A vast majority of the African continent has been under direct scrutiny from foreign investors, the fertile lands, immense landscapes and extensive natural resources make this continent a prime location for Foreign Direct Investment (FDI). Amongst the countries of the African continent, Ethiopia stands tall above the crowd; it has attracted investments from across the globe over the last decade, topping the charts of FDI. Prime Minister Abiy Ahmed has successfully navigated his country in the right direction to create a realm of mass FDI, strategic investments into specific sectors that Mr. Abiy sees fit. Ethiopia and much of Eastern Africa has been experiencing extensive transformations and economic diversification over the last decade.
Ethiopia – An Investment Goldmine
One of the fastest growing countries in the world, averaging a significant 10% GDP increase over the last decade, holding the second largest labour force in the continent and the second largest market in all of Africa – these are a few significant facts about Ethiopia, a goldmine for foreign direct investment. According to the World Bank database, since 2010, where Ethiopia’s FDI stood at an estimate of 288 million, the country has seen an incredible rise, reaching an apex of $4 billion USD in 2017 and now it stands at $3.3 billion USD FDI in 2018.
Ethiopia’s Successful Foreign Investment Strategy
When a country experiences a rapid rise and economic growth it is necessary to question the how’s and what’s? How did Ethiopia manage to top the FDI charts? What strategies and polices were implemented to create such an effect? In order to fully comprehend Ethiopia’s success and acknowledge their future vision for FDI we can analyse their initial plans and hypothesis that led them to enhancing and creating a realm for positive foreign direct investment. We can inductively assume that Ethiopia’s desire for FDI lies on the fact that they have seen positive outcomes from it, in terms of economic growth, and believe the future of wealth and prosperity resides in creating a robust foundation for foreign investments. The logic simply follows: countries experience economic growth with increased FDI, Ethiopia is a country, and therefore, Ethiopia will experience economic growth. This is already supported by their recent growth and predictions that the IMF set of 7.4% increase from 2017-2020 and, moreover, Ethiopia has set a new policy for 2025, setting a target for 11% growth in their Growth and Transformation plans II (GTP II). The country’s focus is simple and concentrates in:
- Transport Infrastructure,
- Agriculture, Electricity,
- Renewable Energy.
Ethiopia’s focus on transport is an attempt to aid the transportation of goods across the country. However, in addition to road transport infrastructure, there has been an enhanced focus on the railway network. The goal was to achieve an electrified railway, connecting Addis Ababa to Djibouti, a total of 2395km network to bolster import-export trade. The completion of transport infrastructure presents Ethiopia with ease of accessibility for foreign investors.
Ethiopia’s natural resources have long been sought after by countries across the world, with main investors such as Saudi Arabia, China, United States, India and Turkey. Agriculture, or more specifically horticulture, has attracted the most FDI, which involves the renting of agricultural land and leather goods. The arable land, farming and livestock attract major foreign investment, especially due to the magnitude of rich agricultural opportunities Ethiopia has to offer.
Electricity and Renewable Energy
Ethiopia’s Green Legacy Initiative has helped the country implement advanced and sustainable infrastructure across the country. It is important to look after the land considering the attraction from foreign investment; this is further supported by the recent events that led Ethiopia to a world record of planting trees in one day. The country magnificently planted 350 million trees in the space of 12 hours, with Prime Minister Abiy Ahmed, again, at the forefront of their sustainable policies. Other initiatives such as the electrified railway network above and the Grand Ethiopian Renaissance Dam, which aims to enhance hydro-electric capacity to 37,000 MW by 2037, have helped the country soar through renewable methods.
Ethiopia has undergone and is still undergoing mass transformations, internally, to attract FDI and enhance the country on multiple levels. The country implements a series of policies that directly affect foreign investment and conveys the country as a prime location to invest in.
Incentives for Investment
The Ethiopian government relies heavily on FDI to meet the 2025 GTP II plan and has thus created a set of policies (over 30 bilateral investment promotion and protection agreements signed) that directly benefit external investors for example:
- Repatriation of investment and profit in convertible foreign currency. Many countries attempt to attract foreign investment, yet, have strict policies when foreign companies attempt to extract the wealth and convert it back to their country of origin. However, Ethiopia has taken an alternative stance that has proved to be popular with foreign investors.
- Well established labour law allowing investors to hire expatriate staff and personnel with ease. Many companies will want to support their investments using their own staff and/or staff from other countries, Ethiopia provides HR and labour policies that can accommodate this.
- Income tax exemptions. Ethiopia has carefully and strategically selected sectors in which they desire the most foreign investment and offer exemptions to paying income tax. This would prove to be desirable for many investors.
- The country also allows for duty free imports of capital goods, this can help the transition of foreign investors and provide an ease of transference.
The aforementioned incentives, in addition to internal policies, have created a country in which foreign investment is very attractive. Ethiopia’s economy has organically soared and for good reason, the strategic implementation to gain foreign investment support has seen the country rise through the rankings. Ethiopia is serious about meeting 2025 targets and continues to create the perfect breeding ground for investors.
Knowledgeable Investing and Mitigating Risks
Every investment and potential business opportunity comes with a certain level of risk. As a business intelligence company that specialises in the Middle East and Africa, Cedar Rose aims to help companies mitigate those risks. Leaping into unknown territory can bring unwarranted surprises, with cultural, language and business differences you may not be aware of. Cedar Rose has been compiling data on companies, directors and shareholders across the globe for over 20 years, data which can help you minimise risk. We have an experienced team of in-house researchers and analysts whose expertise extends throughout Africa, the Middle East and beyond. If you’re considering investing in or expanding into Ethiopia with a due diligence investigation from Cedar Rose, you can find out all of the relevant information you need to make an informed business decision.
Written By Jack Evangelides, Marketing Assistant
*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***