Ethiopia opens up for foreign investment

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With Ethiopia’s economic growth rate remaining relatively high at seven per cent as well as the government’s request for a sovereign rating, the country is slowly beginning to open up its doors to foreign investors.

“The government has acknowledged that in order to sustain that high growth rate level that they’ve seen over the last 10 years, they’re going to have to start allowing private investors to come in,” Ayalenesh Tafesse, a country risk analyst at Rand Merchant Bank told CNBC Africa on Wednesday.

“Over the last five years, we’ve seen them [Ethiopia] gradually opening up the investment space.”

According to Tafesse, the Ethiopian government is looking to tap into international bond markets, specifically, the issuing of a euro bond, as a means to attract direct foreign investment. They have therefore put forward a request for a credit rating by one of the credit rating agencies.

“In order to get one of the indicators like Moody’s or S&P [Standard and Poor] to come in and rate you, you have to be very transparent. So I think with them being transparent and getting a rating they are signalling to the market to say: get comfortable with us, we’re here, have a look at what we have to offer,” she explained.

In addition, the government is said to have highly ambitious infrastructure plans that will require foreign investment.

For instance, they are hoping to build the Grand Ethiopian Renaissance Dam on the Nile River. Once completed in 2017, the government is hoping that the hydro power facility will be one of Africa’s flagship infrastructure projects that will kick start both power and agriculture development in Ethiopia.

While the government’s development plans may prove to work well for the country’s economy, concerns are raised on how fast the ‘closed economy’ will open up to the world.

“For a long time Ethiopia was seen as a closed economy and that’s because the model they do follow there is a state led development model, which means we haven’t seen many private players in the industry,” said Tefasse.

“It being such a closed economy, it’s going to be a gradual let go.”

The government, for instance, has already indicated that the telecoms and financial sectors are off bounds to foreign investors as those industries are primarily state owned and generate large revenues for the government.

On the other hand, the manufacturing and retails sectors have been opened up for foreign investors, which have already stirred up interest by large international brands.

“Over the last couple of years, we’ve seen Heineken opening up a brewery there, fashion retailer H & M [Hennes & Mauritz AB] indicated that they will open factories there and they’re in talks with Walmart,” added Tefasse.

Also, because the country has been a closed economy and has finally opened up its doors to the world, it has drawn a lot of attention by foreign investors.

“What is really good is that we’re seeing a lot of investor interest primarily because it’s been such a closed state. A lot of the industries are under developed which gives a lot of opportunity to new guys coming in to play in that market,” she said.

“At the same time there are about 90 million people in Ethiopia, making it the second most populous nation on the continent, a great customer base for clients. So all of this combined is getting investor attention.”