Planning to Invest in Ethiopia?

So if you are a diaspora Ethiopian or a foreign investor looking for good prospects of investments in Africa, what is the investment situation in Ethiopia? Everyone knows that it is risky to do business in a country that you have little knowledge of and, this article presents facts you should know before deciding whether you want to invest in the country or not.

The first important criteria in deciding before investing in a country is economic factor which include issues such as interest rate, taxes, loan availability, money value and special incentives from the country. Since almost all countries in the world are striving to attract investors into their countries, there is a stiff competition to create more favorable economic conditions for investors. The most widely accepted standard metric to compare the business friendliness  of two countries is the International Ease of Doing Business (EDB) rank developed by the world bank. Looking at the rank, Ethiopia just continues to fall quickly losing 7 places in the 2012 rank and placed as the 111th favorable country to do business in out of 183 countries [1]. This is better than uganda which is at 123rd and Eritrea at 180 but worse than Rwanda which continues to register remarkable growth to be the 45th best place to do business in 2012 from its rank of 143 in 2008. I chose Rwanda as a best performing example because the country had to overcome a horrible violence in the 90s, where Ethiopian soldiers were sent as peacekeepers, to register successive economic progress. Note that Rwanda is also ruled by a mild authoritarian who is not shy to claim that his 95% election victory (though less than the 99.6% victory of EPRDF claimed).

So looking at these facts even though the Ethiopian government is trying to introduce reforms in the business sector, lack of transparency in the financia sector, prohibition of foreign investors in big sectors such as telecommunication and finance, the ever present enormous corruption which drives out more than $3billion money out of the country illegally [2] makes the country ill equipped for investment. Furthermore, lack of any successful foreign private investment [9] and absence of patent laws in the country flashes a red light in the mind of possible investors. An interesting fact is that the share of the private investment in Ethiopia in the current regime barely moved in statistics over its previous regime which followed communism and restrict private growth. 

The second important factor in deciding a place to invest is political stability. The direct relationship between political process and business  is clearly visible in the current European and World economic crisis which need the proper political support for easing the tension among investors. The relatively stable political arrangements in Greece, Italy and even Zimbabwe have played an enormous effect to boost investor confidence towards investing in the countries. When it comes to Ethiopia, after the doomed 2005 election the political space seems to be diminishing and Ethiopia is going towards pure authoritarianism matched only in few countries in the world with more than 99% of the parliament taken by one party on a "free & fair" election. Inaddition the location of the country in the volatile East bordered by Somalia, Sudan and Eritrea makes it prone to wars and insecurities. Furthermore, the presence of a handful of rebel movements such as OLF in the south and central Ethiopia, ONLF in easter Ethiopia, EPPF in north-west Ethiopia and the ghostly Ginbot 7 movement with roots in the military and urban population makes the country an unlikely investment destination. With Only 50% of the local population feeling safe to walk alone in the evening, 25% of people experiencing theft in a country of 80 million and random killing of civilians by armed security agents in broad day light happening in the country, taking your money to Ethiopia might be a high risk to take [3 4]. 

Another important factor in establishing an investment is presence of infrastructure and skilled man power in the country. With Ethiopia ranked among the top brain drain hit countries in the world, it is no surprise that most skill requiring tasks in the country are carried out by foreign employees mostly from China and India [5]. Furthermore, the frequent power outings in the country [7] and the unreliable ICT infrastructure [6], which are both shielded from foreign investment, add more financial burden to an investor. Inaddition lack of fair competition with presence of party owned enterprises dominating the major businesses and ethnic based despotism rule through out the country, the country is economically unsuitable and probably more dangerous for Ethiopian diaspora. 

[1]-http://www.doingbusiness.org/rankings

[2]-http://blogs.wsj.com/corruption-currents/2011/12/05/ethiopian-illicit-outflows-doubled-in-2009-new-report-says/?mod=google_news_blog

[3]-http://www.prosperity.com/country.aspx?id=ET 

[4]-http://abclocal.go.com/kgo/story?section=news/local/south_bay&id=7912607

[5]-http://allafrica.com/stories/200709040438.html

[6]-http://www.zehabesha.com/wp-content/uploads/2011/07/ict-ethiopia-1.pdf

[7]-http://nazret.com/blog/index.php/2011/06/17/ethiopia-power-outage-hits-as-hillary-clinton-addresses-au-in-addis?blog=15

[9]- http://www.economist.com/node/10062658?story_id=10062658

Fixing EPRDF's mistakes - Part II Higher Education

This is second part of a series that highlight political and policy based mistakes by the EPRDF government. While the main aim is raising awareness of the general public, policy makers and politicians from EPRDF can see it as an independent view into their system and opposition parties can use it as a basis to build their campaign activities.

Before the current EPRDF government usurped power in 1991, Ethiopia had two higher education institutes, Alemaya and Addis Ababa University with an enrollment ratio of around 0.3%, among one of the lowest in the world. After the EPRDF took over the country, there was a sense of hope from the university community that academic freedom will be granted and that the universities will be free from political interference. But all hopes were dashed after the EPRDF government meddled in the university structure even from its early days in power and fired 40 university professors from Addis Ababa University because of their different political opinion than the regime.

Afterwards under a tight control of the government in their internal affairs, the number of universities blossomed through out the country to reach 14 by the end of 2003 and 23 by the end of 2009. While this rapid expansion of the universities was done based on number of population and even distribution of universities across all regions, there were a few that were started due to political pressure from the public. But even in those cases, the main issue remains the people's commendable apetite for a higher education institute and the governments willingness to establish them. This was a positive move by the government to increase investment in construction and higher education, increase enrollment rate and create a skilled man power for the country.

But building universities without a proper management, qualified personnel and national agenda is useless. All the universities including the once famous Addis Ababa University are focused on accommodating all the students who are flocking in masses. Rather  than focusing on delivering high quality education and problem solving researches, universities nowadays are concentrating on building dormitories. Thats why out of the top 100 universities in Africa, there are only 2 Ethiopian universities in a list that includes 6 Kenyan universities. The government turned deaf ear to repeated plea by academicians to halt the expansion of the number of higher education after the first phase of expansion and focus towards enhancing the quality of the already existing universities.  After the number of universities increased to 14 in the first phase, what the government should have done was improve quality of accommodation, teaching and research on these universities as a means to gain insights before building more. But the government opted to start a second phase by building 9 more universities and ignore the deteriorating quality in already existing universities.

A recent study identified that the quality of Ethiopian higher education institute is depreciating in an alarming rate due to a number of policy related issues. The main problem stated is absence of competent structured management and lack of motivation, direction and vision in the existing system. Most university presidents are hand picked by the government after proving their loyality to the ruling party. This will shield them from any criticism from their subordinates. Following the ethnic based ideology of the ruling party, the current universities and research centers in Ethiopia are starting to include the ethnic background of academic and administrative professional as an informal criteria before he/she is hired by the departments. This top-to-bottom level political interference at all levels of the academic institute is also obstructing national unity on higher education policies and candid discussions abut problems engulfing the institutes.

Another big problem facing the universities is lack of qualified instructors mainly due to unfavorable working conditions and mass exodus on university instructors to Europe and USA. It is a widely known fact that instructors joint universities to make their escape from the country easier. And further affecting quality of education, the universities begin new departments with one digit instructors without any clear vision, mission or research outlook and advantage to the country. Contrary to international practice, there are even post graduate programs in Ethiopia without a single supervising professor or ongoing research in the department. The international standard of operation of the universities is completely ignored in Ethiopia and this has led to the flooding of the job market with many unqualified graduates. At the time where the government is vociferous about the prospects of Ethiopia becoming a middle income country in the near future, it seems to forget that foreign investment in a country is directly related to the existence of competent qualified graduates.

So the government or the opposition should think of better ways to manage the universities than the current situation where a lot of country resource is being wasted under the auspice of HIGHER education.