Ethiopia’s economic reform falters foreign investors

  • Prime Minister pledged to liberalize state economy
  • Reforms are part of campaign for next week’s election
  • Telecom license granted, other sectors opened
  • Red tape, forex crunch and war discourage investment

ADDIS ABABA, June 15 (Reuters) – When Ethiopia granted its first private telecommunications license last week, Prime Minister Abiy Ahmed hailed it as the crowning achievement of his plan to closely open Ethiopia’s economy controlled by more than 109 million inhabitants.

But for many foreign investors who celebrated him for the top job in 2018, hopes of breaking into one of the world’s last great untapped markets are fading, stifled by slow reforms and sclerotic bureaucracy.

On paper, Abiy can boast of having opened up Ethiopia’s healthcare, e-commerce and transport services sectors with a new investment law. It is a key part of his speech as Abiy faces his first national parliamentary elections on Monday – which he touted as the first free and fair polls in Ethiopia.

But foreign companies currently operating in Ethiopia are struggling to repatriate profits amid crippling currency shortages and inflation that consistently exceeds 20%.

The economy is set to grow by just 2% this year after consistently exceeding 10% before the pandemic.

Abiy heads the largest national party, one of the few that tries to appeal beyond a particular ethnic bloc. He pledged to continue the reform process during the award ceremony of the telecoms license to the winning consortium.

Mamo Mihretu, Abiy’s senior policy adviser, told Reuters the government would not be deterred and investors were still interested in Ethiopia.

“Despite the ongoing pandemic, the locust invasion and other challenges, the government is pushing forward with local economic reforms,” ​​he said.

Some of Ethiopia’s challenges are also national in origin.

A seven-month war in the northern Tigray region has shut down many businesses operating there, although other parts of the country remain unaffected.

The main roads are often closed by the military for weeks and fighting is frequent. Bangladeshi textile company DBL, which makes clothing for Swedish fashion giant H&M (HMb.ST), is closed after the abandoned factory was looted and fearful foreign staff refused to return.

Velocity Apparelz Companies – a supplier to H&M and Children’s Place (PLCE.O) – said its factory was occupied by Ethiopian and Eritrean government soldiers for months. He was also looted, said a Velocity official, who asked not to be named.

“I don’t see a business climate in Tigray at the moment,” the official said.

Authorities have targeted Ethiopian companies suspected of working with the Popular Front for the Liberation of Tigray, the region’s former ruling party, which is fighting the central government.

Gail Strickler, president of global business at consultancy firm Brookfield Associates, said some companies have frozen their bank accounts.

“I can’t imagine who would want to invest now,” Strickler, the former top US textile trade official, told Reuters.

Neither the Ethiopian attorney general, who has led the effort to track down companies that authorities accuse of being linked to the TPLF, nor the head of the Tigray Crisis Task Force responded to requests for comment.

The Foreign Ministry said last week that some factories in Tigray, including unnamed textile and cement factories, had resumed operations and exported products.


Red tape also undermines reforms.

“Bureaucracy is Ethiopia’s biggest enemy,” said Frans Van Schaik, president and CEO of Africa Asset Finance Company (AAFC), a New York-based equipment leasing company. The central bank granted AAC subsidiary Ethio Lease a financial services license in 2019, making it the first foreign company to obtain one.

Van Schaik said that when trying to register collateral on a new digital portal to access loans, he found that only nationally registered companies qualified.

He said attempts to form an Ethiopian company to serve as a collateral agent had come to naught. Van Schaik said he finally gave up.

Lelise Neme, commissioner of the Ethiopian Investment Commission, told Reuters that AAFC had “not yet made a formal application for an investment permit” and that the commission had put in place a method allowing investors to register grievances against an administrative decision.

“The new investment laws set clear rules and leave little or no room for arbitrary discretionary decisions on investment permit applications,” she wrote, saying there had been no active complaints on this issue.

The central bank governor did not respond to requests for comment on the registration of collateral.

Abiy’s reforms have allowed the Bolloré Group – a French logistics company – to enter a market previously dominated by Ethiopian state-owned companies.

But Bolloré Transport & Logistics Ethiopia has been waiting a year for a license to manage customs clearance.

“They applied for a customs clearance license. They are allowed to have the license. But we have not been able to grant them one,” said Brook Taye, senior advisor at the finance ministry, accusing the bureaucracy.

Bolloré declined to comment.

Some international companies have welcomed the opportunity offered by the reforms.

DHL Global Forwarding, the freight specialist of the Deutsche Post DHL Group, signed an agreement with Ethiopian Airlines in November to form a joint venture. In a statement at the time, the company praised the move to “liberalize key sectors of the booming economy.”


However, it is the telecommunications sector that best illustrates both the promises and limitations of Abiy’s program, according to some observers.

While the government opened up the sector to foreign investment, it maintained a strong grip on banking and insurance.

This excluded mobile network operators from a hugely lucrative and underdeveloped mobile money industry, handing it over to the state-owned telephone company instead.

Authorities have also refused to open up the sector to third-party tower companies, leaving private network operators dependent on the creaky infrastructure of Ethio Telecom.

Industry insiders say the measures have dampened demand for what were initially highly sought-after licenses. Ethiopia received two offers for the two proposed licenses and only awarded one.

The winning consortium made up of Kenyan Safaricom (SCOM.NR), Japanese Sumitomo (8053.T) and Britain’s Vodafone (VOD.L) contributed $ 850 million. An offer from the South African company MTN (MTNJ.J) was rejected because it was too low.

Announcing the award of the license, Abiy welcomed the total investment of over $ 8 billion, saying on Twitter: “… this will be the biggest FDI in Ethiopia to date. Our desire to transform Ethiopia as a digital whole is on track. “

However, an industry insider closely following the process said the government’s desire to hang on to the best bits of the market has undermined the process.

“The government has competing interests,” he said. “He has to balance them.”

Senior political adviser Mamo and the prime minister’s office did not immediately respond to requests for further comment.

Ethiopia launched a tender on Monday for the proposed divestiture of a 40% stake in the public carrier to private investors. Read more

Additional reporting by Maggie Fick in Nairobi, Joe Bavier in Johannesburg and Karin Strohecker in London; Editing by Joe Bavier and Alison Williams

Our standards: Thomson Reuters Trust Principles.

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