Ethiopia is actively positioning itself as a prime destination for foreign and regional investment, underpinned by a wave of ambitious reforms and strategic policy shifts. This was the central theme of a recent panel discussion hosted by the ALN as part of its Ready Business Roadshow, featuring prominent figures from Ethiopia’s legal, governmental, and industry sectors. The discussion highlighted the significant transformation underway, emphasising key opportunities, supportive government initiatives, and crucial takeaways for potential investors.
The panel, featuring Dr. Eyob Tekalign, State Minister at the Ministry of Finance; Dr. Brooke Taye, CEO of Ethiopian Investment Holdings; Dr. Habtamu Semachew, Senior Advisor at the Ethiopian Investment Commission; and Mr. Ermias Eshetu, Board Member and former Chairman of Zemen Bank, provided a comprehensive overview of the evolving investment landscape. Moderated by Mesfin Tafesse, Founder and Principal Attorney at Mesfin Tafesse and Associates Law Office, and Karim Anjarwalla, ALN Director and Senior Partner at ALN Kenya, the discussion underscored a fundamental shift in the government’s approach – from a state-led to a private-sector-driven economy, fostering a collaborative partnership between the government and investors.
Key Investment Opportunities and Priority Sectors
A major theme of the discussion was the opening of previously restricted sectors to foreign investment. A significant legislative amendment is the shift from a positive listing approach, which limited foreign investor engagement to specified sectors, to a negative listing approach, where only a few sectors are now reserved for domestic investors. This change has already yielded results, with over 150 new greenfield investment projects registered in newly opened sectors, attracting more than USD 2.1 billion in investment.
Priority sectors for foreign direct investment attraction, dictated by national economic development plans, include manufacturing, agriculture, tourism, ICT, mining, energy, real estate, and construction. Manufacturing has seen significant success, accounting for over 70 percent of greenfield investments attracted in 2023.
The liberalisation of the trading sector, including exports, imports, wholesale, and retail, marks another significant development. Previously closed to foreign investors for decades, strategic commodities like coffee, oilseeds, hides and skins are now open for foreign participation. While in the early days, initial indications are positive, with significant interest and applications received from new market destinations.
Government Incentives and Reforms
The Ethiopian government has implemented a multitude of reforms aimed at improving the business environment and attracting investment. Since 2018, significant macro-level policies such as the 10-year perspective development plan, the homegrown economic agenda, and the digital policy and strategy have been introduced to create a favourable environment for private sector growth.
Legislative reforms have been extensive, including new investment laws (proclamation and regulation), a revised Commercial Code, and amendments to the commercial registration and business licensing regime. The establishment of Special Economic Zones is also encouraging investment in designated areas. Ethiopia has also joined the international community by ratifying the New York Convention and adopting modern arbitration laws modelled on the UNCITRAL Model Law.
Reforms in the financial sector are also well underway to create a world-class, vibrant, modern, and competitive financial system. This includes strengthening the regulatory authority of the National Bank of Ethiopia and opening the banking and finance sector to foreign investors. The liberalisation of the Forex regime, while carefully managed, is showing early signs of success, with increases in banking assets, exports, and remittances.
Beyond policy and legislation, the government is also focused on building implementation capacity through civil service reform and strengthening institutions. The aim is to create a meritocratic and capable civil service with a strong sense of service to carry the reforms forward. Digitalisation and automation efforts, particularly at the Ethiopian Investment Commission, are also underway to streamline processes and fill implementation gaps.
Ethiopian Investment Holdings (EIH), as the business arm of the government, plays a crucial role in optimising state-owned enterprises and partnering with private investors. EIH offers potential partners institutional capacity, derisking support, and synergy through access to land and the existing infrastructure of its portfolio companies. While not a privatisation program, EIH is involved in the divestiture of some state-owned enterprises, such as sugar estates, which are open for acquisition by both domestic and foreign investors. EIH is also actively working with domestic investors, particularly in sectors like hotels and tourism.
Key Takeaways for Investors
The panel discussion offered several key takeaways for foreign and regional investors considering Ethiopia:
- Commitment to Reform
The government demonstrates a strong commitment to deep and wide-ranging reforms across various sectors, driven by a long-term vision for prosperity and a generational quest for economic development. - Shifting Role of the State
There is a clear and fundamental shift towards rebalancing the role of the public and private sectors, with the government aiming to be an entrepreneurial state that supports and enables, rather than dominates, private enterprise. - Opening Sectors
A significant number of previously closed sectors are now open or being opened to foreign investment, presenting new and diverse opportunities. - Improving Business Climate
Continuous efforts are being made to improve the ease of doing business through legislative amendments and administrative reforms. - Financial Sector Liberalisation
The financial sector is undergoing significant reforms and liberalization, including the opening to foreign banks, which is expected to enhance competition and facilitate access to finance. - Capital Market Development
Ethiopia is on track to have a functioning capital market and exchange, providing new avenues for raising and deploying capital. - Partnership Opportunities
Opportunities exist for partnering with state-owned enterprises through Ethiopian Investment Holdings, which can help derisk projects and leverage existing assets and market knowledge. - Focus on Implementation and Capacity
The government is actively addressing the crucial aspect of implementation capacity through civil service reform and institutional strengthening to ensure the effective realisation of the reform agenda. - Regional Integration
Ethiopia is actively engaged in the African Continental Free Trade Area (AfCFTA), with efforts underway to align national laws and facilitate increased intra-Africa trade and investment.
While challenges remain, such as ensuring predictability in the application of laws and addressing transitional effects of reforms like Forex liberalisation on some domestic businesses, the overall sentiment is one of optimism and progress. The proactive approach of the government in addressing these issues and its commitment to continuous improvement signal a promising future for investment in Ethiopia.
The ALN Ready Business Roadshow panel discussion provided valuable insights into the dynamic changes happening in Ethiopia, painting a picture of a country actively opening its doors and creating a more conducive environment for both regional and international investors. The emphasis on partnership, comprehensive reforms, and strategic sector development suggests that Ethiopia is indeed poised for a new dawn of investment opportunities.
