Ethiopia the second most populous country in Africa, with more than one hundred million inhabitants, following Nigeria, is attracting the attentions of the international community in various aspects- political, economic and social dimensions. In this script, the economic aspect, investment in particular is to be dealt.
Ethiopia is one of the fastest growing economies in the world recording and maintaining a 9 percent economic growth on the average for the past decade and half years. “Ethiopia’s GDP multiplied tenfold in 25 years, and poverty has been halved, educational enrolment has markedly increased” Prime Minister of Ethiopia Dr. Abiy Ahmed Ali, January, 2019, Davos-Switzerland.
The government has been significantly dedicating much of its resources on infrastructural development which has contributed to the growth and attraction of FDI making Ethiopia one of the leading FDI destinations in Africa. As part of the reform process in the country, the government decided to liberalize the economy and privatize state-owned companies like telecommunication, aviation and energy.
Africa’s world-class and Star-Alliance member Ethiopian Airlines connects the country to more than 120 international, more than 61African destinations and provides 54 dedicated cargo destinations. It also flies to over 22 domestic passenger destinations.
For the last two decades, Ethiopia has enjoyed peace in the region being an island of peace in the Horn of Africa’s hot region. It has also made a bold move to end a more than two decades conflict with its immediate neighbor Eritrea.
With the current pace of economic growth, Ethiopia has envisioned to become a middle income country and a green economy by 2025. Various grand projects like the Grand Ethiopian Renaissance Dam (GERD) and other hydroelectricity dams, giant manufacturing industries have been in place and operationalized.
Success begins from proper identification and analysis of the problem at hand. The secret to these successes is correct identification of the momentous challenges that Ethiopia has been facing. High rate of unemployment, shortage of finance/capital were identified as primary challenges for investment. Consequently, the government devised policies and strategies towards addressing these challenges through paying due attention to labor and capital intensive investment areas followed by agricultural sector development which is the main source of employment opportunity for more than 80 per cent of the entire population.
Leather and leather products (like footwear, bags, jackets), textile and apparel manufacturing, agriculture and agro-processing are among the priority areas of investment in Ethiopia. These areas are naturally labor and capital intensive as Ethiopia lacks capital and has abundant labor force. Ethiopia has abundant hides and skins stocks in Africa and is the tenth-largest in the world. The vast availability of leather gives prospective brands lots of material privileges to work with.
Major opportunities for investment in Ethiopia
Availability of Power
One of the important factors that attract Foreign Direct Investment to Ethiopia is its low power tariffs. The country’s electricity cost is one of the lowest rates in the world. This low power cost is a comparative advantage to the country and the individual investor to help keep the cost of production down.
Ethiopia has a current capacity to generate 4,500MW of electricity, and the potential to produce 45,000MW from hydropower, 10,000MW from geothermal and 1.3 million megawatts from wind power. The completion of the Grand Ethiopian Renaissance Dam (GERD) in the coming few years, with its capacity of 6,450MW, will meaningfully change the current production capacity into 10500+MW. This will make the cost of electricity to remain lowest and/or probably to fall tremendously. This turns the prospect of the country to the positive direction creating credible power sustainability.
Hawassa Industrial park, developed at $300 million USD was inaugurated in 2016.
Extensive Industrial Parks Development
Extensive development of industrial parks in Ethiopia has completely changed the investment environment of the country. The model has been for the Ethiopian government to construct well-serviced industrial parks which house the prospect of numerous leather and leather products, and textile manufacturing partnership factories.
Hawassa Industrial park, developed at $300 million USD and inaugurated in 2016, is one of the biggest industrial park in the country and has been described as the Ethiopian government’s “flagship” industrial park. It has started production at relatively small scale late 2016, with the first exports in mid-2017. Currently, Mekelle, Kombolcha and Bole Lemi are also operational industrial parks. Seven more industrial parks are also under-construction.
Ethiopia uses loans for the construction of grand projects that can change the economic trajectory of the country from mainly agricultural economy to industry led economy. Last year, Ethiopia’s inflow of Foreign Direct Investment (FDI) has been increased to over $3.7 billion USD and is one of the vibrant countries in Africa in attracting the highest FDI inflow.
Addressing unemployment among the youth population is crucial to Ethiopia. Hawassa, Kombolcha, Bole Lemi, Mekele and Adama industrial parks collectively, have currently created jobs for over 70,000 Ethiopians, and 103 million USD has been generated from the exports of the Industrial parks during the 2011 E.C (2018/19) fiscal year.
As part of its efforts to make the country a light manufacturing hub in Africa by 2025, Ethiopia is working to create favorable atmosphere and systems that enable to do business in the country.
Short travel time and access to the sea outlet
Ethiopia has been investing its resources on infrastructure such as the Addis Ababa-Djibouti railway. The Addis Ababa-Djibouti rail line – 756km, which cuts the journey time for goods from Ethiopia (Land linked not Land locked) to the Djibouti port from days by road to 10 hours or less. Several other railway lines that connect all major corridors in Ethiopia are under construction.
Ethiopia’s restoring peace and reopening of diplomatic relations with Eritrea creates the potential for expanded logistics operations via the Eritrean ports of Assab and Massawa. These ports are short distance from Mekelle and Kombolcha Industrial parks with close to 450 kms which entail shortest hours to travel. This is another incentive for investors to eye the untapped investment opportunity in Ethiopia.
Human resource is the most crucial asset for any business. Successful performance in investment, by and large depend upon the quality of human resources it engages, the extent of knowledge through training and education they have received. Ethiopia has a growing young, trainable and disciplined labor force. The 50 plus universities and over 1,300 Technical and Vocational Education and Training (TVET) Institutes intake around one and half million student population, whom, after completion could join the labour force. This is also another huge offer Ethiopia provides for potential investors.
Tax Holiday for Investors and Developers
Among the many incentives being provided to investors in Ethiopia is income tax holiday for investors in the Industrial Parks and for Industrial Parks developers. An income tax holiday up to 8-10 years and duty free of importing construction machineries and equipment as well as provision of land lease at a very competitive price up to 60 to 80 years for both investors and developers.
Investors are not required to travel from one office to another. One-Stop-Shop service is in place. Provision of necessary infrastructures including dedicated power substations is available for the developers. For investors, Industrial Parks are ready made-coming machineries-plug in and run which is easy way to produce.
Very recently, with the aim of providing efficient, effective and reliable investment services for investors regardless of geographical locations, an online service platform, where investors can remotely apply for new investment permit including expansion permits and business licenses, has launched.
Together with the new reform agenda, the legal and Institutional framework towards Foreign Direct Investment is changing the ease of doing business in Ethiopia. Therefore, Ethiopia invites all investors to utilize the untapped investment opportunities. Beautiful landscape, extreme wonders of the world which are found in Ethiopia are considered tips for those who travel to the Land of Origins-Ethiopia for investment.