Why Ethiopia is the new frontier for strategic foreign investments

In 2019, Ethiopia implemented comprehensive macro-economic reforms aimed at building investor confidence, rebalancing growth and enhancing productivity.

Themed "A Homegrown Economic Reform Agenda: A Pathway to Posterity", the reforms continue to play a key role today in increasing and diversifying foreign investment inflow while accelerating the inward transfer and dissemination of knowledge, skill and technology.

Consequently, this has led to job creation, inclusive growth and poverty reduction, and created a clear path to prosperity.

As Africa's second most populous country after Nigeria, Ethiopia, has emerged as a major powerhouse in the Horn of Africa with its rapid economic growth. Its increasing strategic importance makes it one of the countries with the potential for significant economic prosperity.

Admittedly, a combination of favourable macroeconomic factors has positioned Ethiopia as an attractive trade and investment destination. One of its most competitive advantages is its population of over 112 million people with a median age of just 19 years.

This large and growing population presents significant opportunities for businesses, particularly in sectors such as consumer goods, healthcare and education.

Economic reforms

The government's implementation of a series of economic reforms designed to liberalise the economy, attract strategic foreign investment, and promote private sector growth makes for a solid foundation for Ethiopia's growth story.

These reforms include the privatisation of State-owned enterprises, the liberalisation of key sectors such as telecommunications and aviation, and the simplification of the business registration process.

Indeed, these economic reforms facilitated the entry of Safaricom into the Ethiopian telecom market. Safaricom Ethiopia has committed to invest over $8 billion (Sh1.09 trillion) in the country over the next decade, with a significant portion of this investment going towards building out its telecommunications infrastructure.

This will especially help to deepen Ethiopia's internet penetration, which lags at barely 15 per cent. Therefore, private sector growth in the country will help accelerate competition and innovation as well as create employment and help reduce the pressure on the government to create jobs.

For instance, Safaricom projects to hire over 10,000 employees in the coming years.

Furthermore, the reforms have also enabled a financial revolution. As Safaricom Ethiopia prepares to launch M-Pesa in the country this year, there is a high expectation to significantly grow financial inclusion, which currently stands at about 35 per cent.

Ultimately, this will help to improve access to financial services hence spur economic activity for millions of Ethiopians who currently lack access to traditional banking services.

Additionally, Ethiopia's location at the crossroads of Africa, with easy access to markets in the Middle East, Europe, and Asia positions it as a strategic trade market and an attractive destination for foreign investors.

This proposition has further been elevated by the government's support for infrastructure development, particularly in the areas of transportation, energy, and telecommunications. These investments have led to the construction of new roads, railways, airports and power plants, improving connectivity and reducing the cost of doing business.

Development pillars

Lastly, the abundant natural resources in Ethiopia including fertile land, minerals, and water resources support its key development pillars including agriculture and manufacturing.

The country is also home to Africa's second-largest hydropower plant, which provides a reliable source of electricity to support economic growth. Like any other developing nation on an upward trajectory, Ethiopia's investment and economic potential is not without challenges.

There are a few headwinds for investors to watch out for including foreign exchange shortages.

The country has struggled with foreign exchange shortages in recent years, which have led to constraints on imports and difficulties in repatriating profits for foreign investors. These shortages could limit the country's ability to import essential goods and services, as well as discourage foreign investments.

Also, while the Ethiopian government has taken steps to promote private sector growth, there are still challenges in access to financing and a tight regulatory environment.

However, these challenges highlight the need for ongoing reforms, and by addressing them, the country will continue to build a strong foundation for sustainable economic growth and development.

The writer is the chief financial officer at Safaricom