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News: Economic turmoil, instability curtail Ethiopia’s FDI inflows: Ernst & Young report

Ethiopia garnered six foreign investment initiatives in 2022, with Safaricom Ethiopia being a notable contributor Photo: Reuters)

Addis Abeba – Amid global economic shifts and domestic instability, Ethiopia is contending with a marked decrease in foreign direct investment (FDI), as detailed in a new report by Ernst & Young.

The report, titled “A Pivot to Growth,” presents a stark assessment of Ethiopia’s position in the Eastern African investment landscape, placing it at the lowest level for the year 2022.

Last year, Ethiopia secured a mere six projects, amounting to $600 million and generating only 600 new jobs, signaling a critical point for the nation’s economic attractiveness internationally.

Before the COVID-19 pandemic, Ethiopia was recognized as one of the world’s fastest-growing economies. However, the report indicates that the pandemic, the ongoing Russia-Ukraine conflict, and internal unrest have combined to create a challenging economic environment over the past three years.

In stark contrast, other East African countries collectively secured 114 projects in 2022, drawing in $14.5 billion in capital and creating around 22,000 jobs. Kenya, the region’s largest recipient by project count, attracted 63 projects with $2 billion in capital investment, creating 7,819 jobs.

Uganda received the most capital investment, with nine projects in the oil and gas sector, resulting in record inflows of over $10 billion in 2022 and more than 6,300 jobs. Tanzania saw significant growth in foreign investment, reaching pre-pandemic levels with 21 projects worth $1.3 billion, creating 4,566 jobs.

Contrary to this, the Ethiopian government maintains that FDI inflow remains robust. Henok Solomon, director of public relations at the Ethiopian Investment Commission, revealed to Addis Standard that the country attracted $3.4 billion in FDI in the fiscal year 2022/23.

Despite the government’s assertions, Ernst & Young’s report shows a significant reduction in Ethiopia’s FDI over the past three years, falling from 34 projects in 2019 to just five in 2021.

Notable foreign investments in Ethiopia over the past year include Safaricom’s commitment to invest $300 million annually into the Ethiopian market for ten years, following an initial investment of $1.2 billion.

Additionally, the United Kingdom’s Marriott Drilling Group has secured financing for the development of two geothermal power stations in Tulu Moye and Hawassa, which will be the country’s first.

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The report from Ernst & Young points to balance of payments issues and the risk of sovereign default amid rising inflation as challenges for Ethiopia.

Earnest & Young, one of the largest professional services firms globally, notes that, along with the adverse impacts of conflict and instability, Ethiopia’s investment prospects are further hampered by balance of payments pressures and high inflation rates.

Inflation across Africa averaged 14.3% in 2022, the highest increase in over a decade, with Zimbabwe, Ghana, Egypt, and Ethiopia experiencing particularly high rates.

Mamo Mihretu, the governor of the National Bank of Ethiopia, reported to the parliament last month that the central bank’s strategic monetary policy is showing promising results in combating inflation. Official data indicates a reduction in the headline inflation rate from 35% in March 2023 to 27.7% in September 2023.

However, the report underscores that such economic challenges could overshadow the investment climate, deterring foreign investment and complicating economic management.

In addition to inflation, Ethiopia faces pressures due to currency depreciation. The Troubled Currencies Project reports a nearly 40% depreciation of the Ethiopian birr against the US dollar since January 2022, affecting investment by undermining investor confidence. AS

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