BY BACHA ZEWDIE
The peace and stability that has prevailed in Ethiopia; the effective activities carried out in the field of basic development; the incentives of the investment sector; as well as the country’s human resources; potential natural resources and wide market opportunities; has enabled it to become one of the leading countries in Africa in attracting foreign direct investment. This has played a typical role in the development of the investment sector, and has contributed a great deal to the economic growth of the country.
The country’s investment sector has constantly achieved great progress and growth. However, in the past few years, the security problems created in different parts of the country, especially the war in northern Ethiopia, combined with the global COVID pandemic, economic crisis and wars have had a negative impact on the country’s investment activities.
The information released by the Ethiopian Investment Commission regarding the main activities and results achieved in the investment sector pointed out that the suspension of Ethiopia from ‘AGOA’ and the pressure of international media related to the instability and war in the country are among the challenges faced by the investment sector in the last fiscal year. For instance, the commission’s data shows that only 64.4% of the plan (about three billion Dollars) was achieved in attracting foreign direct investment in the mentioned fiscal year.
The war has put large manufacturing companies in the industrial parks that have been creating jobs for many citizens and helping to achieve technology transfer, under great pressure. Following the instability, the campaign and pressure of some western countries, foreign mass media and the international community had an effect on the production organizations not to work calmly and not to bring new investments to Ethiopia easily.
It is also remembered that the foreign nationals were under pressure from their embassies to leave Ethiopia, so the producers were forced to work under pressure. The damage done to investment institutions resulted in interruption of product services and supply, reduction in product sales income, psychological pressure and other problems. It has also remained an obstacle for more investment to come easily to Ethiopia.
The peace agreement signed between the government of Ethiopia and TPLF, which is said to be the solution to the peace violation that caused the investment sector to slow down, has been given great hope for the revival of the investment sector. It is expected that the peace agreement will create a favorable environment for manufacturing operations that had been suspended due to various pressures to resume, for exportation of products that had stagnated, and for new investments to come to the country.
Indeed, the agreement has brought tangible changes as expected. Manufacturers who were out of business have returned to work. The number of investors who have shown interest in entering Ethiopia and engaging in investment activities is increasing.
Economists explain that it is necessary to implement a post-war investment management system that takes into account the existing conditions so that the investment sector affected by the war can be revived and be in a better position than the previous performance.
The veteran economist and diplomat, Ambassador Tiruneh Zena said that he does not believe that post-war economic development will be successful if it is guided by normal procedures and bureaucratic processes. According to him, the post-war reconstruction, both in terms of investment and other sectors of the economy, requires immediate action. An independent and decision-making body closely monitored and all stakeholders working together should be implemented. This type of procedure cannot be done in the usual bureaucratic way.
“Since there is an existing situation after the war where the infrastructure has been destroyed, the bureaucracy has collapsed and the humanitarian crisis has spread; it is possible to rebuild and compensate these damages through a different approach and system. Faster measures are needed,” Ambassador Tiruneh said, noting that the normal system cannot be adapted to post-war economic construction. “It is necessary to travel with new energy and new methods,” he said, adding that there is a need to deploy more experts with skills and knowledge.
Mola Alemayehu (PhD), a professor of economics at Haramaya University and a senior researcher at Frontier research and consulting firm, on his part, advised that it is necessary to work with special attention by designing a special strategy to revive the investment sector weakened by the war. Huge investment is needed to rebuild a war-torn economy. This investment is an activity that requires the cooperation of the government, the private sector and the people.
In this regard, he mentioned the need to give priority and great attention to investment activities that can ease the pressure of the war. The main task that can ease the pressure of the war is to rebuild the infrastructures damaged by the war. War-torn investors, who have dealt with multiple pressures and losses, need a reliable guarantee to continue their business after the war. Therefore, the government has to provide guarantees to investors, he indicated.
Ambassador Tiruneh reinforced Dr. Mola’s statement that it is possible to rebuild the damage caused by the war with a different approach and system. He mentioned that it is not possible to lead and manage the entire economic activity after the war in the way it was before the war, and post-war investment management requires mandatory procedures. “In order for the sectors of the economy affected by the war to recover, it is expected they will grow at a better capacity than what they were recording before the war. Therefore, it is necessary to design and operate a new system that can make this effective and to compensate for the damage,” he said.
One of the resources that play an important role in the process of post-war economic development is the provision of finance. The leadership and management strategy used to revive the investment sector affected by the war has a direct relationship with the provision of finance. A competent post war investment management strategy will ensure secure financing. When Ethiopia’s reconstruction program was announced recently, it was stated that 20 billion Dollar will be needed to rebuild the destruction caused by the conflict in the northern part of the country and other regions.
Ambassador Tiruneh said that post-war investment financing requires the active participation of international institutions, and it is very important to involve donor governments including the United Nations institutions, the World Bank, and the International Monetary Fund (IMF) in the reconstruction.
Over the past four years, the government has implemented several economic reform programs of which one is the Homegrown Economic Reform Program. The objective of the program is to achieve sustainable and rapid economic growth by creating a stable macro-economic environment and a private sector-led economic activity. Amendments to the Investment Decree and Commercial Law, the National Ease of Doing Business Initiative, as well as the opening of the financial sector to foreign investors in order to create a modern connection with the international trading system, and preparations are being made to implement the decision.
Dr. Molla believes that the new investment decree (1180/2020) will 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 who want to work in Ethiopia will get a wide opportunity.
Dr. Mola explained that the other economic reform measures, including the improvement of investment laws, will have a significant contribution in increasing the national investment activity in the post-war period. The improvement of the investment decree will create favorable conditions for the development of the investment sector by expanding investment and financial options, modernizing service delivery and attracting more investors. Following the decision to open up the financial sector to foreign investors, if large capacity banks enter Ethiopia, they will contribute significantly to the supply of finance.
There is a need to make local investors a sustainable driver of the country’s economy, so they should be given special attention. It is necessary to make the investors engage in investment sectors that increase export and import substituting products. Apart from their role in providing products and services, they have a great contribution in creating job opportunities for citizens, so they should be supported by the government to further increase their role.
International experiences can be presented as evidence that post-war economic construction, especially the management and leadership of the investment sector, requires a different approach. The Economic Recovery Act of 1948, known as the “Marshall Plan” and implemented to stimulate the economy of Western Europe after the Second World War, is a prime example of this.
In Ethiopia, after the peace agreement signed between the Federal government and TPLF, the construction of the national economy should be accelerated by preparing and effectively implementing post-war investment stimulation strategies that can guarantee the revival of the investment sector.
Ethiopia’s cost for reconstruction of war-torn areas $20 billion – photo google
The Ethiopian Herald 25 June 2023
