Ethiopia's FDI policy produces telecommunications and mining gains
Earlier in May, the National Electoral Board of Ethiopia announced plans to delay parliamentary elections once again. This time due to inadequate preparations. In the background are security and political risk developments that include a dispute with neighbours Sudan and Egypt over the construction of the Grand Ethiopian Renaissance Dam, ongoing conflict in Tigray region and secessionist sentiment in other regions[1]. See: Risk and uncertainty following Ethiopia’s latest election delay. However, alongside these currents, the Ethiopian risk landscape is also defined by a more consistent structural reform programme than has been attainable in other frontier markets[2].
Significance – Stick to the reform script
Prime Minister Abiy Ahmed came into office in 2018 but strategic FDI attraction with a view to investment promotion and economic diversification, technology transfer and productivity growth has featured in Ethiopian economic policy agenda since the 1990s. Mining and telecommunications are being prioritised by the current administration and have chalked up some recent successes.
For example, the 22 May telecommunications license issuance[3] to an international consortium. The team leading negotiations with companies interested in bidding for either of two operator licenses was led by Eyob Tekalign Tolina, a state (not substantive) minister at the ministry of finance and Balcha Reba, the director general of the Ethiopian Communications Authority. At one point, more than ten companies had expressed a firm interest in bidding for the license. However, a strict adherence to their terms of issuing the license[4] as well as a deterioration in the situation in Tigray meant that only two bids were formally submitted. These came from South Africa’s MTN Group and a consortium called Global Partnership for Ethiopia that includes Vodafone, South Africa’s Vodacom, Kenya’s Safaricom, CDC and the Japanese Sumitomo Corporation. The USD 600 million bid from MTN was deemed too low and was therefore rejected but the Global Partnership bid of USD 850 million was accepted. This suggests that there is potential to earn significantly more than the USD 1 billion that was initially being sought from the sale of both licenses.
In mining, Ethiopia has set itself the target of increasing export earnings from USD 265 million in 2019 to USD 17 billion by 2030 and has actively sought international expertise to boost gold production alongside a burgeoning artisanal mining sector and in 2019 brought in new incentives to further woo international firms. These initiatives were spearheaded by the minister of mines and petroleum, Samuel Urkato[5] and firms operating in the company have shared experiences of extreme handholding by government officials to ensure that plans are adhered to by providing the necessary resources. This can also go the other way. If an international firm misses project deadlines without significant reason, their license may be revoked. Ninety licenses have been revoked since December and will be reissued for tender.
Outlook – More Intentionality
Parliamentary elections are now scheduled for 21 June (instead of 5 June). Mining sector tender issue are more likely to occur after this date. There is an expectation that more banking and energy opportunities will be opened to foreign businesses in the future as well. And that churn in ministerial appointments, to reflect regional and ethnic dynamics for example, will not dislodge the fundamental policy direction and/or the existing buy in of high-level civil servants.
Meanwhile, the Prime Minister hopes that the award of the telecommunications license to Global Partnership for Ethiopia will create 1.5 million jobs and bring in USD 8 billion in investment. Heady expectations, which carry risks of disappointment. There are quiet murmurs that the government may be willing to return to the negotiating table with MTN but reopening bidding for a license(s) at a point in the future seems more likely.
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[1] Long-term investors in the country have demonstrated more concern over the security situation than the election cycle.
[2] In addition to being the eighth largest economy in the region and one of the fastest growing.
[3] Announcement made by the Prime Minister on 22 May: https://mobile.twitter.com/AbiyAhmedAli/status/1396060475184533505
[4] Including a refusal to allow for the option of launching a mobile money service which reportedly cost the government USD 500 million. Incidentally, the state telecoms company Ethiotel has just launched the country’s first mobile money service, Telebirr
[5] Replaced by Takele Uma in an August 2020 cabinet reshuffle.
*Photo credit: Gift Habeshaw, Unsplash
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