Recognizing the fact that foreign investment is integral to the Ethiopian economy, the government has torched green light for foreign investors’ engagement in restricted trade sectors. As an open, well-regulated economy with a highly skilled workforce, Ethiopia has planned to enjoy employing an international reputation for innovation. To make the most of these advantages, the country uses international capital to supplement domestic savings.
Foreign investment helps Ethiopia reach its economic potential by providing capital to finance new industries and enhance existing industries, boosting infrastructure and productivity and creating employment opportunities in the process.
The higher growth supported by foreign investment pays dividends for all Ethiopians by increasing tax revenues to the federal and state governments, and increasing the funds available to spend on hospitals, schools, roads and other essential services and indispensable infrastructure.
Of course, foreign investment has other benefits beyond injecting new capital. By bringing in new businesses with connections in different markets, it opens up additional export opportunities, boosting overall export performance. It also encourages competition and increased innovation by bringing new technologies and services to the Ethiopian market.
As a resource rich country with a relatively high demand for capital and a huge population, foreign investment fills the gap between what Ethiopia saves and invests every year. Total investment is usually funded by a combination of domestic savings and foreign investment.
With foreign investment, Ethiopia would be able to back its economy and would have fewer funds available to spend on hospitals, schools, roads and other government services.
Having all these benefits in kind, the government has opened up export, import, wholesale and retail trade businesses to foreign companies to boost competitiveness, revenues. That is why the country has opened this previously restricted sector for foreign investors to boost businesses competitiveness.
Earlier, these sectors were reserved only for indigenous businesses to protect local investors and foreign investors can now engage in all import, export, wholesale and retail trade investments with an exception on fertilizer and petroleum.
The opening of these sectors for foreign investors would bring advantages for customers, suppliers and others, boost competitiveness, improve government revenue and others, indeed!
The government of Ethiopia recently introduced a new regulation and rules which allow foreign companies to engage in whole sale and retail trade in the country. This is a very inviting green light to do so. Sectors previously deserved to the local investors are now step by step opened to the foreigners and the scheme is expected to improve the trade and transaction system of the country. The regulation also opens the door to foreign businessmen to engage in import and export trade.
Such a bold move would help the nation resolve the problems pervasive in the trade value chain in the country, supports the enhancement of legitimate trade, and stabilizes inflation.
The government has supported local industries and opened the market to foreign companies so that the business relied more on competition rather than subsidy. True, the investment could hardly bear fruits within the shortest time possible unless the business is supported by foreign actors. As the wholesale and retail business is currently monopolized by few local companies, opening the sector to foreigners should be taken as a way out as it is instrumental in making the sector competent.
Yes, allowing foreign companies to do business is essential, but it is quite useful to inspect them when they carry out their business and closely follow up if the process goes in line with the rules and regulation introduced by the government.
The good thing here is the government has been providing traders and investors with incentive and protection so as to help them engage in various sectors such as import, export, wholesale and retail trades. Nevertheless, some argue that the incoming of foreign investors to engage in whole sale and retail trade might bring pressure on local dealers. Hand in hand with inviting foreign companies to engage in whole sale and retail trade governing system, making the Dollar–Birr exchange rate similar to the parallel market is essential for it would be quite difficult to bring about the intended target without implementing such a bold step.
Unequivocally, foreign direct investments are one of the driving forces of the process of globalization and are a defining element of the modern-day world economy. They promote the restructuring of industry at the regional and global levels and thus ensure the integration of a national economy into the world economy more effectively than trade. They also stimulate economic growth and development, providing economies in transition with not only financing for development, but also new technologies, better management techniques and access to regional, continental or international markets. In such a way, these investments can play a key role in the development of transition economies and in their rapid integration into the world community.
Since most of the economies in transition have resumed growth, made considerable progress in structural and institutional reforms, and achieved macroeconomic stability, the influx of foreign investments into these countries is growing significantly.
The growing competition for foreign investments is certain to have an impact on the course of economic development of economies in transition and will encourage the pursuit of continued reforms to improve the investment climate and attract greater foreign investment. Yes, the combination of such factors as the presence of strategic resources, highly educated populations, highly skilled workers available at low cost, comparatively well-developed infrastructure and social-welfare sectors, and proximity to the continental market. Here agreements on investment protection take precedence over the countries’ national foreign investment laws.
Therefore, in order to effectively solicit foreign investment in the future, economies in transition must simplify their registration procedures, reduce price controls to a minimum, dismantle trade barriers, foster favorable conditions for private sector development, put an end to bureaucratic interference, strengthen financial institutions and banking supervision, create a commercially oriented infrastructure, and give foreign investors a greater opportunity to participate in privatization.
The low level of foreign participation in enterprise privatization is one of the main shortcomings of the privatization programs of most of the transition economies. One of the causes of the low level of foreign participation in privatization is the fact that transition economies have insufficient expertise in attracting foreign investors. Multilateral financial institutions and international development agencies can play an important role in attracting foreign investment in transition economies.
Efforts to attract foreign investments in transition economies like ours are also likely to be promoted by new initiatives being undertaken by the provision of guarantees for foreign investments and programs for direct investment in small businesses. These innovative tools have great potential from the standpoint of their effectiveness and flexibility and should therefore be introduced in transition economies as quickly as possible.
The investment policy in Ethiopia enables foreign investors to concentrate all their attention on the implementation of government policy on attracting foreign investment. Needless to say, as the funds the government has allocated for the growth and development are not enough to mount a full-scale effort to solicit local investment, the involvement of foreign investors in various sectors is timely ad quite acceptable.
Therefore, investment promotion agencies should base their activities on the effective use of information technologies and new program tools.
The enterprises themselves cannot afford the services of foreign consultants, while local consultants are in short supply in the transition economies. In this regard, it is vital that greater numbers of local consultants be trained with the help of international financial institutions and that steps be taken to involve them in the implementation of promising investment projects.
A system of incentives and tax concessions for investments is of great importance to foreign investors. In order to attract foreign investors, incentives must be automatic and free of bureaucratic obstacles. By simplifying incentives and making them automatic for all investors acting within the framework of tax and customs legislation, economies in transition could make their investment climates more attractive.
Tax concessions for investments have demonstrated their effectiveness in many of the Organization for Economic Co-operation and Development (OECD) countries, making it possible to write off investment expenses expeditiously and offering investors long-term arrangements. Foreign investors have an interest in improved regional integration, since this promotes more efficient production and offers greater opportunities for sales.
Countries that do not receive large amounts of foreign investment because their markets are small or because they lack such natural resources as petroleum and natural gas which are attractive to investors, or because foreign investors have little confidence in their investment opportunities, have much to gain by becoming parts of regional markets. For this reason, transition economies, and above all the countries of Central Asia and the Commonwealth of Independent States (CIS), only stand to gain and will be able to attract more direct foreign investment on the basis of regional integration. Regional integration in Central Asia could enhance production efficiency on the basis of functional specialization and economies of scale.
In a nutshell, since Ethiopia has planned and been going to join the World Trade Organization, it has to well expand its business scope and dynamism. The engagement of foreign investors in myriads of undertakings is of paramount importance in helping the nation meet the set target.
In due course of hosting a number of foreign investors, the country can draw important lessons in a range of parameters, become technologically advanced and able to produce products in terms of quality and quantity. The sectors so far closed for foreign investors could also be much more productive and competitive as well. Hence, the measure taken by the government is timely and helps the nation go with global advancement and intensity thereby its products and services could definitely be continentally and globally competitive. Most importantly, the step helps create a number of jobs for a number of citizens.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD FRIDAY 26 APRIL 2024
