Foreign investment in Ethiopia slumps after business attacks

Addis Ababa - Foreign direct investment in Ethiopia dropped by a fifth in the first half of the country’s fiscal year after violent anti-government protests in which foreign-owned businesses were targeted.

The country attracted $1.2bn in the six months through the end of December, compared with $1.5bn in the same period a year earlier, Fitsum Arega, commissioner of the Ethiopian Investment Commission, said in a phone interview on Monday from the capital, Addis Ababa.

He said the government may miss its annual target of $3.5bn, with $3.2bn more likely to be attainable.

The government of Ethiopia declared a state of emergency in October to deal with unrest accompanying protests by ethnic Oromo and Amhara communities that began in late 2015 over the alleged dispossession of their land, political marginalization and state repression.

Businesses including those owned by Nigerian billionaire Aliko Dangote and Dutch fruit processors were attacked during the unrest. The security forces killed at least 600 demonstrators, according to the Association for Human Rights in Ethiopia.

Ethiopia, one of Africa’s fastest-growing economies, is expected to expand 7.5% this year, compared with an average of 9.1% over the past five years, according to the International Monetary Fund.

Opponents of the government argue that Ethiopia’s economic gains haven’t been matched by increased political freedoms since the ruling party cracked down on the opposition in 2005, after losses in that year’s elections.

Damage claims

The government is paying out damages to foreign and domestic companies deemed affected by the unrest, with 100 million birr ($4.4m) already disbursed and 'more in progress," Fitsum said. Claims were received from at least 20 domestic companies.

At least two foreign businesses were successful in making claims from insurance companies, while the government is also providing tax relief to operations that sustained damages during the violence, he said.

While no foreign investors cancelled planned projects, they have taken a "wait-and-see attitude" to the country, Fitsum said.

"We already have big investors in the pipeline," Fitsum said. "There are also big textile-manufacturing companies we can expect to have in the coming six months," he said, referring to Ethiopia’s Hawasa Industrial Park that opened in July and which the government says is the largest in Africa.

Companies investing in Hawasa Industrial Park are from countries including China, India, Belgium, Spain, France, Hong Kong, Sri Lanka and Indonesia, Fitsum said.

Total foreign direct investment in Ethiopia in the 2015 to 2016 fiscal year was $2.2bn, according to an EIC statement published on the website of FANA, the ruling-party affiliated broadcaster.

Yields on Ethiopia’s $1bn of Eurobonds due 2024 hit a record 9.66% at the peak of the unrest in January last year, and have since recovered to 7.35%, according to data compiled by Bloomberg.

The notes have returned 5% this year, compared with an average 2.5% for the Bloomberg USD Emerging Market Sovereign Bond Index.