BY HIZKEL HAILU –
Recently, United Nations Conference on Trade and Development (UNCTAD) has revealed its world investment report as of the 2021 fiscal year. And the report stated that Ethiopia has collected USD 2.4 billion from FDI despite 6 percent reduction due to the impact of the pandemic by 2020.
According to the report, Global Foreign Direct Investment (FDI) flows fell by 35 per cent in 2020, reaching USD 1 trillion, from USD 1.5 trillion in 2019. Absorbing a 6 percent drop in inflows to USD 2.4 billion, Ethiopia remained the Largest Landlocked Developing Countries (LLDC) recipient of FDI in Africa.
The decline in African LLDCs was more pronounced than in other African countries (-17 percent), reflecting the landlocked economies’ vulnerability to border closures and other measures affecting logistics, the report asserted.
Absorbing a 6 per cent drop in inflows to USD 2.4 billion, Ethiopia remained the LLDC recipient of FDI in Africa. The pandemic and political instability weighed on the economy and on FDI inflows, despite the Ethiopian Government’s new investment promotion strategy targeting livestock, fisheries, energy and manufacturing.
The report further emphasized that FDI to East Africa has dropped to USD 6.5 billion, a 16 percent decline from 2019. Accordingly what Ethiopia has achieved in attracting FDI is inspirable. Ethiopia, despite registering a 6 per cent reduction in inflows to USD 2.4 billion, accounted for more than one third of foreign investment to the sub region.
Although the Ethiopian economy suffered from the pandemic, especially in hospitality, aviation and other services, it still grew a substantial 6.1 percent. The manufacturing, agriculture and hospitality industries drew the highest shares of investment in 2020.
The Government initiated a program to facilitate foreign investment in the manufacturing of personal protective equipment (PPE), and several Chinese firms have already started production. The program can also be considered as one of the pushing factors to facilitate the FDI. Comparing FDI performance of some African countries the report announced that Uganda decreased by 35 percent to USD 823 million, compared with USD 1.3 billion in 2019 and FDI to Somalia increased marginally (4 percent) to USD 464 million.
As in previous years, inflows were concentrated in some large LDCs. The top five recipients (Cambodia, Bangladesh, Ethiopia, Mozambique and Myanmar, in that order) accounted for more than half of FDI to the group and the top 10 (adding the Democratic Republic of the Congo, Senegal, the United Republic of Tanzania, Mauritania and the Lao People’s Democratic Republic) for over three quarters, the report added.
As to the report, FDI inflows to the 33 African LDCs increased by 7 per cent to USD 14 billion, accounting for more than 60 percent of all inflows of LDCs. As a result, African LDCs performed better than Africa as a whole, where FDI inflows declined by 15 percent. Inflows exceeded USD 1 billion in five African LDCs, and USD 500 million in another five.
In Ethiopia, the largest African LDC recipient of FDI, flows were down 6 percent to USD 2.4 billion. Although economic growth remained positive in 2021, the economy felt the effects of the pandemic in tourism and industries related to global supply chains.
On the other hand, while Zambia attracted the most (USD 11 billion in three deals), followed by Ethiopia (USD 4.4 billion in three deals) by value, Myanmar has attracted the most (eight deals, totaling USD 1.7 billion) whereas Angola, Guinea and the Lao People’s Democratic Republic attracted six deals each by number.
The pandemic aggravated structural weaknesses that affect development in general in LDCs (WIR20). Most LDCs avoided major virus outbreaks despite their limited domestic resources and weak health-care capacity; however, future outbreaks, especially if the vaccine roll-out in LDCs continues to be delayed, could once again depress FDI.
Moreover, FDI in the 39 LDCs still considered commodity dependent will remain subject to fluctuations in commodity prices, most of which have not recovered to their pre-pandemic levels. Uncertainty related to a recovery in tourism is also a major issue for selected LDCs (e.g., Bhutan, Cambodia, Ethiopia, the Lao People’s Democratic Republic and the United Republic of Tanzania) (WIR20).
One of the salient cases of reforms accelerated by the pandemic is that of Ethiopia, where the aim of regulatory changes has been to involve more foreign investors in efforts to achieve a sustainable recovery.
To that end, an Investment Proclamation was adopted at the beginning of the pandemic (in April) shifting to a negative-list approach and authorizing the Ethiopian Investment Board to revise the list of activities prohibited to foreign investors.
In addition, in September, the Government adapted a new investment regulation, opening certain segments of transport to foreign investment, including railway transport and cold-chain and freight transport. In other segments, the permitted share of foreign investors was raised to 49 percent.
Restrictions on foreign ownership were also lifted in cement manufacturing, education and management consultancy. The regulation also relaxed the restrictions on the engagement of manufacturing firms in retail trade and electronic commerce.
The report also encourages program and policy shifts coupled with investment incentives provided by different countries in order to mitigate the pandemic coupled with supporting the investment. As it was illustrated in the report Ethiopia has also adopted policy measures to respond to the crisis. For example, Ethiopia the initiated program adopted by the Ethiopian Government to assist foreign investors in establishing facilities to manufacture personal protective equipment (PPE) was amongst the other.
Ethiopia opened up all industries to foreign investment of at least USD 200,000 for a single project. It also allowed foreign investment in certain transport services, the report asserted.
Various financial and fiscal incentives have been designed to encourage investment in the health sector. In addition, government procurement can be introduced to support local producers. In Ethiopia, for example, government procurement provides a 25 per cent price advantage to local pharmaceuticals manufacturers, compared with international suppliers.
Meanwhile, Ethiopian Investment commissions 9 Month performance report indicated that the commission was able to attract 2.05 billion USD from foreign direct investment in the past 9 months. This will actually indicated the FDI performance in the year 2021 will be increased.
Various promotional and diplomatic works that has been done in collaboration with sector institutes and embassies all over the world were mentioned as the reasons for achieving this result adding that the new One Stop Shop (OSS) online service is also the other result achieved in the past nine months of this fiscal year.
According to the report, the amendment of policies and proclamations also brought a solution in solving investor’s problems. From the attracted investments 58 percent manufacturing, 5 percent agriculture and 37 per cent is service and from the commission plan 70 percent is achieved as the report mentioned. 137 new investors also took their investment license in the past 9 months.
Owing to the fact that FDI is one of the most striking features of the global economy today, Ethiopia has been undertaking different reform activities in this area during the past three years. Accordingly, the Commission is working jointly with the government, investors and other stake holders for better result in the future.
The Ethiopian Herald June 29/2021
