Investment is crucial for the sustainable growth of any country, but especially for a developing country. It boosts competitiveness of countries, generates jobs and helps reduce social and economic disparities. It is a fundamental driver of innovation, productivity and structural change of an economy.
Generally speaking, many agree that “public investment plays an important role for development, long-term growth and structural change as it supports the expansion of productive capacities, stimulates aggregate demand and allocates resources across the economy, especially in least developed countries.” In most developing countries, domestic investment is at lowlevel compared to foreign driven one, as they lack internally sourced capital due to relatively undeveloped domestic investment.
Domestic investors and investment is crucial for Ethiopia, because as a developing economy it depends on accumulating domestic investment, along with other type of investments – be it publicprivate, large-small and domesticforeign. And according to Wondimu Filante, Director of Communication at the Ministry of Trade, the Ministry is planning to increase its focus on supporting local investors, especially those involved in the agro-processing sector.
The trade and industry sector has to support the local based industry, he added. As to him, Ethiopia sells its (agricultural) inputs cheap, and buys the processed product expensive. And what is behind this, Wondimu asked before stating that a facilitative investment environment has not been conducive to local investors. “I think local investors have been bypassed when we focused on attracting foreign direct investment (FDI)”, he said, “and the logic behind the focus on attracting FDI has to do with the thought that they have the potential and capital to produce export goods, and are given priority.” And in this process local investors have been bypassed.
It is not to create a competition between domestic and foreign investors, as both should be used as a complementary strategy. To this end, the focus should shift and return to them as it is impossible to develop and grow the country without being able to accumulate domestic investment. So, policymakers should create a conducive and attractive business climate for them, and also utilize variety of incentives and policy instruments to increase domestic (and foreign direct) investment.
The government should setup agro-processing parks just like the industrial parks that are built in Mekelle, Bahir Dar, Jimma and Bole Lemi, and support them setup shop while having less capital and resources at their disposal.” Also, the processes, rules and regulations should be made business-friendly by making it easier and shortening the time to set up shop i.e improving the ease of doing business. “So, we should build this kind of system.” Wondimu goes on to mention that Ethiopia is building agroprocessing factories in four of its major states with the aim of involving potential local investors into these factories.
On top of that, local small and medium enterprises should be supported. And as ease of doing business have implications in promoting a business-friendly environment or unleashing the entrepreneurial spirit of the country’s small and medium enterprises, the process of doing business in the country should be simplified.
Continuing, he said that shortening the number of days in processing permits and licenses of all business-related transactions, and providing one-service centers so that they focus on moving ahead with their businesses in a timely manner. “And the Ministry is working on that as it has huge responsibility when it comes to that [improving ease of doing business].” In addition to building a businessfriendly environment, Wondimu indicated on the need of helping build the productive capacity of local investors.
To this end, Ethiopia has setup various institutes that would oversee training, development of investment and technological capacity of the industry sector by rendering efficient support and services to the investor – like Textile Industry Development Institute and Leather Industry Development Institute.
Finally, Wondimu talked about the agro-processing sector, which to him presents a vast potential that can and should be exploited by [domestic] investors by adding value on them and export to the international market. “We should be able to produce and export agricultural products in surplus that are organic, tasty, flavored and that are not genetically modified and hazardous to the health.” And they also present a huge economic opportunity to nurture and enable domestic investors.
To conclude, unlocking the domestic investors (investment) is crucial if a developing country like Ethiopia is to grow and enter middle income status, and it should be complementary to foreign investment as both types of investment are needed, and are not mutually exclusive to each other.
The Ethiopian Herald, May 8/2019
BY ROBEL YOHANNES
