Business Day
12 Jun 2026
This is the land that in 1935 comes suddenly to the world’s attention, wrote WEB du Bois of Ethiopia, suggesting that the nation on the Horn of Africa came to the world’s notice “by being involved in war and rumours of war, a threat to the sanctity of international agreements, a crisis in Christianity (and) foreboding a new orientation in the problems of colour and race”.
Nine decades later, Ethiopia is no less involved in belligerent tensions with parties near and far afield, but its recent industrial policy moves could also signal some “new” orientations in its quest to diversify its industrial base.
So too are its manoeuvres crucial (for the sheer size of its internal and regional market) to the economic and industrial future of the continent. In a federal gazette published at the end of February, the Ethiopian government published regulation 586/2026, a profoundly influential signal.
The regulation sets out amendments to the income tax incentives extended to investors. In amending the regulations, the Addis authorities found it necessary to implement a performance-based incentive framework, granting rents to firms strictly on the basis of measurable performance.
These measures, the gazette suggested, are “revocable and enforceable with liability in the event of legal violations”. The regulation was a rare insight into how the Ethiopian government sought to incentivise select economic activities and market behaviours, crucial to its diversification efforts and overall economic resilience.
The leading coffee exporter’s main non-agricultural exports are in apparel and electronics, while it remains a major importer of staples (wheat, palm oil, rice and sugar) and inputs (fuel and fertiliser, for instance). It is at great risk of worsening its structural goods trade deficits, with limited pools or markets for domestic saving and relatively shallow capital markets.
So, unsurprisingly, regulation 586/2026 announced tax breaks to attract investment in areas that can overcome these pain points — specifically to “crowd in” investments in special economic zones by manufacturers of fertiliser, improved research & development spend, and use of renewable energy and incentives for mining, petroleum and geothermal investments.
The tax offsets included measures to encourage listings on the Ethiopian stock market, with firms subject to a reduced business income tax rate for three years after an initial public offering, with eligibility subject to continued listing during the applicable incentive period and excluding shares offered over the counter.
Read alongside criticisms of South Africa’s own industrial strategy and its master plans, such moves may seem a variant of the British Labour Party’s “left-wing Bennite” corporatism of the early 1970s. They are, however, similar but different. Ethiopia not only recognises the structural limits of its existing export basket in labourintensive manufacturing but looks to mediate the balance of payment risks of not diversifying the food it plants or how it powers its vehicles or factories.
It seems to recognise the palliative protection and defence of areas and capabilities where it has lost market share, but focuses its quest on new areas of relative competitive advantage. The search for new commodities to diversify what it exports and the quest for new industrial undertakings to soften its reliance on imported fertilisers stand a world apart from the Bennite planning agreements and capital structure rejigs that sought to save British Leyland, for instance.
The Addis regulation sees every bit of tax forgone as a lever to unlock market behaviour that otherwise would not have occurred, nor have been deemed attractive. It is a quest to use tax revenue to undertake structural transformation towards the new, rather than to resuscitate the dying.
Only with the passage of time can we tell whether the new Ethiopian industrial policy will succeed. The same applies to our own industrial development strategy, but what is clear is that the Cold War-esque binaries are wholly inadequate in accounting for these new developments.
New lenses may be needed, and Ethiopia, to paraphrase Du Bois, may set the stage for a new orientation to the problems of African economic statecraft. We watch developments in Addis with close interest.
Cawe is Chief Commissioner at the International Trade Administration Commission. He writes in his personal capacity.