In divergence to the decline of the Foreign Direct Investment (FDI) flow to Africa, Ethiopia sits on top by attracting more FDI for the fourth consecutive year, according to the recent report released by the United Nations Conference on Trade & Development (UNCTAD).
One of the landlocked developing countries (LLDCs), Ethiopia attracted 3.2 billion dollars in foreign direct investment in 2016, with a 46pc growth rate, according to the report titled World Investment Report 2017. This made the country the second largest landlocked FDI host country up from the fifth position in 2015.
The report also states that Ethiopia registered the highest inflow ever in 2016, a year which FDI flows to Africa declined by a moderate three percent to 59 billion dollars. Inflows to Ethiopia have been rising constantly since 2012, even when FDI declined in many other Least Developed Countries (LDCs).
“The report is quite surprising, at the same time a significant achievement for the county,” said Eyob Tekalegne, director of External Affairs at Schulze Global Investment, an international private equity firm that operates in Ethiopia. “Investment inflow was slow for the first two quarters, and surprisingly, it quickly rebounded.”
In the first two quarters of the current fiscal year, the country faced an Internet shut down for over 40 days. The Internet shutdown transpired as a result of the popular political unrest outbreaks in Amhara and Oromia regional states, resulting in damages from the attacks on local and foreign investments.
This achievement is registered in the situation where FDI flows to Africa continued to decline in 2016 after sluggish commodity prices diminished economic prospects in sub-Saharan Africa and tempered investor interest in the subregion. During the year, East Africa received 7.1 billion dollars, 13pc more than in 2015.
The major achievements came after the development of industrial parks and the effectiveness of one-stop shop services, according to Belachew Mekuria (PhD), deputy commissioner for the Industrial Park Division at the Ethiopian Investment Commission (EIC).
The massive reform at the Commission, being selective on foreign companies unlike previous days and the focus on promotion and what comes after, are the major reasons for the success, according to Eyob.
The contribution of FDI to the Gross Domestic Product (GDP) was recorded at 3.5pc during 2016. During the first edition of the Growth & Transformation Plan (GTP I) period, FDI was growing by 24pc annually.
Much of the achievement stemmed from investments in infrastructure and manufacturing, according to the report. China is one of the major sources of FDI to the country, engaging in garment and leather production, but foreign investors from other economies have also started investing more in agro-processing, hotels and resorts, as well as in manufacturing activities.
“The existing companies such as PVH [a well-known clothing company] came with their production and market value chain, this increased the flow more,” Belachew told Fortune.
Ethiopia attracted new FDI in manufacturing, with the upshot of creating opportunities for local Small & Medium Enterprises (SMEs) to link to global supply chains, according to the report.
In the country, there is a total of 82,313 operational SMEs, according to data from the Federal SME Manufacturing Industries Development Agency.
The report also cites Ethiopia as one of the top performers in its efforts to broaden its economy and consequently its FDI pool against extractive investment that heretofore African and landlocked economies are known for.
By far, Ethiopia is the most dynamic and largest FDI recipient, accounting for half of the total inflows of LLDCs in Africa, resulting from improvements in infrastructure and advances in industrialisation.
“But I have a fear that the flow might exceed the country’s absorption capacity at some point,” said Belachew. “We need to work on building our capacity on a power supply, well-managed tax collection system and strong assistance and follow-up for foreign investments.”
Eyob shares Belachew’s view of the work that is left for the country.
The economy has the potential to attract more FDI, but there is more assignment that has to be done to realise this, according to Eyob, including filling the gaps in regards to bureaucracy at the regional level, logistics reforms and customs procedures.
In another perspective, the largest cross-border Mergers & Acquisitions (M&A) sale of the year, 510 million dollars, was also recorded in Ethiopia as FDI last year, with Japan Tobacco International (JTI) acquiring a 40pc share of the National Tobacco Enterprise (NTE).
Additionally, Morocco’s Office Cherifien des Phosphates (OCP), the world’s largest phosphate exporter, signed a joint venture with Ethiopia to build a 3.7 billion dollar fertiliser plant at the end of 2016.