Ethiopia was ranked as the most rewarding African country for establishing foreign businesses in the 2023 “Africa Risk-Reward Index” report by Oxford Economics Africa last week. The ranking was based on three key factors: firstly, an examination of the profits and pitfalls of polarization in African countries; secondly, African-led security interventions; and thirdly, how African countries are financing for the future.
These factors were analyzed to deduce the countries with the highest risk-to-reward ratio for establishing foreign businesses. Across all three criteria, Ethiopia outperformed its African counterparts, achieving a reward score of 6.58 out of 10. This surpassed all other top ten countries, none of which reached the 6-point mark. Ethiopia’s risk score however remained relatively high, although it showed an encouraging decrease from that of 2022.
Balancing the Profits and Pitfalls of Polarization
The positive assessment of Ethiopia’s performance in addressing the challenges posed by internal polarization is intriguing, particularly in light of the longstanding issues related to polarization stemming from differences among various ethnic, religious, and regional groups—a challenge the country has been grappling with since 2020. While polarization still persists in some parts of the nation, the federal government has evidently been successful in making proactive measures to address it, including not only addressing political and social divisions but also unifying the nation around significant national projects, such as the Green Legacy initiative.
This report’s findings suggest that, contrary to some reports, the federal government is actively working to bridge divides, promote inclusivity, and foster a sense of unity among diverse groups. Consequently, Ethiopia, as acknowledged by the Risk-Reward Index report, has managed to create a comparatively stable environment for investment, which is of paramount importance for businesses seeking a secure and predictable market. This increased stability enhances the country’s appeal as a destination for foreign investment, as investors prioritize environments with reduced risks of social or political unrest. This both instills confidence in existing foreign investors and also attracts new businesses seeking stable and profitable ventures. This is evident in the recent entry of Safaricom, Kenya’s Telecom Giant into the country.
This Risk-Reward Index by Oxford Economics Africa therefore underscores Ethiopia’s commitment to creating a conducive environment for foreign investors, showcasing its abundant opportunities and potential for lucrative returns on investments. This commitment is evident in the homegrown economic reforms that the government has pushed through, aimed at streamlining bureaucratic processes, improving infrastructure, and promoting economic growth. For example, a previously enacted investment law has since opened up the country’s health, e-commerce, and transport services.
Managing Political and Social Dynamics
Ethiopia’s ranking is also an acknowledgment of its relatively superior management of political and social dynamics without compromising its openness to foreign investors compared to other African countries. The country has evidently created an environment where foreign investors feel both welcome and secure, despite potential political or social tensions – vital for attracting and retaining foreign investment. The successful resolution of the 2020-2022 conflict in the northern part of the country with the signing of the ‘Pretoria Agreement’ has not only brought an end to a period of conflict but has also showcased the Ethiopian government’s willingness and the country’s capacity to engage in diplomacy and conflict resolution, further enhancing its reputation as a stable destination for foreign investment.
In addition, Ethiopia’s commitment to managing political and social dynamics while welcoming foreign investors is also exemplified by its dedication to inclusivity and partnership. The government has implemented policies to protect the rights and interests of foreign investors, offering them a transparent and fair regulatory environment. Moreover, Ethiopia’s emphasis on collaboration is underscored by its successful integration into the BRICS alliance, demonstrating its eagerness to foster international cooperation and engagement.
As a member of BRICS, Ethiopia is not only set to strengthen its global ties but also to open new avenues for foreign investment and economic growth. This is bound to pave the way for increased foreign direct investment, leading to job creation, technology transfer, and knowledge sharing with economic and technological powers such as China, Russia, and India. More foreign businesses from these countries are now more likely to choose Ethiopia as their base of operations, bringing with them benefits, including enhanced skills development, increased tax revenue, and a diversified economy.
Fostering Regional Stability and Self-Sufficiency
Ethiopia’s ranking also recognizes its commitment to contributing to regional stability and self-sufficiency. This recognition stems from the country’s efforts to promote security and economic independence, not only within its borders but also in the broader African context, despite its own internal challenges. This Oxford Economics Africa’s report validates the country’s efforts toward self-sufficiency, as evident in its determined completion of the Grand Ethiopian Renaissance Dam (GERD) despite concerted efforts to hinder it by some regional neighbors and international actors.
These efforts are clearly laying the foundation for Ethiopia’s enhanced economic resilience and reduced dependence on external factors, further bolstering its appeal as an investment destination. Of note is that projects such as the Green Legacy Initiative, with its impressive tree-planting efforts, have underscored Ethiopia’s commitment to addressing climate change challenges and ensuring food self-sufficiency.
High but Decreasing Risk Score
Besides the admirable performance in all of the three factors that were examined, it is worth noting that the country’s risk score remained relatively high. But if only as an encouragement, the score, while high, decreased from that of the year 2022. This is a positive sign of the country’s improving stability and security, further positioning the country in a positive direction. Investors typically seek predictability and a low-risk environment, and Ethiopia’s progress in this area is a strong signal that the country is on a path toward greater economic and political stability.
The decrease, small as it is, reflects the government’s commitment to reforms aimed at enhancing the overall investment climate. This is seen in recent macroeconomic, structural, and sectoral reforms including measures streamlining regulatory processes. However, enduring concerns over the rule of law, and improved governance, likely contributed to the still high-risk score. Nonetheless, the government’s determination to resolve internal conflicts and foster peaceful relations with neighboring countries, in recent years, must have certainly contributed to its decreasing risk score.
Conclusion
Overall, the Risk-Reward Index underscores Ethiopia’s strong performance in balancing the profits and pitfalls of polarization, along with its capacity to manage political and social dynamics while maintaining a conducive environment for foreign investors. It also evidences the country’s impressive performance in African-led security interventions and financing for the future in African countries, showing it to be stronger compared to other African nations, and earning it the top spot in the ranking.
While risks remain a cause for concern, the decreasing score is an encouraging indicator of the country’s long-term economic prospects. If the government can effectively address and mitigate these risks, Ethiopia will be better positioned to attract larger-scale foreign investments and infrastructure projects, resulting in job creation, technology transfer, and increased economic diversification.
