While, historically, Ethiopia had a closed economy with restricted opportunities for foreign investors, recent policy changes mean Africa’s second most populous country is now open for international business, says Mekdes Mezgebu.
“For a lot of people, Ethiopia’s business and investment climate is seen as complex,” commented Mekdes, an investment and projects lawyer and principal of Mekdes & Associates in Addis Ababa. “Compared to other African countries in the region such as Kenya, we have very different policies and ways of doing things.”
A large country in population and area, Ethiopia has huge potential for business, says Mekdes, but traditionally its economy didn’t perform as well as powerhouses like Nigeria, Kenya, South Africa and Egypt. Over the past ten to 15 years, though, Ethiopia has seen tremendous socioeconomic progress – including double-digit growth over many years – as it applied the successful East Asian model where the state takes a big role in development.
However, this meant the private sector’s contribution was relatively low, Mekdes explained, and the investment landscape was restricted, with the government having a specific list of key sectors where foreign investors were allowed, such as agriculture and manufacturing.
“The policy worked in terms of delivering results and attracting really big and meaningful investors in those sectors,” noted Mekdes, “but it impacted investment in other sectors, creating the perception that Ethiopia was a very closed-off country, especially when compared to Kenya.”
Ethiopia has seen massive legislative activity in recent years. “Nearly all the laws that impact business and investment have either been amended or altogether revised,” Mekdes pointed out. “From the 60-year-old Commercial Code to proclamations and regulations related to foreign investment, banking, capital markets, forex, disputes, telecoms and PPPs, there have been a raft of reforms. Much of it has to do with liberalising what otherwise was perceived as a restrictive investment environment.”
In September, Safaricom launched its pioneering mobile money service in Ethiopia, once considered the “last frontier” for digital banking, as part of a billion-dollar telecoms and mobile money licensing deal – the largest foreign direct investment in Ethiopia to date.
Despite this progress, Mekdes said that Ethiopia had struggled to address wider investment climate issues such as peace, security and ease of doing business. Global economic factors such as Covid and the Ukraine–Russia war, along with a local civil war, have derailed the successful implementation of a new open environment for foreign investors.
“A lot of the legal reforms are yet to bear fruit in terms of attracting foreign investment,” noted Mekdes, whose firm’s specialist expertise includes PPPs, project finance, energy, projects and infrastructure.
Legal reforms are just one important part of the puzzle in fostering foreign investment, and Ethiopia will have to work hard to put all the rest of the pieces in place.
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