Volatility may make Ethiopia a tough sell for foreign investors

    Business Inquiry

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    Once a frontier market superstar, Ethiopia has seen its luster invested by conflict and the coronovirus epidemic.

    Ever since Ethiopia’s Prime Minister Abi Ahmad announced victory at the Tigray People’s Liberation Front (TPLF) in late November, Tigray’s airspace has opened up and business slowly started, despite ongoing tensions by the TPLF to continue fighting Happening.

    Abi also visited the embarked town of Meckley on 13 December, his first visit to the Tigray region since hostilities on 4 November.

    During his visit, Abi, dressed in military camouflage and a green berry, promised that work was underway to restore phone and Internet connectivity in the Northern Territory after services were cut. But Tigre’s Internet blackout remains, while phone calls are possible only in a dozen of the region’s towns.

    This is not a novel phenomenon. In 2019, there were eight Internet shutdowns in Ethiopia.

    The Swaths of the country’s Oromia region were without phone and internet services during the first few months of 2020, as the Ethiopian Army battled the Oromo Liberation Army (OLA) fighters stationed in the area.

    In late June of last year, mob violence followed the murder of superstar musician Hachu Hundesa, which led to hundreds of deaths and a nationwide internet shutdown that lasted 23 days and is estimated to cost Ethiopia’s economy at least $ 100. Will be the meter.

    It is easy for officials to flatten the Internet. Ethiopia’s state-run telecom company Ethio Telecom is the sole telecom provider for the country.

    In 2018, when Abi took office, the government announced that it would open a state-monopoly to private foreign investors – one of several high-profile privatization schemes announced that year.

    The attraction for foreign investors was undeniable. Ethiopia’s economy is the most closed in Africa and it boasts the second largest population on the continent with 110 million people.

    In 2018, when Abi Ahmed became Prime Minister, the Ethiopian government announced that it would open monopolized Ethio Telecom to private foreign investors. [File: Tiksa Negeri/Reuters]

    But the enthusiasm with which it was first announced is likely to be tempered by the government’s habit of shutting down Internet and phone services whenever instability hits its head.

    A Frontier Market Superstar

    Despite a history feared by recurring wars and famines, Ethiopia began to change a page in the past decade. A leading market superstar, according to the World Bank, achieved an average of 10 percent growth in a year from 2008–09 to 2018–19.

    Much of that growth was fueled by construction and services. The infrastructure boom included condominium housing projects, industrial parks, skyscrapers and Addis Ababa’s light rail system inaugurated in 2015.

    Income spending skyrocketed in countries struggling to cope with the coronovirus pandemic, where income averaged $ 855 per person, but most Ethiopians had to contend with it, but the change encouraged enthusiasm, nevertheless.

    People walk in a street in Addis Ababa, Ethiopia in November [File: Maheder Haileselassie/Reuters]

    The future looked even brighter when Abi became Prime Minister in 2018. Hopes said his political ascent would highlight two years of political unrest and the anti-government uprising that sold his predecessor, Helmeria Deslegan.

    Frustrated by years of state repression, protesters had called for change. During 2016, heavy government violence often ended with the shooting and killing of unarmed youth by security forces. During this period, a group of foreign-owned businesses were attacked and set on fire by protesters who felt that these companies had done little to serve their communities.

    The announcement of plans to free Abi’s thousands of political prisoners and liberalize the economy was revealed for the future of the Herald’s rising standard of living, and for foreign investors, a chance to see what looked like a promising growth story.

    Meanwhile, Ethiopia’s unrest did not calm down when Abi took office. According to the International Displacement Monitoring Center, in 2018, some 1.4 million Ethiopians were displaced by ethnic violence and land disputes – the highest number in any country. And about five months after Abi became Prime Minister, 23 people were killed in communal clashes in Addis Ababa suburb.

    After strengthening a peace deal with neighboring Eritrea in 2018, Abi’s international credibility received a strong boost, for Ethiopia to end two decades of conflict and potentially reach Eritrea’s trade-boosting ports Paved the way for land.

    In 2019, Abi was awarded the Nobel Peace Prize.

    Now, the conflict in Tigray has badly tarnished those reformist credentials.

    Prime Minister Abi Ahmad Ali was awarded the Nobel Peace Prize in 2019 [File: NTB Scanpix/Stian Lysberg Solum via Reuters]

    ‘Divergent landscape’

    Recently an Ethiopian government official on TV operated by the state government said that more than two million people have been displaced by the conflict in Tigray.

    Fighting continues in conflict-prone areas. Last month, the United Nations raised alarm over “major violations” of international law at two refugee camps in the Northern Tigray. The hunger crisis looms.

    Multinational corporations have pulled out their employees and laid off work.

    The Chinese state-run Guncha news outlet reported that on 13 November the welded sugar factory, whose construction was funded by a $ 500 million Chinese government loan in 2014, was damaged in an airstrike during the Tigray conflict. The Chinese government expelled more than 600 of its citizens, including 187 of the factory workers.

    Bangladesh’s textile manufacturer DBL Group recently fired more than a hundred foreign staff members from Ethiopia when the company’s factory in Tigray exploded in November. Its facilities there remain to be reopened.

    Are they at risk of reconsideration by foreign firms. Some big-name multinationals such as British retailer Diageo, Chinese apparel manufacturer Wuxi Jinmao, and German automobile manufacturer Volkswagen, which fueled the large and young population of Ethiopia, through Ethiopia’s chronic power outages, slow internet speeds and bureaucratic difficulties Course has stopped. The country has slid down the ranking of ease of doing business global index in recent years. Dutch juice and fruit processing company Africa Juice set up its project site in rural Ethiopia in 2016 by protesters, and the company pushed through with operations.

    We lost everything in a single day.

    Birhanu Woldemeskel, Ethiopian diaspora, small investor

    But Tigre could signal a rethink, observers say, especially if the conflict is halted.

    “The recent war in Tigre depends on how things change in the following weeks and months,” says Beenam Bedso, a researcher at the Collaborative Africa Budget Reform Initiative in Pretoria, South Africa. “If the uncertainty surrounding the conflict persists without some sort of resolution, business confidence, especially FDI [foreign direct investment] There can be a lot of trouble. Investors do nothing more than uncertainty. “

    For mom-and-pop investors younger than the Ethiopian diaspora, the risks may prove too high.

    “I would not ask anyone not to invest in Ethiopia, but everyone should be aware of the risks associated with it,” Birhanu Woldeskel, a member of the Ethiopian diaspora in Canada, told Al Jazeera.

    Woldemskell says he spent money he saved from working as a taxi driver, for the revitalization of the family business, a cafe that his uncle managed in the town of Shemsin.

    In July, rioters set it up and destroyed hundreds of other homes and businesses, killing the owners of the business and were identical in one of the country’s worst encounters experienced in 2020.

    “Outside Addis Ababa, there is no safety or security,” he said. “It took years to establish a family business. We lost everything in a single day. “

    In November, the World Food Program provided food and cash assistance to nearly two million Ethiopians [File: Mohamed Nureldin Abdallah/Reuters]

    Other challenges

    In what could be two years of worsening instability in Ethiopia’s economy, the epidemic has exacerbated it. Losses in tourism and other sectors continue to recover. The worst locust swamp in a generation is already rife with food insecurity conflicts and epidemics. The International Monetary Fund estimated in October that the country’s economy would grow to zero this year. In November, the World Food Program provided food and cash assistance to nearly two million Ethiopians.

    In December, the Prime Minister’s Office announced the formation of an independent economic council made up of 16 individuals, who would serve as advisors and share their insights on economic matters with the government.

    “Economic technocrats in Addis Ababa are betting on fast-paying reforms to compensate for potential losses from political uncertainty,” Bedasso explains. “However, it should be noted that liberalization measures undertaken by the government are less likely to move the needle on investor confidence than a strong, stable state.”

    Earlier this week, the Reuters news agency reported that the Ethiopian government extended the deadline until April to bid for the auction of telecom licenses and sold a 45 percent stake in Ethio Telecom.

    “The privatization of Ethio Telecom to foreign firms is unlikely to contribute to the tendency of the Internet to shut down as the government wishes,” Eyal Galen, an economist at the Kuwait Institute for Scientific Research, told Al Jazeera. “Current Recession [in interest] Those firms are associated with unfavorable findings, apart from the fact that state enterprises are affected by debt. “

    Whether Tigray’s internet and mobile phone service will be restored in time for auction is an open question.


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