Ethiopia has rightfully established a reputation as one of the most stable countries in the Horn of Africa with a record of economic progress to match. It has grown at around 10% for the last decade on the back of strong exports of coffee, livestock and cut flowers, and the IMF now talks of Ethiopia as Africa’s fastest-growing economy.
By James Jeffrey>/strong
When the military dictatorship was overthrown in 1991, it bequeathed an economy in ruins. Since then, the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) has charted a course that has taken the country back to economic contention.
Foreign direct investment (FDI) has responded, increasing significantly over the last decade. Annual inflow has risen from about US$200m in 2005 to US$2,2bn in 2015, now equating to 3,6% of Ethiopia’s GDP. This compares well with China, which had FDI levels of 3,9% of GDP between 1991 and 2000, according to the World Bank.
“The trend over the last eight years has been very encouraging, both in terms of the diversity of sources and the sectors into which they’re investing,” says Zemedeneh Negatu, managing partner of EY (formerly Ernst & Young) in the Ethiopian capital, Addis Ababa. “FDI used to come mainly from emerging markets, such as Turkey, China and India, but now it is also coming from the likes of the US and Europe – the kinds of investors with very advanced knowledge and good corporate governance.”
US investment alone between 2013 and 2015 totalled US$4bn, Zemedeneh highlights. Then there are the likes of KKR, one of the world’s best known private equity groups, which in 2014 invested US$200m in Africa’s largest flower exporting company; international investment firm Black Rhino Group, which is helping to build a US$1,5bn pipeline between Ethiopia and Djibouti; Coca-Cola, which is investing in a US$250m expansion of its 50-year-old presence in Ethiopia; and Unilever, the world’s second-biggest consumer-products maker, which is planning to open a manufacturing plant in Ethiopia soon.
The number of private equity firms currently investing in Ethiopia is estimated at more than 22 – far higher than the two to three that were around five years ago.
But beyond successful incentives and handshakes attracting and impressing outside investors, methods of political governance in Ethiopia have caused tensions to simmer beneath the surface – and some of these are now opening up visible fissures.
Very firm hand on the tiller
That decade-long economic surge and establishment by the Ethiopian government of a record for economic competence has been accompanied by criticism from within and without of an authoritarian style of leadership intolerant of any form of dissent.
“Uncontested authority is what the ruling party see as inherently essential to its developmental politics,” says a recent editorial in Addis Ababa-based Fortune newspaper. “With this comes the inclination to dominance, monopoly and suppression.”
There have been occasional flash points – such as in 2005 after an election, and in 2014 for similar reasons to now – but overall Ethiopia has remained an oasis of stability in the particularly volatile Horn of Africa, helping it catch the eye of foreign investors.
Since late November 2015, however, the Ethiopian state has faced the most serious domestic political crisis in a decade: protests by the Oromo, Ethiopia’s largest ethnic group, accounting for about a third of the country’s 95m population. Foreign investors including Dangote Cement had property damaged during the upheaval.
Initially protests began over the plan to expand the Ethiopian capital’s city limits into the Oromo’s homeland, Oromia – the largest of the federal republic’s nine regional states and two city states – which encircles Addis Ababa.
Land in Ethiopia – all of which is government owned – has become an increasingly contentious issue as the country has opened up to the world, reflecting a worldwide trend.
Globally, investors are increasingly looking to an investment option not linked to volatile equities and bonds: other countries’ land. And few have attracted as much attention as Ethiopia, with its lowlands, watered by the tributaries of the Blue Nile, offering a particularly bountiful draw.
An investment drive since around 2009 has seen the Ethiopian government lease about 2,5m hectares to more than 50 foreign investors, including the likes of India, China and Saudi Arabia. Even more land than that is now in the offing.
The Oromo – many of whom are smallholder farmers – saw the so-called Addis Ababa Integrated Development Master Plan as fitting a disturbing trend, and they were not having any more of it.
But even after the master plan was shelved, a move described as historic by some observers, protests continued.
Observers in Ethiopia note that although protests have taken an ethnic-based identity and initially focused on land, other deeper issues behind them – corruption, political and socioeconomic marginalisation – are familiar to many disenchanted Ethiopian voters.
“A fundamental tenet of the ruling party at its creation was its social democratic focus on farmers, who still make up 80% of the country,” says Daniel Berhane, a prominent Addis Ababa-based political blogger. “It cannot suddenly become entirely capitalist in its approach.”
Protests coincided with Ethiopia experiencing its worst drought in decades, furthering stretching the government.
It has, however, received far more praise for its handling of the drought – even if some argue it wavered too long before declaring it needed international assistance. An effective food security safety net developed since the disastrous drought of 1984 was employed and more than US$350m of government funds were used to tackle the aftermath.
However, there has been withering criticism of the government’s response to protests, focusing on incompetent handling and alleged police brutality.
The government has since acknowledged there was insufficient consultation with those likely to be affected by the master plan, as well as apologising to those who lost family members during protests. Whether the government now addresses people’s broader concerns around land and governance could determine the confidence of foreign companies that the country is stable, the government is responsive, and any planned investment in Ethiopia will not be affected by violence.
“The other important contribution of FDI in Ethiopia is the role it plays in the transfer of modern management practices,” says a source with the British embassy in Addis Ababa dealing with investment.
“Private local companies have started adopting accounting and audit transparency and other modern management practices by emulating foreign companies operating here.”
Fault line of modernity
What is happening in Ethiopia could be a foretaste of what is to come elsewhere, as global market forces – including a growing population in more developed nations that eats more than it farms – clash with indigenous desires to protect historical homelands.
“The ruling government is a victim of its own success,” says a security analyst who focuses on Ethiopia for an Africa-based research organisation. “The constitution it developed made promises and people trusted the EPRDF; now people are demanding those rights.” The analyst says the government deserves credit for creating a constitution that is the best fit for an ethnically diverse country like Ethiopia, expanding basic services, creating infrastructure, respecting different cultural and ethnic identities, and better integrating Ethiopia’s large Muslim population.
But, the analyst notes, that federal constitution espouses a liberal philosophy that the government appears unable to reconcile with its decision-making processes.
The government’s hitherto successful job of holding together this particularly heterogeneous federation is not about to crumble, observers note. And the economic resurgence is not likely to stumble anytime soon either.
Ethiopia is on track for around US$2bn of FDI in 2016.
Meanwhile, the government is continuing to push for creating industrial parks and agro-processing centres in at least seven major urban areas.
“The important task now is to win investors over to get into the industrial parks,” Prime Minister Hailemariam Desalegn announced during his latest six-month performance report to Parliament in March.
For the time being, it appears foreign investors are still all ears, remaining very much open to the possibilities.
“I talk to a lot of investors and there’s been no indication that investors are put off by what’s been happening recently in Ethiopia,” Zemedeneh says.
“That is not to belittle these events, but investors are in for the long term, they’ve experience of investing in emerging economies.” — africanbusinessmagazine.com.<