BY BACHA ZEWDIE
Investment activity and development in a country without peace and stability is not conceivable at all. Investing requires peace. Conflict and war-torn areas cannot retain existing investment destinations and institutions, let alone finding new investment opportunities. Apart from lack of peace in practice, rumors without concrete evidence scare away investment. That is why it is said; “Peace is the breath of investment”.
In the report released by a research institute called “Development Initiatives”; pointed out that the relationship between peace and investment is an important focal point for international development and economic growth. It also expressed its concern that the weak investment sector of countries mired in conflict and war will inevitably create obstacles so that international development plans do not succeed within the set time limit.
There is no doubt that Ethiopia is one of the countries that can be a good witness of the relationship between peace and investment in the last few years. During these years, instability in various parts of the country, especially the war in the north, caused damage to investment institutions. This situation has had a negative impact on the growth of the national economy by causing workers to be displaced, production and services to decrease, and investment to weaken.
It has been repeatedly stated that the war in the northern part of Ethiopia was an obstacle for the investment sector. Ethiopian Investment Commission, in the information released regarding the main activities and results achieved in the fiscal year 2021/22, stated that the suspension of Ethiopia from AGOA related to the war and the pressure of the international media were among the challenges investment sector faced in the fiscal year.
Since peace and stability are directly related to investment activities, especially in the northern part of Ethiopia, the breach of peace and security has put large manufacturing companies engaged in investment under great pressure. Following the instability, the foreign media as well as the campaign and pressure of the international community have influenced the production organizations to not work calmly and to prevent new investments from coming to Ethiopia easily. Also, it should not be forgotten that it was a year when producers were forced to work under pressure because the embassies were putting a lot of pressure on their citizens to leave Ethiopia.
The peace agreement signed last October between the FDRE and TPLF, which is supposed to be the solution to the war that caused the investment sector to slow down, is expected to revive it. It is expected that the peace agreement will create a favorable environment for manufacturing activities that have been suspended due to various pressures to resume; reviving stagnant products for export, and for new investments to come to the country. As expected, foreign direct investment, which had stagnated has seen a revived since the signing of the peace agreement.
Temeseng Tilahun, Deputy Commissioner of the Ethiopian Investment Commission said that following the peace agreement, there is a great revival and improvement in the investment sector in northern Ethiopia. “The impact of the war on investment is not easy. At the time, new investments were less interested in entering Ethiopia. Although the opportunities to invest in Ethiopia are wide due to the reforms of the law, especially the big investors have delayed their plans to come to Ethiopia. Contrary to this, it should not be forgotten that organizations like Safaricom have entered Ethiopia and are engaged in investment.
“Currently, following the peace accord, Ethiopia has moved towards stability. Those who were in contact with us have started talking to us again; they have shown interest in returning to their investment projects and getting into action. We are also helping them resume their work. In addition, the flow of new investments is increasing. After the agreement, the flow of foreign direct investment has been growing steadily. In general, we are seeing that making peace is important for investment,” he said, adding that the peace agreement is stimulating foreign direct investment.
The public policy expert, Kostantinos Berhetesfa (PhD), pointed out that the peace agreement will contribute positively to the revival of foreign direct investment, but to make the growth of the sector sustainable, measures beyond the peace agreement should be taken. According to him, economic, political and human diplomacy efforts are needed to increase the investment inflow. These diplomatic activities help to gain human, economic and political support by showing the country’s image to the rest of the world in a good way.
One of the important issues for large foreign companies to enter Ethiopia and engage in investment activities is the ease of doing business related to service delivery. By making the institutional bureaucracy easy and fast, it is necessary to make trade and business work convenient and increase the flow of investment. For this, a lot of work is expected from the officials and experts at the lower levels of management.
In addition, “There is a need to provide a permanent solution to the dangerous corruption that is widespread in the country.” It is very important to further strengthen relations with countries that have great potential and have limited investment participation in Ethiopia. “A lot of work is expected from diplomats to attract foreign direct investment to Ethiopia,” he advised.
It is necessary to implement an investment stimulation system that takes into account the existing conditions. For this, it is necessary to design and implement a post-war investment management system. The amendment of the national investment decree will create favorable conditions for the post-war investment to be effective. Temesgen stated that the improvement of investment laws will have a significant contribution in increasing the national investment activity during the post-war period.
As to him, the new investment decree (1180/2020) is a law that can make Ethiopia a competitive and preferred investment destination. The decree creates wide investment opportunities for the private sector, especially for foreign investors, as it is a decree that does not set limits, so investors will get a wide opportunity.
“One of the economic reforms carried out in the past years is the change in investment policy. Previously, the country’s policy was to limit the investment sectors that private sector investors could come and work in Ethiopia (Positive Listing Approach). This practice restricted the investors from participating in sectors other than those in which they could be engaged.
This previous practice was changed by the Investment Decree. According to the current investment decree, there are three areas of investment. These are sectors that the private sector can engage in jointly with the government, which are reserved for domestic investors and are open to all foreign investors.
When foreign direct investment weakens due to various reasons, domestic investors become a vital potential for the national investment sector. Supporting local investors and increasing their capacity will be a reliable resource for creating a self-sufficient national investment sector over time.
On the other hand, economists explain that one of the issues that should be paid attention to in the process of post-war economic construction is the support that should be given to local investors. Today, the countries that are world powers in terms of their economy and political influence have a great experience in supporting their domestic investors. In fact, it is known that the basis of their current economic power is the growth of their production capacity that freed them from foreign dependence.
Dr. Kostantinos said that the government should mainly provide financial support to strengthen the investment participation of local investors. He stated that it is important to build an organized government structure to increase the capacity of local investors, and to provide resources that are pillars of the economy in order to promote investment in general.
He also said that the financial sector, which is one of them, needs major reform. According to him, apart from peace and stability, the financial situation should be favorable. It is necessary to improve the laws and make effective professionals who are suitable for the time to lead the sector. It is very important for foreign banks to enter the Ethiopian market.
Local investors are facing problems due to shortage of foreign exchange. When foreign banks enter Ethiopia, a better source of finance is available for investment projects. This will help to get foreign currency from the investment activities and to adjust the trade balance of the country. He explained that the idea; “If foreign banks enter, they will harm domestic banks” is not correct.
Peace building is the first and foremost prerequisite for growth in investment. No investment activity can be considered or carried out without peace. In addition to being committed to the effectiveness of the peace agreement, which has great hopes for the revitalization of the investment sector, it is necessary to prepare and effectively implement post-war investment stimulation strategies that can guarantee the revitalization of the investment sector. The peace agreement allows the industrial parks that the country has built for the investment sector to be more active, he said.
The Ethiopian Herald May 11/2023
