Ethiopia

Opportunity – double digit growth

Aid campaigns during the 1980s have left Ethiopia with a stigma of poverty and underdevelopment. Close observers know it instead for one of the most astonishing transformations in recent history. Even though it lacks the hydrocarbon exports that boost other African countries’ growth rates, Ethiopia has posted double digit growth figures for more than a decade.

Producing more than 99% of its electricity from green energy sources, the country is also setting records by building Africa’s largest hydroelectric power plant at 6,000MW. Being the type of project that will transform an entire region it falls in line with plans for similarly large scale projects elsewhere in Africa, with the difference that construction is actually rapidly advancing. Perhaps most remarkably the country has also devised a plan to finance the USD 4.8bn project all on its own.

Risks to consider

The main reason that Ethiopia remains one of the better kept secrets among foreign investors is that it continues to present a relatively complex investment environment.

Risks that investors should consider however include:

  • Ethnic tensions
    Although Ethiopia appears politically stable, its complex model of ethnic federalism can be difficult to understand and hides often fragile inter-ethnic relations.
  • Security environment
    Ethnic tensions not only affect political relations but also give rise to regional insurgencies, creating what can be a highly complex security environment with huge regional differences.
  • Business environment
    Foreign investors also need to content with an occasionally opaque regulatory system, political interference and burdensome regulatory and licensing requirements.
  • Reputation – human rights
    Ethiopia’s poor human rights record and the government’s repressive stance towards its critics pose reputational risks for foreign investors.

Some of these challenges are reflective of Ethiopia’s strategy to emulate China in its development path. Just like its Asian role model, the country will have to continuously confront questions about how to best to balance stability with political freedoms and state control with an attractive investment environment.

While success is everything but certain, a remarkable determinism to succeed coupled with a highly favourable geographical position with short links to major export markets in Europe and Asia and a huge demographic dividend will continue to give it an edge over some of its African competitors.

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