Ethiopia’s economic reform drive splutters for foreign investors

A man walks past a billboard for the election campaign with Ethiopian Prime Minister Abiy Ahmed in Addis Ababa, Ethiopia on June 14, 2021. REUTERS / Tiksa Negeri / File Photo

When Ethiopia issued its first private telecommunications license last week, Prime Minister Abiy Ahmed hailed it as the culmination of his plan to open up Ethiopia’s tightly controlled economy of over 109 million people.

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

On paper, Abiy can boast of opening up Ethiopia’s health, e-commerce and transportation services sectors through a new investment law. It’s an important part of his pitch as Abiy faces his first national parliamentary election on Monday – which he has called Ethiopia’s first free and fair election.

But foreign companies now operating in Ethiopia are struggling to repatriate their profits amid a crippling foreign exchange crisis and inflation that is consistently above 20%.

The economy is well on its way to growing only 2% this year after being consistently above 10% before the pandemic.

Abiy heads the largest national party, one of the few that seeks to resonate beyond a particular ethnic bloc. He promised to continue the reform process while the telecommunications license was being awarded to the victorious consortium.

Mamo Mihretu, Abiy’s senior policy advisor, told Reuters that the government would not be deterred and that investors remained interested in Ethiopia.

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

Some of Ethiopia’s challenges are homemade too.

A seven-month war in the northern region of Tigray paralyzed many companies operating there, but other parts of the country remain untouched.

Main roads are often closed by the military for weeks and there is frequent fighting. Bangladeshi textile company DBL, which sells clothes for the Swedish fashion giant H&M. manufactures (HMb.ST), will be closed after the abandoned factory was ransacked and frightened foreign workers refused to return.

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

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

Authorities have targeted Ethiopian companies suspected of collaborating with the Tigray People’s Liberation Front, the region’s former ruling party fighting the central government.

Gail Strickler, president of global trade at consulting firm Brookfield Associates, said some companies have frozen bank accounts.

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

Neither the Ethiopian Attorney General, who led efforts to track down companies alleged to be associated with the TPLF, nor the head of the Tigray Crisis Task Force responded to requests for comment.

The State Department announced last week that some factories in Tigray, including unnamed textile and cement factories, have resumed operations and exports of products.

“Biggest enemy”

The bureaucracy is also undermining the reforms.

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

Van Schaik said when he tried to register collateral on a new digital portal for access to credit, he found that only domestically registered companies were qualified.

He said attempts to set up an Ethiopian company to act as a collateral agent have failed. Van Schaik said he finally gave up.

Lelise Neme, commissioner for the Ethiopian Investment Commission, told Reuters that the AAFC “has not yet made a formal application for an investment permit” and that the commission has put in place a method for investors to report complaints about an administrative decision.

“The new investment laws set clear rules and leave little or no leeway for arbitrary discretion in applications for investment permits,” she wrote, saying there have been no active complaints on the issue.

The central bank governor did not respond to requests for comments on collateral registration.

Abiy’s reforms enabled Groupe Bollore – a French logistics company – to enter a market previously dominated by Ethiopian state-owned companies.

But Bollore Transport & Logistics Ethiopia has been waiting for a license for customs clearance for a year.

“They asked for a customs clearance license. They are allowed to have the license. But we couldn’t give them one,” said Brook Taye, a senior advisor at the Treasury Department, accusing the bureaucracy.

Bollore 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 in November with the state-owned Ethiopian Airlines to set up a joint venture. In a statement made at the time, the company welcomed the move to “liberalize key sectors of the booming economy”.

TELECOMS OPEN, BANKS CLOSED

However, it is the telecommunications sector that best illustrates both the promise and the limits of Abiy’s agenda, say some observers.

While the government opened the sector to foreign investment, it kept banks and insurance under control.

This has excluded mobile network operators from an extremely lucrative and undeveloped mobile money sector and instead handed it over to the state-owned telecommunications company.

Authorities also refused to open the sector to third party tower companies, leaving private network operators dependent on Ethio Telecom’s creaky infrastructure.

Industry insiders say these moves have dampened demand for what were originally much sought-after licenses. Ethiopia received two bids for the two licenses offered and only issued one.

The winning consortium consisting of Kenya’s Safaricom (SCOM.NR), Japan’s Sumitomo (8053.T) and Britain’s Vodafone (VOD.L) Paid $ 850 million. An offer from MTN. from South Africa (MTNJ.J) was rejected as too low.

At the licensing announcement, Abiy welcomed the total investment of more than $ 8 billion and said on Twitter: “… this will be the largest single investment in Ethiopia to date. Our desire to make Ethiopia fully digital is on the right track . “

However, an industry insider who was closely following the process said the government’s desire to hold onto the choicest parts of the market had undermined the process.

“The government has competing interests,” he said. “It has to make up for this.”

Senior Policy Advisor Mamo and the Prime Minister’s Office did not immediately respond to requests for further comment.

On Monday, Ethiopia launched a tendering process for the planned sale of a 40% stake in the state airline to private investors. Continue reading

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