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NEWS & CURRENT AFFAIRS

The Nairobian

Barriers for Kenyan firms to invest in Ethiopia removed

Business

By - | Nov 23, 2012

By Fredrick Obura

NAIROBI; KENYA: Ethiopia has reviewed its foreign policy with the Kenya to include trade between the two economies.

Previously, the relationship focused on politics and security leaving out trade — which is a key component in economic development.

Visiting Ethiopian Prime Minister Hailemariam Desalegn on Thursday said his government had signed up a special status agreement with Kenya as commitment to ease trade between the two countries.

“Our relationship with Kenya was purely based on politics and security matters at the exclusion of trade, which is a key component of our economies,” Desalegn noted.

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“The reforms we are championing will address various bottlenecks to allow private sector easily invest in the two countries and improve on the bi-lateral trade,” he said, while calling on Kenyan government to also re-work its investment policies to encourage Ethiopian investors.

Ethiopia is looking to tap into hospitality, manufacturing, input, metal and engineering sectors to grow its economy, which has been on an upward growth of 11 per cent over the last nine years.

Last year, Kenya’s exports to Ethiopia stood at $56.4 million while imports from Ethiopia were worth $4.3 million. Kenya’s Foreign Minister Prof Sam Ongeri said the agreement is expected to see local institutions venture into Ethiopia.

“The agreement is critical because it facilitates Kenyan investors to access the over 130 million people within the two countries to grow their businesses,” Ongeri said.

“The special status agreement will provide a framework for engagement with bilateral investors particularly in the development of areas such as agri-processing, financial services, distributive trade, science technology and innovation, and the higher education,” Ongeri said.

State banks

However, even as they inked the deal, the Ethiopia Prime Minister let out what will keep some sections of the private sector waiting before planning any expansions in the region’s most populous nation.

Specifically, local banks seeking to expand to other countries in the region might have to wait a little longer before venturing into Ethiopia.

Ethiopia runs several State banks offering affordable credit against no collateral at all – necessarily making the business of lending unattractive to private banks.

According to Desalegn, this position is not about to change. “Africa has lagged behind in development by allowing private sector to dominate its financial services. They often restrict access to credit through unrealistic procedures,” he said.

“The policy of State banks offering loans at no collateral with borrowers only footing certain percentage of credit makes it difficult for private financial institutional to operate,” he acknowledged.