Ethiopia flag Ethiopia: Investing in Ethiopia

Foreign direct investment (FDI) in Ethiopia

FDI in Figures

According to UNCTAD's World Investment Report 2022, FDI inflows to Ethiopia increased to USD 4.2 billion in 2021, up from USD 2.4 billion one year earlier; while the total stock of FDI stood at USD 31.6 billion, around 31.8% of the country’s GDP. Most foreign investment is directed towards the oil refining, mining, real estate, manufacturing and renewable energy sectors. The country has also taken advantage of the difficulties of Bangladesh's textile sector to attract foreign textile companies. China is one of the largest investors, accounting for 60% of new FDI projects approved, with significant investments in manufacturing and services. The other main investing countries are Saudi Arabia, the United States, India and Turkey. The conflict in the Tigray region (albeit the cessation of hostilities treaty signed in November 2022), political instability, and the slowdown in debt restructuring negotiations may discourage investors in the short term (Coface). Ethiopia’s capital, Addis Ababa, ranked second in the world following Beijing in terms of attracting foreign direct investment in data centre construction, according to a report by fDi Intelligence. Furthermore, official governmental figures show that in the first nine months of the fiscal year 2021-22 (July 21-June22), Ethiopia attracted USD 2.43 billion in FDIs, marking a year-on-year increase of 18.3%.

There are a number of constraints to foreign investment, namely the high interference of the State in the economy, poor condition of infrastructure, difficulties related to land acquisition, strict foreign exchange controls, very high transaction costs and weakness of institutions. Moreover, the Ethiopian government keeps exercising full control over the services sector. Significant progress has been made in terms of transport infrastructure and electricity production in order to improve Ethiopia's attractiveness. The Ethiopian birr is not a freely convertible currency, thus foreign exchange shortages impede companies’ ability to repatriate profits and obtain investment inputs. The Grand Ethiopian Renaissance Dam (6,000 MW) on the Blue Nile aims at increasing hydroelectric capacity to 37,000 MW by 2037. The impending privatization of the state-owned railway, maritime, air transport, logistics, electricity, and telecommunications sectors, is expected to boost private investment, as is the creation of special economic zones. In order to improve the business climate, the government recently approved a new foreign investment law, and in 2022 Ethiopia issued new investment incentives regulation. Overall, the country benefits from abundant and low-cost trainable labour and enjoys a strategic location giving access to lucrative markets in the Middle East and Europe (but it depends on Djibouti for its access to the red sea and Suez Canal). Ethiopia ranked 38th out of 180 countries on Transparency International's Corruption Perceptions Index 2022 and 117th among the 132 economies in the Global Innovation Index 2022.

 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 2,3814,2593,670
FDI Stock (million USD) 27,35131,61135,281
Number of Greenfield Investments* 1176
Value of Greenfield Investments (million USD) 530137558

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Ethiopia Sub-Saharan Africa United States Germany
Index of Transaction Transparency* 3.0 5.5 7.0 5.0
Index of Shareholders’ Power*** 2.0 5.5 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Ethiopia

Strong Points

Among the reasons to invest in the country there are:

  • one of the fastest growing economies in the world, with GDP growth averaging 10% in the last decade according to the IMF
  • Ethiopia is the second largest market in Africa, with a population of around 102 million people and a rapidly growing middle class
  • a relatively stable climate for investors
  • lower levels of corruption compared to the regional level
  • a widespread territory, rich in natural resources and extremely fertile
  • several governmental policies aimed at attracting FDI inflows are in place (i.e. over 30 bilateral investment promotion and protection agreements signed, Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA), foreign investors have the right to make remittances out of the country in convertible foreign currency at the prevailing rate of exchange, fiscal incentives, etc.)
  • the country has the second largest labor force in Africa in terms of number of people, with low salary levels
  • the economy is now in a phase of diversification.
Weak Points

Ethiopia's weak points in terms of FDI attractiveness are:

  • its vulnerability to climate conditions and changes in world commodity prices
  • the isolation of the country, which is landlocked
  • insufficient level of foreign exchange reserves
  • some difficulties in the business and governance environment
  • the unstable regional context (and national one in the last period, with some protests from the Oromo ethnic group)
  • the exchange rate volatility
  • the fact that ethnic conflicts - often arising from the use of resources and land disputes - occasionally become violent.
Government Measures to Motivate or Restrict FDI
Telecommunications, power transmission and distribution, and postal services, with the exception of courier services, are closed to the private sector, both the foreign and domestic. The manufacture of weapons and ammunition can only be undertaken in joint ventures with the government.

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Latest Update: December 2023

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