Making investment in Ethiopia matter most

Ethiopia’s journey to become a business friendly country will not be completed until after it produces a clean list of things to do and not to do

Bisrat Teshome, Special to Addis Standard, (@Bisree) 

 

On 16th of February AXIOS Business Services Pvt. Ltd. Co, a private company that organizes open coaching sessions, networking events and trainings on various business related issues to give “transformational experiences for thousands of business leaders in the country,” organized a national business forum held at the new AUC building in Addis Ababa in which close to 100 prominent business people and high level government officials came together and discussed what it means to do business in Ethiopia and what it takes to make Ethiopia become the next investment destination. 

AXIOS Business Services Pvt. Ltd. Co organized the national forum at a time when investment in Ethiopia has continued growing over the past few years regardless of countless crippling challenges the sector is facing. According to recent data from the Ministry of Industry so far Diaspora Ethiopians  have registered a total of 66.6 billion birr worth investment in Ethiopia.

A Nov. 2012 publication by the World Bank, Ethiopia Economic Update, shows on average the share of total national investment from its GDP in the years between 2004 – 2010 was 22.9%. Growth and Transformation Plan (GTP), Ethiopia’s latest lead economic development plan, aspires to make investment contribute some 31.5% to the nation’s GDP by the end of 2015. In line with this, and following the government’s incentives in the form of various investment policies and trade laws and regulations, many sectors are now seeing new foreign entrants with new innovation and technology.

Foreign businesses that are showing big appetites in Ethiopia’s new era of investment are investors from China, India and Turkey. Chinese investors have built a new industrial zone around Dukem, 37Km south of Addis Ababa, known as “Eastern Industry Zone”, which houses more than 11 firms working in production of textile, apparel, agricultural processing, mechanical manufacturing and building materials; Turkish investors are operating a textile factory, AYKA Addis, with production capacity of 30,000 – 40,000 pieces of garment per day; while investors from India have entered into textile and chemicals production.

Speaking at the business forum, Tadesse Haile, State Minister of the Ministry of Industry, said establishing industrial zones led both by the government in Ethiopia and foreign businesses from China, Turkey and other countries was part of his government’s plan to increase the flow of investment in the country.

 Why Ethiopia?

One major reason for the continued growth of foreign direct investment in Ethiopia is its access to tariff free global markets, albeit limited to AGOA, and COMESSA; something Mulu Solomon, President of the Ethiopian Chamber of Commerce and Sectoral Association, said during the forum was a golden opportunity. This provision gives investors a competitive advantage over other countries that export their products with tariff. The second most important reason is the relative peace and security that exists in the country. Rationally, investors prefer to invest their hard earned money in countries that have a stable government. Third is availability of cheap factors of production including labor, electricity, land and water, coupled with a relatively low level of corruption, although the later is now at an alarming upward trend. The fourth favorable factor is Ethiopia’s provision of duty free import of machinery, raw materials and equipment for production processes.

 The right policy and the right people

Tadesse Haile of the ministry of Industry keenly outlined, during the business forum, that his government has been tirelessly working to create a favorable environment to attract more investment in the country. These include, but not limited to, creating a competitive market economy (although many loathe the state’s persistent role in the private sector), to infrastructure and human resources development, to ensuring democratic governance and establishing specialized institutions and industrial zones.  For Mulu Solomon though this is not enough.  Creating investor friendly environment also takes having the right system in place with the right people to implement them as well as checks and balances of implementations and timely evaluations of policies, laws and directives. A nation should not depend on individual discretions, she said, as a reminder of lack of “institutional depth.”

Excruciating bureaucratic bottleneck manifested in the forms of land administration, lack of foreign currency, increasingly worrisome corruption and a civil service characterized by incompetence is threatening both new-comers and existing investors. Currently, securing land takes about four months to complete; lack of access to finance and credit has always been a painful hallmark of doing business in Ethiopia and is getting worse with every passing day as the government in Ethiopia continued fencing the financial sector in the name of protecting the local sector; and telecommunication, the pillar of doing business everywhere around the world, remains not only chillingly inept but untouchable.

So far the government has done pretty well in tackling some of the massive problems surrounding doing business in Ethiopia; in the words of Tadesse Haile “promising results have been registered so far, but a lot of work needs to be done, too.” If the government cares to live up to its promise of making Ethiopia become a middle income country by 2025, its efforts of improving infrastructure and specialized industrial zones must go hand-in-hand with having in place a clear and clean list of things to do and things not to do. Mulu Solomon has put it accurately when she said, “I don’t have to tell the size of my shoe to renew my business license.”