Ethiopia opens up economy to FDI, rooting for single market

Monday June 25 2018

Women workers at a modern textile factory in Addis Ababa, Ethiopia that makes goods for the German market. PHOTO | KAY NIETFELD | AFP

By Allan Olingo

Ethiopia’s economic reform programme got a boost last week, when the United Arab Emirates pledged $3 billion in aid and investments.

Prime Minister Abiy Ahmed, who took office two months ago, is speeding up market reforms such as liberalising state companies and reducing the role of the military in the economy.

Ethiopia’s output has expanded faster than that of any other country in Africa over the past decade and is poised to grow by 8.5 per cent this year, the IMF says.

A $2 billion foreign direct investment announced on June 15, after a meeting in Addis Ababa between the premier and UAE Crown Prince Sheikh Mohamed Bin Zayed, will put Addis ahead of its regional peers in terms of inflows, at $3.6 billion last year, up from $2.2 billion in 2015.

UN Conference on Trade and Development data last year put FDI to Tanzania at $1.2 billion, and Kenya at $672 million.

The UAE will deposit $1 billion in Ethiopia’s central bank to ease its foreign currency shortage.


“The financing agreement includes $2 billion inward net FDI inflow on productive investments in industrial parks, manufacturing, hospitals, hotel and mall. An additional $1 billion is a deposit into the National Bank of Ethiopia to address the temporary forex constraints,” said Fitsum Arega, chief of staff at the Prime Minister’s Office.


Abu Dhabi is interested in Ethiopia’s industrial park and the tourism, agriculture, manufacturing, renewable energy, healthcare, hospitality sectors. This formed the basis for the $2 billion investment, said government spokesman Ahmed Shide.

For Ethiopia, the capital injection is a big win, given that a hard currency crunch, caused partly by spending on big infrastructure projects, has reduced foreign currency reserves to less than one month’s worth of imports.

In effect, this hit foreign investors hard, with many finding it difficult to repatriate profits.

Prime Minister Abiy Ahmed’s administration is keen on opening up the economy to accelerate growth. Just last week, Addis relaxed its FDI inflow policy.

“The National Bank of Ethiopia has reversed a decision to channel project loans exclusively through the Development Bank of Ethiopia and working capital via Commercial Bank of Ethiopia. Both financial institutions will revert to their earlier lending practices. Additional work will be done in ensuring prudent corporate governance of financial institutions,” Mr Arega said.

The government recently revealed that it requires $13 billion in the next two years to cover oil importation, private investment, upgrading of existing projects and repayment of external debt.

Privatising state enterprises

Early this month, in a surprise move, the government announced that it would consider privatising some of the country’s most valued public enterprises, including the Ethiopian Airlines Group, as well as the state-owned EthioTelecom, to attract more FDI.

Ethiopians will be offered 5 per cent in the new firms, and 30 to 40 per cent will be sold to telecoms players globally. There will be at least a year or two of “intensive study,” the premier said.

The offer to also open up to foreign investors its Ethiopian Shipping & Logistics Services Enterprise, coupled with its last weekend’s deal with Somalia should Addis’ desire to invest in the seaport in the region.

It agreed to jointly invest in four seaports with Mogadishu as the two nations seek to attract foreign investment, the latest move in a race for access to ports along one of the world’s most strategic seafronts. Somalia boasts the ports of Kismayu, Bossaso, Berbera and Mogadishu.

Ethiopia has an agreement with Somaliland signed in March on the management of the Berbera port, with Addis acquiring a 19 per cent stake in the port, joining DP World of the UAE in a 30-year management concession.

The weekend meeting between Mr Abiy and Somalia’s President Mohamed Farmaajo agreed to work jointly on development of infrastructure, including roads, linking the two countries.

— Additional reporting by Bloomberg.