The Protection of Domestic and Foreign Investors against Political Risks in Ethiopia: A Comparative Expository Survey

Abstract

In a contemporary world, investment is one of the main sources of economic development. Countries use investment guarantees as a method to promote investment. There are many types of investment guarantee standards, and one of them is the “sound full protection and security” standard, particularly in situations of political violation. The standard suggested that the state is under an obligation to take active measures to protect investments and investors from adverse effects. Thus, the main objective of this study was to critically examine the protection of domestic investments during political risk under the Ethiopian investment law. The results of this study show that domestic investors in Ethiopia face the risk of political violence. Although most foreign investors (especially BIT-protected ones) have the opportunity to protect their investments against political violence through different mechanisms, there are no formal or rule based compensation methods for domestic investors. Ethiopian law has made provisions for protection against expropriation and currency risk; however, it has failed to provide protection against political violence. The findings also indicate that there is no clear political violence risk protection mechanism to protect the investments of domestic investors in Ethiopia. Based on the past and present situation of political instability in the country and future possible impediments that other countries experience, the researcher recommends that the state regulator should consider establishing a political violence insurance market group at the national level as well as incorporating comprehensive security and protection standards into the regulatory framework to promote and protect domestic investments in Ethiopia.