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East Africa: Ethiopia Leads East Africa in Foreign Direct Investment

Ethiopia emerged as the leader in attracting foreign direct investment (FDI) in East Africa last year, according to the World Investment Report published by the United Nations Conference on Trade and Development (UNCTAD) last week.

The report reveals that Ethiopia secured $3.3 billion in FDI in 2023, surpassing regional competitors such as Kenya and Uganda.

Kenya attracted $1.5 billion in FDI during the same period, while Uganda registered $2.9 billion.

Hanna Arayasellasie, Chief Commissioner of the Ethiopian Investment Commission (EIC), recently announced that Ethiopia had already attracted $3 billion in FDI during the first 10 months of the current fiscal year (2023/24).

She also disclosed that the country aims to reach $3.5 billion in FDI by the end of the fiscal year.

Data from the EIC indicates that China is the largest source of FDI in Ethiopia, accounting for nearly 50% of all incoming projects.

The report attributed the primary driver for FDI in Ethiopia last year to the nation’s efforts to foster investment through public-private partnerships (PPP) and a mechanism for direct PPP negotiations with foreign firms.

One of the projects realized through the PPP mechanism last year was undertaken by AMEA Power, an energy company based in the United Arab Emirates (UAE).

AMEA Power announced plans to develop a 300 MW onshore wind power project in Ethiopia.

In a signing ceremony held at the end of last year, the UAE’s AMEA Power agreed to invest $600 million in the construction of the Aysha wind power project. This project, located in the Somali Regional State, covers 18,000 hectares.

 

The UN agency also indicated that Ethiopia’s allowance of foreign investment in digital payment systems contributed to the FDI inflow in 2023.

Last year, the House of Peoples’ Representatives endorsed a proclamation opening doors for foreign investment in the financial sector.

Following the introduction of this legislation, Safaricom Ethiopia, through its newly established and wholly owned subsidiary, Safaricom M-PESA Mobile Financial Services PLC, received the Payment Instrument Issuer License from the National Bank of Ethiopia (NBE). This license enables it to provide mobile financial services to its customers under the trademark M-PESA.

In January 2024, the company announced that the number of M-Pesa users enrolled by Safaricom’s Ethiopia unit had nearly tripled in four months to 3.1 million, with transactions worth $115.3 million.

UNCTAD’s report also highlights that FDI inflows to Africa decreased by 3% in 2023, totaling $53 billion.

Egypt was the top African country for FDI, attracting $9.8 billion, followed by South Africa with $5.2 billion.

The report notes that developed countries accounted for 35% of global FDI flows amounting $1.3 trillion. Despite a gradual decline, these economies still attract the majority of greenfield projects and international project finance deals.

 

Conversely, FDI flows to developing economies decreased by 7% to $867 billion, representing 65% of global flows.

Globally, the United States remained the largest recipient of FDI, accounting for nearly a quarter of the global total. China and Hong Kong together accounted for an additional 21%.