2025)
8Investment Proclamation No 1180/2020, Federal Negarit Gazeta, 26th Year No 91.
9 Ethiopian Investment Commission (EIC), Investment Guide to Ethiopia: Ethiopia – A Preferred Investment Destination in Africa (2022).
10 Ethiopian Investment Commission, Investment Procedures and Land Access Guidelines (EIC, 2023)
11 Ibid.
12 Ibid 8.
13 Ibid 8.
14 Legesse Tigabu. (2014). The Ethiopian Urban Land Lease Holding Law: Tenure Security and Property Rights. Jimma University Journal of Law, 6, 21.
15 EIC, Investment Procedures and Land Access Guidelines (n 10) 3.
16 EIC, Investment Procedures and Land Access Guidelines (n 10) 19.
17 Ibid 8.
18 Proclamation No 456/2005 (n 5) art 10.
19 MF Ayano, ‗Understanding the Local Complexities in Land Law Reforms: The Case of Land Inalienability in Ethiopia, 1991–2018‘ (2024) 49(4) Law & Social Inquiry 2398.
20 Expropriation Proclamation No. 1161/2019, Federal Negarit Gazeta, 25th Year No. 58, art. 2(1) (e) & art. 6. (Article 2(1)(e) defines “Property” to mean any tangible or intangible asset situated on the expropriated land, and Article 6 details that compensation is for this property, not the land itself).
21 Hailu Burayu, Elias N Stebek and Muradu Abdo, ‗Judicial Protection of Private Property Rights in Ethiopia: Selected Themes‘ (2013) 7(2) Mizan Law Review 360, 360-361.
22 Legesse Tigabu (n 14)
23 EthioLex, ‗The Evolving Landscape of Immovable Lease Law in Ethiopia : A Judicial and Comparative Analysis of Cassation Bench Interpretations‘ (Addis Law Blog, 4 July 2025).
24 Ayano (n 18)
25 Daniel Ayalew, Stefan Dercon and Madhur Gautam, ‗Property Rights in a Very Poor Country: Tenure Insecurity and Investment in Ethiopia‘ (Centre for the Study of African Economies, University of Oxford, Working Paper WPS/2005-10, 2005).
26 Ibid.
27 Samira Lindner 2014, Ethiopia: Overview of corruption in land administration, Anticorruption resource center, June 2014
28 FDRE Constitution, art 40(3).
29 D Rahmato, ‗The Peasant and the State: Studies in Agrarian Change in Ethiopia 1950s-2000s‘ (Addis Ababa University Press 2009).
30 UN-REDD Programme, Guidelines on Free, Prior and Informed Consent (Draft for Comment, December 2011) 7-8.
31Human Rights Watch, ―Waiting Here for Death‖: Forced Displacement and ―Villagization‖ in Ethiopia‘s Gambella Region (2012).
32 Proclamation No 1180/2020 (n 9) art 6.
33 Dawit Kidane Tefera, ‘Ethiopia to Permit Foreign Nationals to Acquire Immovable Property’ (Addis Lawyer, 31 May 2025).
34 EIC, Investment Procedures and Land Access Guidelines (n 10)
35 Ibid.
36 Daniel Hailu, ‗Ethnic Federalism and Public Land Ownership in Ethiopia‘ (The Elephant, 29 May 2025)
37 Fikadu Asfaw, ‘Legal Brief: Analysis of Ethiopia’s Draft Legislation on Foreign Ownership of Immovable Property’ (Fikadu Asfaw Law Office, 5 May 2025)
38 EIC, Investment Procedures and Land Access Guidelines (n 10)
