Nedbank and the NEPAD Business Foundation held the first quarterly networking event for the year on Tuesday, 18 March 2014 in Sandton. The event, which was themed ‘The Ethiopian Investment Forum’, intended to encourage South African private sector to invest in Ethiopia. Mr Fitsum Arega the Director General of the Ethiopian Investment Agency gave the keynote address and together with the Ethiopian Ambassador to South Africa, His Excellency Mulugeta Kelil Beshir shared valuable insight into the mechanisms available for successful business ventures in Ethiopia.
Ethiopia a quintessential stable Africa investment destination
Ethiopia was the only country that successfully resisted the European colonialism of Africa in the 19th century, the Ethiopians have proven to be a resilient people in the face of adversity and this trait has survived to this day. During the height of the global economic downturn between 2008 and 2011, the Ethiopian economy was one of the few to match China by reaching a double-digit annual growth rate of 11%. This economic growth stemmed from the government’s commitment to poverty reduction through the implementation strong economic policies that support business development in Ethiopia.
Ethiopia has a population of over 95 million, with a 49% current labour force plus a 44% child population, which will feed into the labour force over the next 20 years. With such population figures, Ethiopia has been able to reduce unemployment to below 18% over the last 10 years and hopes to reduce the rate further down by 2024 to less than 10%. This success is has been achieved through the lowering of the minimum wage in order to encourage labour intensive businesses to operate in the country. Currently, the cost of labour in China and other parts of Asia has begun to slowly but steadily rise, this shift in prices of labour is slowly cutting the profit margins that production businesses, which relocated to the region between the 1960s to the 2000s, have been enjoying. As such, new locations for textile industries are opening up in countries with much cheaper labour costs, and Ethiopia is setting itself to compete with Asian countries on this front.
Major incentives have been provided to foreign investors in selected sectors and one of the most exciting incentive has been the regulation allowing full repatriation of profits and dividends. The government has also allowed the repatriation of principal and interest payments on external loans out of the country in convertible currency. Other regulatory incentives have been the guarantees against expropriation and the signing of bilateral Investment Promotion and Protection treaties with 30 countries coupled with the Double Taxation Avoidance treaties signed with 18 African countries. Ethiopia has gone further to provide huge fiscal incentives by exemption the payment of income tax for a period between two to nine years without discriminating domestic and foreign investors. There is also duty and tax benefits supported by regulation through the exemption of up to 15% on imported capital goods and the allowance to carry losses forward for half of the income tax exemption period.
The Ethiopian economy of USD$118.2 billion is now growing at 8% per annum with projections into the next 3 years holding that average. The availability of labour and its cost is among the chief competencies of Ethiopia. The last survey on labour supply divided according to sectors showed the following statistics: Agriculture employed 47% of the labour force, Services employed 42.2% and Industry employed 10.8%. These figures support the government’s agenda to promote labour intensive industries and reduce the unemployment rate of the nation.
To encourage foreign participation, the government has also created the Land Bank system. This is a government programme that distributes land to foreigners on a tenure basis and gives ownership of agricultural land to Ethiopians. The Land Bank has set aside large pieces of land to lease to foreign investors for agriculture use or developing for businesses purposes. This system has also allowed small-scale Ethiopian farmers to access microfinance to mechanise farming and increase production. The Land Bank system was designed for promoting infrastructure development through DFIs without tying investors’ profits in Ethiopia.
Though the countries bordering Ethiopia have suffered political and civil unrest for the past few decades, Ethiopia has consistently maintained a stable business and social environment. With countries such as Somalia starting to enjoy relative peace, the region is poised to adopt a very aggressive pro-business agenda in order ramp up infrastructure development. Ethiopia has a huge potential to sustain a high return on foreign investment and the government is opening its doors to Africa and the rest of the world.
Click?here?to access the presentation by Mr Fitsum Arega, the Director General of the Ethiopian Investment Agency
Outward Trade Mission to Ethiopia in May 2014
The NEPAD Business Foundation in corporation with the Ethiopian Embassy in South Africa, The Ethiopian Investment Agency and the Ethiopian Chamber of Commerce are planning a trade mission to Ethiopia in the month of May 2014. We invite South African businesses with an interest in Ethiopian to join the delegation.