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