How Addis Ababa is trying to attract $ 150 billion in investment-June Afrique

Ethiopia, which is short of funds due to the war in Tigre, is opening its economy to foreign investors to boost growth. Will the new sovereign wealth fund seduce them?

Last February, the Ethiopian government launched Ethiopia Investment Holdings (EIH), a sovereign wealth fund. The fund aims to attract at least $ 150 billion of foreign direct investment foreigners (IDEs) through the sale of state-owned enterprises and assets. Despite the ongoing conflict in the northern part of the country, Prime Minister Abiy Ahmed intends to pursue his privatization program.

The fund manages assets in several sectors that have long been dominated by the state (telecommunications, mining, banking, logistics), explains Mamo Mihretu, managing director of the fund. Africa Report / Jeune Afrique..

> Read Africa Report – Will Ethiopia’s new sovereign wealth fund bring back investors?

“In order to fund our highly ambitious development program, the flow of investment in our country must increase significantly,” said Abiy Ahmed’s first economic adviser. Millets, who was responsible for trade negotiations, says. “EIH aims to be a business partner that allows investors who want to mitigate risk and maximize the potential of the African continent to turn around naturally »».

Less government, more private sector

Ethiopia long ago chose a state-led development model in which the government controlled major sectors of the economy and owned vast lands. A central element of the reform agenda since Abiy Ahmed came to power in 2018 has been the opening of the state-owned sector to private investment.

In the 2010s, Ethiopia was one of the fastest growing countries in the world.

“In the last few years, the government has been very clear about its purpose: to allow the private sector to participate in more economic life and open the economy to a more substantive flow of private capital,” said EIH. The general manager insists.

The EIH legal framework was decisively amended in February. Fund leaders now hope that two national flagships of the state economy, Ethiopia Telecom and Ethiopian Airlines, will someday enter their portfolio.

In the 2010s, Ethiopia was one of the fastest growing in the world, growing by about 10%. However, the economy was hit by the war in the Tigray region, emphasizing foreign currency shortages and boosting inflation. According to the World Bank, GDP growth in 2021 was only 2.4%.

In 2021, the telecommunications sector’s licensing business partially failed

Last year, Tigray People’s Liberation Front (TPLF) fighters tried to block the road connecting Addis Ababa and the port of Djibouti. Conflict fierceness and brutality-All fighters have been accused of human rights abuses such as slaughter, rape and torture, scaring investors. “I’m very worried about my business. I can’t find any foreign currency anymore,” says a businessman interested in the construction and hotel industries.

In May 2021, the long-awaited operation to award a new license in the telecommunications sector failed. The government could only sell one of the two proposed licenses for $ 850 million to a consortium led by Kenya’s leading operator Safaricom. The second sale was postponed after rejecting an offer that was considered too low.

Reconstruction costs

“When Abiy Ahmed took office as Prime Minister, one of his main goals was to move from a state-led growth model to a private-sector-dominated model,” said Patrick High, market specialist economist. Nish explains. ..

“This policy was interrupted by the Tigray War. Today, the government faces additional challenges as it has to bear the costs of post-war reconstruction. Ethiopia’s main focus has shifted. Full-scale privatization policies are no longer aimed at stimulating competition and establishing a private-sector-led economic model. Injecting cash into the economy is now a problem, “he said. continue.

Now that the battle between Tigray and the Amharic region is over, there is new hope for investors to return. The creation of the EIH Foundation is part of a global movement. Developing countries are trying to consolidate government assets into a single entity and improve management to attract foreign investors.

Young population, fast-growing middle class … there is great potential in this country

“These funds are very attractive to financial institutions looking to invest in risky economies because they provide government guarantees and act like trusted partners with sufficient knowledge in this area. “Victoria Burberry of the International Sovereign Forum explains. Wealth fund. They have become a common tool for guiding more FDI and developing private sector capital markets. »»

infinite possibilities

EIH Director Mamo Mihretu cites Indonesian, Malaysian and Turkish sovereign wealth funds as examples: “Ethiopia offers domestic and foreign investors endless opportunities for growth and investment. The government wants to support this movement. It is unique that we want to inform the best foreign partners and investors. It starts with introducing our strengths, “he explains.

With 110 million people and a vast untapped market, Ethiopia has long attracted investors. “There is great potential in this country,” confirms economist Patrick Hainish. With Africa’s second-largest population being young and the middle class fully expanding, investor interest is undeniable. Infrastructure and technology, growth and investment … there’s a lot to do! This fund can help it. »»