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    Investment Climate in Ethiopia

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    1. Ethiopia is one of the fastest growing economies in Africa and the largest recipient of foreign direct investment in East Africa, receiving $4.3 billion in 2021. 2. Despite rapid economic growth and improving investment environment, investors face prominent challenges including foreign currency shortages, security and political instability, and restrictive policies. 3. Opportunities for further investment include new proclamations establishing startup businesses and innovation funds, startup loan initiatives, and the establishment of a capital market to facilitate long-term funding.

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    Investment Climate in Ethiopia

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    getachewasnake481
    13 views15 pages
    1. Ethiopia is one of the fastest growing economies in Africa and the largest recipient of foreign direct investment in East Africa, receiving $4.3 billion in 2021. 2. Despite rapid economic growth and improving investment environment, investors face prominent challenges including foreign currency shortages, security and political instability, and restrictive policies. 3. Opportunities for further investment include new proclamations establishing startup businesses and innovation funds, startup loan initiatives, and the establishment of a capital market to facilitate long-term funding.

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    1. Ethiopia is one of the fastest growing economies in Africa and the largest recipient of foreign direct investment in East Africa, receiving $4.3 billion in 2021. 2. Despite rapid economic growth and improving investment environment, investors face prominent challenges including foreign currency shortages, security and political instability, and restrictive policies. 3. Opportunities for further investment include new proclamations establishing startup businesses and innovation funds, startup loan initiatives, and the establishment of a capital market to facilitate long-term funding.

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    13 views15 pages

    Investment Climate in Ethiopia

    Uploaded by

    getachewasnake481
    1. Ethiopia is one of the fastest growing economies in Africa and the largest recipient of foreign direct investment in East Africa, receiving $4.3 billion in 2021. 2. Despite rapid economic growth and improving investment environment, investors face prominent challenges including foreign currency shortages, security and political instability, and restrictive policies. 3. Opportunities for further investment include new proclamations establishing startup businesses and innovation funds, startup loan initiatives, and the establishment of a capital market to facilitate long-term funding.

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    of 15

    INVESTMENT CLIMATE IN

    ETHIOPIA
    August 16, 2022
    USAID CATALYZE Ethiopia:MS4G
    For any nation's economic growth, the ease of formation and
    mobilization of capital across all types of business financing life
    cycles is critical.
    ECONOMIC BRIEF

    COUNTRY ECONOMIC BRIEF


    Rapid
    • Still one of the fastest growing economies in the
    economic world
    growth

    Favorable
    • One of the top destinations for foreign direct
    destination for
    investment (FDI) in Africa → Largest in East Africa
    FDI

    Young and • Second most populous country in Africa and


    productive growing at 2.3 million annually (est. 120 million)
    population • 70% of the population are young age group

    GDP/capita: $952 (2021)


    Economics FDI inflow: $4.3 bn (2021)
    FDI growth: 79% (2021)

    3
    INVESTMENT TO %GDP

    INVESTMENT TO %GDP

    50.0% • Small drop in public investment


    40.0% 37.1% 38.0% 39.4% 37.3% 38.4%
    34.2% 35.3%
    32.1% 34.1% 30.8% • Significant drop in private
    30.0% investment, especially domestic
    28.0% investment
    20.0%

    10.0% • FDI inflows rose during this


    period (mainly by exceptional
    0.0%
    inflows from the telecom license
    sale from Safaricom Ethiopia)

    Source: MoPD

    4
    FDI INFLOW

    FDI INFLOW

    5.0
    1. The largest recipient of FDI in
    4.5 4.3
    East Africa $4.3b (79% increase) 4.1
    4.0
    4.0
    2. The highest FDI flow in last 5 3.5 3.3

    years 3.0
    2.5
    3. Improving investment 2.5 2.4

    environment 2.0

    1.5

    1.0
    2016 2017 2018 2019 2020 2021
    Source: EIC

    5
    CREDIT DISBURSEMENT

    CREDIT DISBURSEMENT
    Types of banks Year Disbursement in billions
    Public
    Banks Private Banks 2020/ 21 208.1
    2020/ 21
    37% Public Banks 2020/ 21 121.3

    121.3 Total 329.4

    208.1 Private • Only 350,000 companies/ individuals gets


    Banks
    access to bank credit
    2020/ 21
    63%
    • MFIs credit disbursement is not enough for
    SMEs even though they disburse more thank
    ETB 65 billion credit
    Source: NBE Annual Report FY 2020/21

    6
    FUNDING RAISED FUNDING RAISED

    121.3
    208.1

    Source: https://thebigdeal.gumroad.com/

    7
    PROMINENT CHALLENGES

    WHAT ARE THE PROMINENT


    CHALLENGES?

    1 Foreign Currency

    The most frequent challenges


    identified by investors in
    Ethiopia 2 Security / Stability

    3 Policy

    8
    FOREIGN CURRENCY

    FOREIGN CURRENCY
    NBE Forex Reserves (USD Billions)

    3…
    • Business continuity 2.9 3

    • Forex accessibility / reserves


    1.6
    • Devaluation of ETB
    • Difficulty in Repatriation of
    funds
    DEC_2018 DEC_2019 DEC_2020 DEC_2021

    Source: NBE

    9
    SECURITY / INSTABILITY

    SECURITY / INSTABILITY

    • Depressed investor confidence


    • Overlooked as an investment
    destination
    • Business interruption
    • Investment pause / limited
    expansion

    10
    POLICY CONSTRAINTS

    POLICY CONSTRAINTS

    • Market restrictions
    • Lack of consultation / private sector
    negative perception
    • Burdensome financial industry
    regulations
    • Corruption, transparency, capacity
    • Land allocation

    11
    OPPORTUNITIES

    OPPORTUNITIES
    • Drafted Startup proclamation- National Council of Startup
    Businesses and Innovation Funds established by this
    proclamation.
    • Startup loan initiative by DBE
    • Capital Market establishment for long term funding (Develop
    SME segment is part of the Capital Market Strategy)
    • MSME development strategy (draft and under discussion by
    the CoM)
    • IP policy (Draft)

    12
    PAGE TITLE

    RECOMMENDATIONS

    ✓Let us create a private led startup fund that invites diasporas


    ✓Loan guarantees for banks and MFIs
    ✓Loan guarantees should include Islamic financing schemes
    ✓EIC should consider angel investors under different requirement
    ✓Having strong advisory and investment management professionals

    13
    PRAGMA CONSULTING PLC
    Aster Plaza – 3rd Floor
    Gabon Street
    Addis Ababa
    Ethiopia

    +251 929-09-21-61
    +251-118-54-0031
    +251 920-72-22-81
    [email protected]
    pragma-advisory.com

    KALID MAWI MERED FIKREYOHANNES


    Managing Partner Managing Partner
    +251 929-09-21-61 +251 920-72-22-81
    [email protected] [email protected]

    14
    Pragma Investment Advisory is a boutique business and financial advisory firm with a primary focus on
    developing strategic entry and growth planning for individuals and companies demonstrating investment
    interest in Ethiopia. Our firm is run by principal advisors who have established strategic alliances with
    highly-qualified consultants whose professional backgrounds range from working for some of the big 6
    financial advisory firms to Emerging Market-focused private equity companies.

    © 2020©Pragma Consulting
    2022 Pragma PLC.PLC.
    Consulting All All
    rights reserved.
    rights reserved.

    15

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