In a new move aimed at growing foreign exchange reserves which are dwindling fast, the Ethiopian government has decided to open import, export, wholesale, and retail trade sectors for foreigners.
Ethiopian Investment Board has issued a new directive permitting foreign investment in exporting crops like coffee, oilseeds, pulses, hides, and skins. The directive states that foreigners can now import all goods except fertilizer and petroleum. Wholesale and retail will also be opened to foreigners.
Last month, the real estate sector was also opened to foreign investors. Ethiopian Prime Minister Abiy Ahmed, who has sought to liberalize the country’s state-run economy since taking office in 2018, announced the policy shift last month. “We will introduce a law that will allow foreigners to own properties,” he said on state TV, but did not say when the proposed legislation would be brought to parliament.
The new directive by the Ethiopian Investment Board simply means that foreign businesses can now invest in the export sectors (exporting stuff like coffee, oilseeds, and animal hides etcs), bring goods into Ethiopia, and sell things in stores. These areas were previously exclusive to Ethiopian companies.
Ethiopian authorities are most immediately concerned about the country’s dwindling foreign exchange reserves and surging inflation. National Bank of Ethiopia data suggests the reserves can barely cover a month’s worth of imports, a dangerously low level that impacts many sectors of the economy from imports of crucial economic inputs like fertilizers for farmers to essential pharmaceutical products.
The shortage of hard cash fell so low last year that Ethiopia was unable to service its debt obligations. It defaulted on a loan from private international creditors for the first time in decades, dealing a severe blow to its hope of becoming more attractive to foreign investors.
The new moves by the Ethiopian government to attract foreign investors are aimed at increasing foreign exchange reserves.
Foreign investors will have to meet certain criteria to be eligible to invest in the newly opened sectors of the economy. Additionally, to invest in coffee export, they need to show an annual procurement history of $10 million and they will have to commit to $10 million in exports each year for the next three years. Whereas, the eligibility criteria for investment in oil seed export is $5 million.
Potential Impact on Ethiopian People and Market
These changes could have both positive and negative effects on Ethiopian people and the market.
Positive Impact:
Increased Foreign Investment: Opening up sectors to foreign investment could bring in more money from outside Ethiopia. This could lead to new businesses, more jobs, and better technology.
Modernization: With foreign companies coming in, there could be improvements in infrastructure and business practices. This might lead to better services and products for Ethiopian consumers.
Expanded Export Opportunities: Allowing foreign investment in key sectors could boost Ethiopia’s exports. This could mean more income for farmers and the country as a whole.
Negative Impact:
Competition for Local Businesses: Ethiopian businesses, especially small and medium-sized ones, might struggle to compete with big multinational companies. This could lead to some local businesses closing down or losing market share.
Income Inequality: If foreign companies dominate certain sectors, it could widen the gap between rich and poor in Ethiopia. Wealth might concentrate in the hands of a few big companies, leaving smaller businesses and individuals behind.
Loss of Control: Opening up sectors to foreign investment means less control over those industries by the Ethiopian government. This could lead to challenges in regulating these sectors and ensuring they benefit the Ethiopian economy and people.
Final Words
Overall, while these reforms could bring opportunities for economic growth and development, it’s important for the Ethiopian government to carefully manage the transition to ensure that the benefits are distributed equitably and that local businesses are not left behind. Moreover, the security situation in Ethiopia has been a matter of concern for foreign investors. Ongoing armed conflict in the Amhara region and instability in Oromia, the largest region, could obstruct the government’s efforts to attract foreign companies.
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