According to the latest estimates from the African Development Bank (AfDB), the economies of the Horn of Africa struggled to rebound last year after the devastating drought of 2011.

Figures show that after a modest recovery from the worst of the global financial crisis in 2008/09, the famine and mass displacement that struck Somalia, Djibouti, Ethiopia and Kenya dragged East Africa’s overall growth rate down from 7 per cent in 2010 to just over 5 per cent in 2012.

By contrast, the growth rate for the continent overall rose between 2011/12 from 3.5 per cent to 4.5 per cent.

Definitions of the Horn of Africa vary — with Kenya, Sudan and South Sudan often included — but if we look specifically at the region encompassing Eritrea, Djibouti, Ethiopia and Somalia, the impact of the drought is even more striking.

Accurate data from this region is difficult to obtain, but drawing on AfDB estimates, the combined growth rate of those four countries fell from 10.1 per cent in 2011 to 6.8 per cent in 2012.

Encouragingly, the AfDB is predicting a recovery to around 7.1 per cent this year. Ethiopia, by far the region’s largest economy, accounts for most of these fluctuations.

These figures, of course, far exceed anything in the West, and given that agriculture still accounts for most of the economic activity in the Horn, it is remarkable that growth did not fall further, considering the huge loss of crops and livestock sustained as a result of the drought.

Healthy export growth in primary agriculture is essential and smaller economies should be expected to outpace their larger neighbours.

However, the real driver of development is investment — be it foreign or domestic. Only through sustained investment can an economy develop, grow and become more resilient to shocks like the 2011 drought.

According to Reuters, foreign direct investment in the African continent is worth approximately $43 billion — 3.6 per cent of Africa’s total GDP.

The rate of return on foreign investment is estimated to be higher in Africa than in any other developing region. Last year, the United Nations predicted an increase in FDI by 2014 to as much as $100 billion, or 8.4 per cent of the current overall GDP.

The role of the diaspora in this process is crucial. Many of those who left the Horn of Africa 20-30 years ago established careers for themselves in the Middle East, Europe and North America.

As their earnings grew, so did remittance flows back to the region. Diaspora-led investment in new industries has been a central driver of economic growth ever since.

This has been particularly true of the Somali territories, remittance inflows to which over the past two decades have fuelled a boom in the telecoms, energy and construction sectors.

As is the case all over East Africa, mobile phones are now widespread and are facilitating commercial activity from banking to livestock trading.

Following the significant security gains made last year, the rehabilitation of Mogadishu is well underway with a diaspora-led construction boom changing the business as well as the physical landscape.

The emergence of new businesses has led to greater demand for Internet connectivity, prompting the arrival of young, tech-savvy professionals who are quickly bringing wireless coverage to the whole city.

As the situation improves, more and more expats are returning, bringing not only investment but new skills and knowledge to the private sector — opening up new avenues for development.

In neighbouring Ethiopia, the economy has seen double-digit growth in seven of the past 10 years, making it one of Africa’s fastest growing non-oil producing countries.

Overseas investment in the emerging services and industrial sectors has steadily increased, and both are now growing faster than agriculture, on which 85 per cent of Ethiopians still depend.

Mining has performed especially well in the past two years, and manufacturing is also on the rise. Production centres are taking shape in cement, textiles and leather, and projects are now planned in heavier industries including steel, chemicals and pharmaceuticals.

In the services sector, hospitality, real estate and financial intermediation have made the largest contribution to growth.

This trend towards increasingly broad-based economic growth in Ethiopia is hugely positive.

Large investments have been made by Indian and Chinese companies but the role of the diaspora as a source of financial and human capital has also been vital, and is growing all the time.

Attracted by the prospect of first-mover advantage in new industries, thousands of educated young people have returned home with total capital to invest in excess of $1 billion, according to estimates.

That is a significant development and one that follows a similar pattern to the Somali experience: As more expats return, conditions become more favourable for returnees.

Until recently, their role was simply to send money; their involvement was at arm’s-length. Now they are arriving in person and driving change in every sector of the economy.

Along the northern coast of the Horn of Africa, activity at the major ports of Djibouti, Berbera and Bosaso is crucial to the commercial health of their respective regions, with FDI the driving force behind their continued development.

During the Hajj season, more than a million goats and sheep pass through Berbera and Bosaso on their way to the Gulf.

In Djibouti, the port has successfully been established as a major trading hub connecting the Horn with the Red Sea, the Indian Ocean and beyond. Port logistics, banking and telecoms are the mainstays of the economy there, with telecoms — as elsewhere — especially strong. 

Natural resources have not traditionally been associated with the Horn, but extractive industries in Ethiopia and Eritrea are growing at a healthy pace.

Substantial foreign investment, most notably in the Bisha mine, has allowed Eritrea to increase its production of gold, silver, copper and zinc.

The large oil discovery in Puntland last year is a significant boost to the region, and exploration activity by African as well as Indian firms is pointing to a huge demand for offshore infrastructure in East Africa in the coming years.

A decade ago, the World Bank described Africa’s FDI environment as “inadequate to attract high quality, efficiency-seeking, globalising FDI.”

Since that time the continent, and more pertinently its Horn, has vastly improved the competitiveness of its investment climate.

The Horn of Africa has successfully attracted FDI into areas of comparative advantage such as extractive and other natural resource activities, and has developed regional networks and moved towards closer integration.

Continuing to create greater opportunities for overseas investment, particularly through the diaspora, must remain high on the agenda if the current hopes for a more prosperous economic future are to be fully realised.

Abdirashid Duale is CEO of Dahabshiil, the largest international payments firm in the Horn of Africa.