Ethiopia has a huge potential to attract Foreign Direct Investment (FDI) since the country has a lot of untapped resources. However its performance in attracting as much flow of FDI is very low. Dr Atlaw Alemu Head, Department of Economics at Addis Ababa University says there are a number of constraints to attract FDI in Ethiopia.
Poor infrastructural facility, difficulties related to land acquisition, lack of adequate foreign exchange, tax administration system and weakness of institutions contributed to the reduction of the FDI inflow, he stated. The Ethiopian government has launched a national initiative that aimed to improve the investment climate both for local and foreign businesses.
The national investment plan mainly identified over 80 distinct actions that would be delivered across operations provided in 10 government agencies. Among the government agencies that delivers activities to ease businesses are ministry of trade and industry, revenue minister, ministry revenue commission, Addis Ababa city administration construction license bureau, Addis Ababa city administration land development management bureau, Ethiopian electric power, federal attorney general, federal first instance court, national bank and Ethiopian Investment commission itself.
The initiative is designed after Ethiopia registered poor performance in ease of doing business which aims to improve and make a comfortable business climate for the businesses. The already identified ten government agencies were expected to ease works if they appropriately practice and discharge their respective responsibility. Those ten government agencies are selected since they are directly related to business activities.
The reform measures will be monitored by the Policy and Performance Unit of the PM’s office and coordinated by the Ethiopian Investment Commission (EIC). The initiative will make Ethiopia a competitive place to start and grow businesses.
In addition to this the initiative shows how much Ethiopia is interested to ease doing business climate. The International Monetary Fund (IMF), as part of its economic outlook for Africa that was published last October, forecasted that Ethiopia will host Africa’s fastest growing economy in 2019, as the country’s economy is projected to grow at 8.5 percent during the current Ethiopian fiscal year, which will end on July 7, 2019. FDI is crucial to the economy of developing countries.
FDI is regarded as engine of the growth as it provides much needed capital for investment. It benefits the country by creating job opportunities for citizens as well as improving the living standards. He said the nation is trying to attract FDI, despite the multi-faceted challenges the country has faced. Among this the industrial parks being built in Ethiopia will move the country forward in attracting FDI. But the works that done to attract FDI is still not that satisfactory.
The country needs more working systems which helps to improve business climate. To improve the inflow of the FDI the government should therefore invest more in infrastructure and improving policy and regulatory environment and also tax reforms are essential to FDI attraction and contribution to growth in the economy Atlaw noted. Priority is given to the distribution of road networks and logistics because it plays a vital role on transporting goods from abroad and also from domestic. It is better to improve policy and regulatory policy environment and tax reform.
According to him if those things and problems are improved we will attract more unless it is difficult to make the country move forward since FDI is one of the means for economic development.
He underlines that sustainable security in the country and avoiding fluctuated policy, rules and regulations and also administration system is the main things to attract investment. Fluctuation of things may reduce the trust of the investors since the investors need a stable business environment. He noted that China, India and Turkey are the leading countries whose investors engaged in various investment areas in Ethiopia. Through the efforts exerted to stabilize the situation, push forward the reform the government has to keep existing investments and simultaneously managed to attract new companies into the country.
Ethiopia has given due attention to economic sector by building industrial parks to attract more foreign direct investment to realize development. The Construction of industrial parks across the country in addition to incentives creates conducive business environment help the nation to attract more investment. Ethiopia is working to realize its ambition of becoming industrial hub in the region and structural transformation by scaling up the performance of the manufacturing sector.
The economic update also highlights reform priorities to realize Ethiopia’s industrial goals. Despite lack of comfortable in ease of doing business in Ethiopia, FDI inflow to the country has accelerated in recent years, making Ethiopia one of the top performing African countries in FDI inflow. Ethiopia ranks 159 out of 190 in World Bank’s Doing Business ranking in 2018, down by two positions compared to the previous year.
This is a very poor performance for a country like Ethiopia. Part of the reason for this poor ranking is the state bureaucracy and outdated rules for starting and running business in Ethiopia. So far, the Ethiopian state has been exerting effort on business growth in Ethiopia by launching initiative to improve business climate.
Herald January 19/2019
BY HAILE DEMEKE
