Ethiopia is the oldest independent country in Africa with a population of 110 million people, second most populous country after Nigeria.
The country has registered a consecutive double-digit economic growth for a decade and a half. Public investment, particularly in construction of infrastructures, has been the principal driver of Ethiopia’s recent economic growth, which helped the country to achieve concrete results in socio-economic development spheres of the nation.
Ethiopia has been attracting high amount of Foreign Direct Investment (FDI) in recent years. According to the recent World Bank Report, Ethiopia tops East Africa in attracting FDI, with almost half of the inflows to the East African region. The existing suitable development policies, the government’s special attention to the sector, competitive and trainable labor force are among the major factors that enabled the country to become successful in attracting FDI. As one of the largest recipients of FDI in Africa, Ethiopia has attracted several global brands highlighting competitive investment opportunities.
There is still a wide potential to intake the flow of FDI. In this regard, the government has taken serious measures in liberalizing the economy, removing structural or regulatory constraints for development. The “Home-grown Economic Reform Agenda” launched in September 2019, aimed at unlocking the country’s development potentials, further advances past gains and takes improvements where there were gaps in the country‘s development endeavours. This new initiative endeavours to attract private investment in the sectors of agriculture, manufacturing, mining, tourism, and Information and Communication Technology- (ICT).
Strategic Sectors for Foreign Investment in Ethiopia
The strategic sectors for investment, as identified by the government, are agriculture, textile and apparel, leather and leather products, pharmaceuticals, agro-processing, ICT, power, mining, and tourism.
Ethiopia‘s natural and various riches such as vast arable land, favorable climate, diverse agro-ecological zones that make it possible to grow almost everything, cheapest electricity per kilo wat hours, and trained and affordable human power combine to make it an incredible hub for investment. The country has 74.3 million hectares of arable land,
and over 3-million-hectares of land has been made available for investment. Ethiopia offers one of the largest and most diverse agricultural investment opportunities in the continent.
In the path to industrialize Ethiopia, textile and garment industry are given prominent position in boosting export and creating job opportunities. The recent surge in Ethiopia’s textile and apparel production and export to the global markets shows that the country has the potential to become one of the leading textile and Apparel hubs of Africa, with the bold vision of transforming the country into compelling new apparel sourcing hub for brand, retails and their suppliers.
Leather and leather products sector is also one of the leading manufacturing sectors in Ethiopia. Currently, more than 75 domestic and foreign leather and leather products factories have invested in Ethiopia. The key reason for investing in this sector is that Ethiopia has a cattle population of more than 53 million heads, and a sheep and a goat population of 25.5 and 24.1 million heads, respectively. This makes Ethiopia the 1st in Africa and the 9th in the world in terms of its cattle population which enable the country to have a strong raw material base. Only 50% of hides and skins potential is being utilized currently. As a result, Ethiopia has a potential for price competitiveness and quality supply of skins and hides.
In agro-processing sector, investment opportunities include processing of meat and meat products, fish and fish products, fruits and vegetables, manufacturing of edible oil, processing of milk and/manufacturing of dairy products, baby food, animal feed, macaroni and pasta, alcohol and soft drinks, etc.
Energy is a key sector of attraction for FDI.
The national policy sees Ethiopia as a power supply hub for the East African region through the East African Power Pool. Investment in on-grid power generation is open to the private sector, mainly targeting foreign direct investment. Same the reasons for investing in this sector are the rapidly growing electricity demand at 19% annually, availability of more than 80 GW of exploitable renewable energy reserves, and low electricity access especially in the rural parts of the country and the region as well.
Investing in the tourism sector is also one of the areas given priority and special attention to. Ethiopia offers a variety of tourist attractions ranging from Natural, Cultural, Historical, Mystical, Athletics, to MICE (meetings, incentives, conferences, and exhibitions). The country, as a Land of Origins, commands a large and untapped potential for the tourism and hospitality sectors. The potential for interested investors to tap into the construction of star rated hotels and lodges around the destinations will offer a wide opportunity as the tourism infrastructure has huge room to grow.
In sum, the sectorial varieties coupled with potential for backward and forward linkages,
key geographic location, and duty-free access to the EU and U.S. markets through the Everything But Arms (EBA) and African Growth and Opportunity Act (AGOA) respectively,
put Ethiopia as an attractive place for FDI.
The Government of Ethiopia, with the vision of making Ethiopia a leading manufacturing hub in Africa, placed a high focus on industrial parks development and expansion.
The government has so far constructed and operationalized over 20 state-of-the-art industrial parks which are located along key development corridors – each with a distinct specialty in a priority sector (Textile & Apparel, Leather & Leather Products, Pharmaceutical, Agro-Processing, and Mixed). Industrial parks allow the investors to get all the necessary services easily at a single place.
Industrial parks are both government and private owned. Facilities in industrial parks include One-Stop Service, dedicated power sub-station, waste treatment facilities, commercial buildings and housing facilities, health stations, fire brigade, and 24/7 security service.
Competitive Incentive Packages
Ethiopia offers a comprehensive set of incentives for the priority sectors. These include:
- Customs duty free privilege on capital goods and construction materials, and on spare parts whose value is not greater than 15% of the imported capital goods’ total value.
- Investors have the right to redeem a refund of customs duty paid on inputs (raw materials and components) when buying capital goods or construction materials from local manufacturing industries.
- Income tax exemption of up to 6 years for manufacturing and agro-processing, and up to 9 years for agricultural investment.
- Additional 2-4 years income tax exemption for exporting investors located within industrial parks and 10-15 years exemption for industrial park developers.
- Loss Carry forward for half of the tax holiday period. Several export incentives, including Duty Draw-Back, Voucher, Bonded Factory, and Manufacturing Warehouse, and Export Credit Guarantee schemes.