By Samuel Getachew
The government of Ethiopia’s Prime Minister Abiy Ahmed had been trying to find the right pace of reform before conflict in Tigray broke out in November, casting a pall over Nobel Peace Prize-winning Abiy’s plans.
The state has played a major role in Ethiopia’s economic transformation, building industrial parks, modernising the Ethiopia-Djibouti railway and managing a telecoms monopoly and top African airline Ethiopian Airlines.
The Abiy administration was planning to open up many of these sectors to foreign investors. Addis Ababa has canceled the privatization of Ethiopian Airlines but says it will go ahead with the partial privatization of Ethio Telecom and also issue two new telecoms licenses.
The government’s reasoning for opening the economy is sometimes unclear. When it walked back the plans to sell a minority stake in Ethiopian Airlines in October, finance minister Ahmed Shide said the airline “appears robust”.
The airline has performed better than its African peers and its finances were not at the forefront of the government’s explanations of its privatisation programme.
The Ethiopian Investment Commission, an arm’s-length government agency in charge of attracting investment to the country, has introduced new regulations in order to invite in new players. These include members of the Ethiopian diaspora, who had previously been restricted from investing in most of the local sectors.
The regulation reserves five sectors, including manufacturing of military weapons, bus rapid transit and courier services, for joint investment with the public sector, whereas other sectors, which include financial, wholesale and retail trade, are to be reserved for local enterprises.Africa InsightWake up to the essential with the Editor’s picks. Sign upAlso receive offers from The Africa ReportAlso receive offers from The Africa Report’s partners
Foreign investors can now engage in power distribution and the development of electricity infrastructure, adding to the partial opening up of the logistics and telecom sectors.
The move has been welcomed by analysts, including Zemedeneh Negatu, an Ethiopian-American entrepreneur who argues that international experience of owning or operating sophisticated businesses abroad could be transformational for start-ups or even well-established businesses.
“Companies with skilled leaders always have a much higher probability of attracting capital from private-equity funds and other investors since sustainability and building successful institutions is dependent on talent, especially in highly competitive industries such as financial services, technology, and telecoms,” says Negatu.
Ethiopia’s diaspora is already responding to the measures taken by the government. Black Rhino, an American investment group headed by Ethiopian-American entrepreneur Mimi Alemayehou, is looking at investing in Ethiopia’s power generation sector, as well as its financial sector.
Others have laid the foundations for new banks and fintech companies or have started issuing shares in anticipation of the new regulation. One such is Selam Bank, a mortgage bank owned by diaspora members including Aman Feshetsion, Negatu and Ermias Eshetu, which aims to open in 2021.
“Banking and capital markets could benefit tremendously by leveraging the highly experienced diaspora talent currently working in these sectors abroad or [who have] already returned back to Ethiopia and invested in these sectors. In my view, the diaspora’s major value-add is not just the financial capital they bring, but it’s the human capital,” Negatu adds.
Meanwhile, corporations, including the US-headquartered Pepsi and many telecom operators, have expressed an interest in getting a foothold in the most populous landlocked country in the world. Currently, the Ethiopian Communications Authority is reviewing the applications of 12 telecom operators that expressed their intent to bid for a licence, including Kenya’s Safaricom and France’s Orange.
“Competition is generally good for economies because it infuses new talent and ideas,” Sam Rosmarin, an American investor based in Addis Ababa, tells The Africa Report.
He predicts that the most successful companies will be those that fuse local market understanding with international innovation. “For example, we may expect a wave of joint ventures in mechanised farming here in Ethiopia, facilitated by new lease laws.”
Ethiopian stock exchange
Ethiopia is laying the ground to establish its stock exchange – a move that has long been awaited. While this is expected to spur foreign investment, it is likely that it will also grab the attention of international brokers, consultants and equity investors, who will be licensed to trade.
As the first step, the National Bank of Ethiopia drafted a bill to establish a Capital Market Authority, which is expected to be legislated by the end of 2020.
The Authority will regulate the local financial sector and oversee how bonds and equities will be transacted. It will provide the licence for the Ethiopian Securities Exchange to come into being, with a share of between 5% and 25% allocated to the government.
The government has also signed up to international frameworks on arbitration and the settlement of commercial disputes. Rosmarin believes it is a good path to take for Ethiopia.
“As Ethiopia moves toward capital markets, implementing international business standards for accounting and corporate governance will be increasingly critical,” he says. “The smart companies will leverage the human and financial capital enabled by this law to make the leap to those standards.”
Towards the end of 2020, the government surprisingly announced it would no longer build industrial parks. Instead, it will defer to the private sector and offer land, financial support, and sell or rent factories to international manufacturers. The country is already home to global brands like Ikea and H&M.
Currently, Ethiopia has 10 active parks, which host 189 companies, creating more than 70,000 jobs, with annual exports valued at $165m. The parks were built to attract multinational investors, notably from China, India, and Europe. Many of them have set up in the country looking for cheap labor and other benefits including cheap electricity and a favorable tax system.