Countries adopting business-friendly approaches and easing bureaucratic processes tend to fair better and drive an increase in Foreign Direct Investments (FDI).
According to a recent report by professional services firm Ernst & Young, Ethiopia attracted foreign investments amounting to Sh726.6 billion ($7bn) in 2018 compared to Kenya’s Sh207.6 billion ($2bn) and Tanzania‘s sh103.8 billion ($1bn).
The report further notes that FDI in Africa remains stable as 710 projects created 117000 jobs and attracting $75.5 billion in capital during the period. In Kenya for example, about 6000 jobs were created from 64 projects, Ethiopia 16000 jobs created from 29 projects and in Tanzania 3000 jobs created from 19 projects.
Ethiopia is appealing to foreign investors due to the efficient business environment and the lure of a huge untapped domestic market. In addition, there is affordable electricity supply and an efficient airline. Furthermore, foreign investors see the huge domestic market with guaranteed access to external markets through the Special Economic Zones as a bonus.
On top of that, Ethiopia has committed to liberalizing foreign entrants into key sectors including financial services and telecoms. The political goodwill that has initiated economic reforms place Ethiopia in a position to gain from FDI.
On the other hand, Kenya prides itself as a regional financial centre and a hub for many multinationals doing business in the region thus appealing to foreign investors. In addition, innovation and technology space is raising the attractiveness with the nation benefitting from consistently strong growth rates
East African region
As a collective hub, East Africa’s economy is worth $265bn, led by Kenya ($88bn), Ethiopia ($79bn), Tanzania ($58bn), Uganda ($29bn), and Rwanda ($10bn). Annual compound growth rates will see the EA region become more economically influential over the next decade.
East Africa’s growth averages 7.0% with most countries growing above 5% per annum. Rwanda, Ethiopia, and Uganda ranked amongst the top 10 fastest growing economies globally at 8.6% (Rwanda) and 7.7% (Ethiopia and Uganda).
North Africa leads Africa as the continent’s top FDI destination followed by Southern Africa, East Africa, and West Africa. There is a shift away from Extractives FDI as investors seek to finance services encompassing retail, financial services, telecoms, media and technology, business service and leisure.
In addition, the role and influence of Africa investing in its own back yard continue to grow. For instance, South African investors spent $190m in Kenya in 2018 with the capital spread across six projects.