The recent UK-Ethiopia investment forum held in London set out the economic miracle of Ethiopia and the many opportunities it offers for investors

In late October 2015, the government of Ethiopia came to London for the UK-Ethiopia Trade and Investment Forum. Organised by DMA and led by Hon. Dr Tedros Adhanom, Minister of Foreign Affairs, the Forum was the country’s highest profile investment outreach on the international stage to date.

In recent years, Ethiopia has adopted a more market-oriented growth strategy, which has seen the economy open up. The country is now one of the fastest-growing in Africa, and the fastest growing non-oil economy, with foreign, private sector participation and investment now encouraged in many areas of the economy hitherto reserved exclusively for government. 

For potential investors, this Forum was a unique opportunity to engage directly with the government and senior decision-makers of one of the most topical investment destinations in the world.

An Economy Tripled in Size

In the first of two keynote addresses, Grant Shapps, at the time the Minister of State for International Development, spoke of the country’s progress, describing it as an “incredibly impressive economic achievement,” adding “The economy has tripled in size in one decade and incomes have nearly doubled.” He cited a report by Barclays that put Ethiopia as third in opportunities for unmet demand and the opportunities for British companies to contribute to what he described as a “Massive investment in infrastructure, health and agriculture.”

Describing Ethiopia’s goal to reach middle-income states in the next ten years as “ambitious, but by no means unachievable”, the former Minister highlighted the development of new sectors including biotechnology and aviation and spoke of DfiD’s support for sectors including garments, leather, horticulture to boost these sectors and of frameworks for public-private partnerships, and a shared commitment to moving the relationship between the two countries from aid to deepening trade and investment.

Ethiopia, Shapps said, represents Africa’s best prospect of an East Asian style economic miracle and a viable destination for British investment, with companies including Diago having already invested and, in the case of the drinks company, at £220 million, the largest investment into beverages sector.

‘Zero Tolerance for Corruption’

In the second keynote address, the Hon Dr. Tedros Adhanom Ghebreyesus, Ethiopia’s Minister of Foreign Affairs, set out a comprehensive picture of the opportunities for inward investment offered by Ethiopia.

“The economy has tripled in size in one decade and incomes have nearly doubled.”

“In 2014 more than 30 UK companies carried out pre-investment meetings in Ethiopia. Investment has gone from £90 million in 2005 to £280 million in 2015 and we need to work harder to strengthen our trade and investment,” he said. “Ethiopia is a great place to invest and is one of the fastest non-oil producing countries in sub-Saharan Africa and, indeed, in the world.”

Ethiopia has recently embarked on its second Growth and Transformation Plan (GTPII), following the encouraging results from GTPI and, said the Minister, has become the fourth largest destination of FDI in the continent.

“Our country offers frameworks and government incentives,” he said, “and the government has made heavy investments in human and physical infrastructure, Implementing the enhancement of technical and scientific institutions including universities and we dream of building a non-carbon economy by 2050.”

He pointed out that Ethiopia has the second largest population in sub-Saharan Africa and that, as a member of COMESA, investment in Ethiopia “leads to unparalleled regional market potential.” The country also offers “an overwhelmingly young population with 73% under the age of 30,” and the government is working on “massively driving forward the development of industrial zones to drive foreign investment and help boost revenue from exports. We expect FDI of US$1.5 billion in 2015.”

In addition to the country’s natural resources, land, abundant labour and cheap electrical power, he assured delegates that infrastructure is going to be among the most important sectors in shaping the country’s future.

Of critical importance to investors, the Minister stated that Ethiopia “offers one of the cleanest business climates with routine corruption virtually non-existent and we have zero tolerance for corruption.” He cited the fact that Addis hosts the AU and ECA headquarters as evidence of the country’s stability, adding “The opportunities are many, the returns are good, and incentives are competitive. Among other things, we offer a conducive business environment, political stability and the cleanest of business climates.’”

Overcoming Challenges

In introducing the Economic Outlook panel session at the conference, Greg Dorey, the UK Ambassador to Ethiopia, reiterated the country’s potential, calling it “a growth miracle.”

Ethiopia, he said is much less reliant on the effects of commodity cycles than elsewhere on the continent, continuing to diversity its sectors, and over the past decade the economy has tripled and average incomes doubled. The benefits of growth are widely shared and poverty went from 40% to 30% in just 5 years – giving more of the population a stake and a share in the country’s success. With the Growth and Transformation Plan II (2015-2020) soon to be launched by the government, all these factors lead to every chance of Ethiopia becoming Africa’s light manufacturing export hub.

Ethiopia has the second largest population in sub-Saharan Africa and that, as a member of COMESA, investment in Ethiopia “leads to unparalleled regional market potential.”

Yohannes Ayalew, the Vice Governor of the National Bank of Ethiopia, the country’s central bank, outlined its economic progress and its targeted aim of 2025 for achieving middle-income status. Ethiopia, he said, is “seeking rapid, sustainable and broad-based growth and a stable macroeconomic environment to encourage investor confidence.”

According to the Vice Governor, the Ethiopian government has 27% of budget expenditure on pro-poor expenditure. A key sector in the country is that of Agriculture, which employs more than 80% of the population and contributes 42% of aggregate economic output in comparison with Services at 46%. In recent years the government has introduced new financial instruments such as private pension funds and housing saving scheme, while raised contributions to public pension funds and an increase in bank branches has led to an expansion of deposits, thus servicing more of the poor in the country.

Ethiopia’s challenges are predominantly external; volatile international food and fuel prices and volatile commodities prices. Notwithstanding the global pressures, GTP 2 aims for rapid sustainable and inclusive growth, with the country’s leaders looking for real GDP growth of 11% p.a. in annual average growth.

Key to achieving this will be establishing a broad based economy with growth for the sectors as follows: agriculture – 8%, industry – 19.2%, manufacturing – 24%, Services – 10%.

For GTP 2 to be successful, the country needs to address four key issues:

Investment Opportunities

With a population of 90 million, Ethiopia is the second most populous country in Africa. Its annual average GDP 11% for the past decade have been the result of good governance and attractive investment laws, said Elias Loiah, Senior advisor to the Governor of the National Bank of Ethiopia.

Outlining some of the steps involved in investing in the country, he noted that foreign investors can invest alone or in partnership with domestic investors and that regulatory and fiscal incentives include guarantees against expropriation or nationalisation. Ethiopia has double tax agreements in place with 18 countries and companies are able to employ expatriate managers. The Ethiopian Investment Commission (EIC) offers a comprehensive source of advice and support for investors.

Manufacturing opportunities abound in textiles and garments/apparel, leather and leather products, chemicals, pharmaceuticals, Agro-production, Horticulture, Construction, Tourism, Electricity, and Health (42% of the population use private health facilities). Ethiopia has 22% of the COMESA market of 19 countries and more than 430 million people, and also benefits from the US initiatives of AGOA and GSP.

The country has a large pool of human resources and he stated $110-200 as monthly cost of recruiting a new graduate. English is the working language of business and, of the country’s 19 banks, three are government owned and the remaining sixteen privately owned. The country has seventeen insurance companies and thirty-five microfinance institutions providing loans to and mobilising savings from low income segments of the society.