Ethiopia has set its sights on becoming the top Foreign Direct Investment (FDI) destination in the East Africa region. The government has implemented a range of policies and initiatives in recent years to attract greater inflows of international capital and position Ethiopia as a premier investment hub.
At the center of this push is Ethiopia’s ambitious Growth and Transformation Plan (GTP), a strategic roadmap launched in 2010 that aims to transform the country into a middle-income economy by 2030. A key pillar of the GTP is to significantly increase FDI and leverage foreign capital to drive industrialization, infrastructure development and overall economic modernization.
“Attracting FDI is an absolute priority for the Ethiopian government,” said scholars, we recognized that foreign investment will be critical to achieving our economic development goals and turning Ethiopia into a prosperous, industrialized nation.”
To that end, the government has taken several steps to improve the country’s investment climate. This includes streamlining business registration procedures, establishing industrial parks with attractive tax incentives, upgrading transportation and power infrastructure, and strengthening intellectual property protections. Ethiopia has also signed bilateral investment treaties with over 30 countries to provide legal protections and guarantees for foreign investors.
The efforts appear to be paying dividends. Ethiopia has consistently ranked among the top recipients of FDI in East Africa in recent years, drawing in an estimated $4.2 billion in 2022 alone. Much of this investment has gone into manufacturing, agriculture, real estate, and the burgeoning tech sector.
However, industry experts say more can be done to fully capitalize on Ethiopia’s investment potential. Local business leaders point to the need for further reforms to reduce bureaucratic red tape, tackle corruption, and improve the foreign exchange rules- longstanding challenges that continue to constrain the business environment.
“The government has made good progress, but there is still work to be done to create a truly seamless and attractive investment climate,” said Hailemariam Desalegn, the CEO of a major Ethiopian conglomerate and the former Premier of Ethiopia. “Strengthening public-private collaboration and listening to the concerns of the business community will be critical going forward.”
Additionally, analysts argue that Ethiopia must do more to cultivate a pipeline of bankable projects, enhance workforce skills, and promote the country’s investment opportunities on the global stage. Leveraging the diaspora community and forging stronger ties with the regional business community could also help drive FDI flows.
Overall, Ethiopia’s ambition to become East Africa’s premier FDI destination is an achievable goal, but will require a sustained, multi-pronged effort by both the government and the private sector. With the right policies and strategies in place, many believe Ethiopia is poised to become a magnet for international capital in the years ahead.
In an address to the 36th regular session of the House of People’s Representatives, Prime Minister Abiy Ahmed (PhD) unveiled Ethiopia’s extraordinary economic achievements, painting a picture of resilience and strategic growth amidst a turbulent global economic landscape.
“Our world has been mired in a series of man-made and natural disasters,” the Prime Minister stated, acknowledging the challenges faced not only by Ethiopia but by the global community.
Despite these obstacles, including pandemics, conflicts, and regional instabilities, Ethiopia has managed to chart a course of impressive economic progress, he said.
In terms of debt reduction, one of the most striking achievements highlighted by Prime Minister Abiy is the significant reduction in Ethiopia’s external debt.
“Today, we have managed to reduce our country’s external debt to 17 percent of GDP,” he announced. This figure is particularly impressive when compared to the Sub-Saharan African average of 60 percent, he said.
The Prime Minister also emphasized the government’s commitment to further reducing this debt, stating, “In the coming years, through continued efforts, we must bring this below 10 percent.”
This debt reduction strategy has been coupled with a strict no-commercial-loan policy. “For the past six years, we have not borrowed a single cent in commercial loans,” Prime Minister Abiy declared, underscoring the government’s commitment to fiscal discipline.
Regarding revenue collection and budget management, he elaborated that the government’s financial management has shown remarkable improvement. Prime Minister Abiy reported that out of a targeted 529 billion Birr in revenue for the budget year, 466 billion Birr has been collected in just 11 months, representing a 96 percent achievement rate. This success is particularly noteworthy given the ambitious nature of the target.
Furthermore, the budget deficit has been significantly reduced from 4 percent to 2.5 percent, a testament to improved fiscal management. “This is a major achievement,” the Prime Minister noted, “but we must consider how to address even this 2.5 percent deficit.”
In terms of export growth and import substitution, he said that despite regional challenges, particularly in the Red Sea area, Ethiopia’s exports have shown impressive growth.
“This year, we have managed to earn over 10 billion USD from exports of goods and services,” Prime Minister Abiy reported. He highlighted significant improvements in oilseeds, pulses, gold, coffee, and flower exports.
The Prime Minister also emphasized the country’s successful import substitution efforts. “We have substituted over USD 2 billion USD worth of imports with domestic production,” he stated, wheat is one of the substitute commodity.
Regarding Foreign Direct Investment and Remittances, Prime Minister Abiy said that Ethiopia continues to be a top destination for Foreign Direct Investment (FDI) in East Africa, attracting over three billion USD.
Additionally, remittances have exceeded 6.5 billion USD, showing improvement from the previous year, although the Prime Minister acknowledged that this figure is still low compared to other African countries.
“Considering the conflicts, reduced aid, lack of loans, and challenges in the Red Sea, we believe we have achieved successful results this year.” Prime Minister Abiy said. These achievements, he emphasized, provide a strong foundation for future economic growth and development across all sectors of the Ethiopian economy.
As Ethiopia continues to navigate global uncertainties, its economic resilience and strategic approach to growth stand as a testament to effective policy implementation and visionary leadership, he elaborated.
The importance of Foreign Direct Investment (FDI for Ethiopia’s development is significant. Here are some key reasons why FDI is critical to Ethiopia’s economic and social progress:
- Capital Injection: FDI provides much-needed capital infusion into the Ethiopian economy. This capital can be used to fund large-scale infrastructure projects, industrial development, and other long-term investments that are essential for sustained economic growth.
- Technology and Know-How Transfer: Foreign companies often bring advanced technologies, managerial expertise, and business best practices that can be transferred to local firms and industries. This helps to modernize Ethiopia’s production capabilities and improve productivity.
- Job Creation: FDI projects typically create a large number of direct and indirect employment opportunities for Ethiopians. This helps to reduce unemployment, especially among the youth population, and improve living standards.
- Exports and Trade: Many FDI projects in Ethiopia are geared towards producing goods and services for export markets. This boosts Ethiopia’s export earnings, improves the trade balance, and integrates the country deeper into global value chains.
- Skill Development: The presence of foreign companies offers opportunities for Ethiopians to gain valuable skills and on-the-job training, enhancing the country’s human capital and employability.
- Tax Revenues: FDI generates significant tax revenues for the Ethiopian government, providing critical resources for public spending on healthcare, education, and other social programs.
- Spillover Effects: FDI can have positive spillover effects on domestic firms through linkages, competition, and demonstration effects, spurring innovation and productivity improvements in the local economy.
Given Ethiopia’s large population, predominantly agrarian economy, and ambitious industrialization agenda, attracting substantial FDI is crucial to achieving the country’s development goals outlined in the ten years perspective economic growth Plan. Continued efforts to improve the investment climate and promote Ethiopia as an attractive destination for foreign capital is vital to realizing the full benefits of FDI.
BY LAKACHEW ATINAFU
THE ETHIOPIAN HERALD WEDNESDAY 10 JULY 2024
