Ethiopia launches fund to attract billions of dollars in foreign investment

Ethiopia has more than 40 state-owned enterprises, including Africa’s largest carrier Ethiopian Airlines © Tiksa Negeri/Reuters

Ethiopia is seeking billions of dollars in foreign investment as it pushes through reforms aimed at opening up its state-run economy and spurring tangible growth.

Addis Ababa this month launched a fund, aimed at attracting investment in state-owned companies and assets worth at least $150 billion. Ethiopia is keen to regain its economic momentum after the country’s recession during the Covid-19 pandemic and civil war in the northern region of Tigray.

By allowing private investment to some extent, officials in Africa’s second most populous nation say the launch of Ethiopian Investment Holdings marks an important step away from the age-old development model led by investors. leadership, promoting national control over sectors such as banking, logistics, and telecommunications.

Mamo Mihretu, founding executive director of the fund, told the Financial Times: “The establishment of the EIH is a powerful demonstration that the government’s economic reform agenda for growth and resilience is on the right track. .

The Ethiopian economy has grown at near double digits for the best period in two decades. However, the IMF said in its latest forecast that it only expanded by 2% last year and that it had overlooked growth forecasts for 2022 “due to an unusually high degree of uncertainty”.

Ethiopia has planned a series of privatizations, including the sale of a stake in Ethio Telecom © Tiksa Negeri / Reuters

Ethiopia has historically followed a model of state-led development, partly financed by infrastructure investment from China and high levels of local savings. The EIH is the latest phase in a reform process aimed at encouraging private sector expansion in one of the region’s economic powerhouses, a country of 115 million people.

Under Abiy Ahmed, prime minister since 2018, Ethiopia has pledged to open up its economy and has planned a series of privatizations, including sell shares of Ethio Telecom. The government issued the country’s first telecom license last year, while Abiy this week pledged in parliament to open up the banking and financial sectors to foreign investors.

Mehrteab Leul, managing partner at MLA, Ethiopia MLA corporate attorney, said: “The Covid pandemic and the conflict in Tigray are settling down, so now the discussion here is how we can improve it. creating the Ethiopian economy. “Many years ago, the basic principle of the Ethiopian economy was a developed economy with the state playing a leading role. But now the thinking is that the private sector should have a big role to play.”

Ethiopia has joined two dozen other African countries in establishing a sovereign wealth fund. The first fund was the Pula Foundation of Botswana, established in 1994.

Ethiopia has more than 40 state-owned enterprises, including Africa’s largest airline Ethiopian Airlines; Ethiopia Commercial Bank, the country’s largest bank; and substantial federal land ownership. However, the level of interest from international investors remains unclear. Of the several companies that expressed interest in last year’s telecom auction, only two have submitted offers.

The aim of the EIH is to “make the most of” the value of state assets through professional management, Mamo said. “By optimizing the value of the range of assets the government owns, the EIH will be a boost to the Ethiopian economy.” Mamo, formerly Abiy’s senior economic adviser, sees EIH as a sovereign wealth fund developing strategically on similar lines to Singapore’s Temasek Holdings and Abu Dhabi’s Mubadala Investment.

Temasek was established in 1974 to manage government shares in telecommunications, aviation, manufacturing and shipping companies. The Turkish Wealth Fund, established in 2016, has government stakes in some of the country’s largest companies, including Turkish Airlines, Turk Telekom and three major banks.

Analysts describe these types of sovereign funds – not tied to commodities, as in Chile and Norway – as parent companies that help businesses develop best practices and determine governance status poor reason. They can also act as a foreign direct investment partner.

“Sovereign wealth funds in countries like Turkey, Morocco or Egypt, which do not have ‘excessive’ returns to the bank from commodities, are like that. . . a way for the state to hold a dominant position in the private sector and. . . help utilize state assets to increase investment. I think both apply in the case of Ethiopia,” said Charlie Robertson, chief global economist at Renaissance Capital.

He added: “This is Ethiopia’s attempt to find additional sources of investment through debt, which will support the country’s investment-driven growth model.

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