At the Opening Session of the 4th Round of the 2nd Phase High-level Forum on Industrial Development on 30 July, 2013

Thank you, Mr. Chairman, Ato Neway Gebre-Ab,
Excellencies, Professors, Colleagues, Ladies and Gentlemen,

Endemen aderachechu.

It is gratifying that the fourth round of the 2nd Phase High-level Forum is being held here today.  I would like to express my sincere appreciation to all those who have made preparations for today’s session in which we will discuss foreign direct investment (FDI), building on our discussions in January.  As usual, I do hope that our discussions will have some positive impact on Ethiopian policies and business practices regarding FDI.

Excellencies, Ladies and Gentlemen,

The Growth and Transformation Plan (GTP) has designated industrial development as one of its two main pillars, together with food security.  Infrastructure development and human resource development are also identified as priority areas.  FDI is one of the critical elements for the Ethiopian endeavor for industrialization in eight priority sectors.  If investment by foreign companies is continuous, it will bring capital inflow and technology, both of which are not sufficient in Ethiopia, and it will contribute to the local economy through creation of jobs and capacity building of the work force.  If investment is in either export industries or import substitution industries, it will contribute to improving foreign exchange reserves.

Therefore, our first challenge is how to attract FDI to Ethiopia.  Based upon the discussions we had last January, some important points may be summarized in the following three clusters.

The first is an overall favorable business environment.  This is essential not only for foreign direct investment but for economic development as a whole.  It includes wide-ranging areas such as port facilities, customs services, inland transportation, power supply, water supply, communications, financial services, high quality labor force, etc.  During TICADV Prime Minister Abe announced a support package for Africa, and one of the priorities in the said package is improving the business environment.  I am aware that Ethiopia has been making efforts to improve infrastructure and human resources in this regard.

The second is incentives through policy instruments.  Offers of land at low cost, exemptions of duties and tax holidays are important to attract foreign investors.  Many countries with a similar interest do the same.  Regulations on the export of raw materials are also useful to encourage companies that manufacture products by importing those raw materials to invest here in manufacturing final products.  The leather industry is a good example.  The export of skins and hides has been banned and high tax rates have been imposed on exports of semi-processed leather.  This policy encourages leather product manufacturers to invest in their own factories here.

The third is proactive marketing.  Top-level promotion by the political leader is always useful.  The Ethiopian Business Seminar and the African Fair held on the margins of TICADV provided opportunities for Ethiopia to attract Japanese companies to Ethiopia.  In so doing, it is effective to take a differentiated approach to emphasize what is unique in Ethiopia and how different the Ethiopian market is from other competing markets.  It is also useful to clarify priority sectors and approach specific targeted companies rather than to try to approach everyone.

Having said this, at the same time, some consideration will be required on what effects FDI will have on indigenous Ethiopian companies or potential entrepreneurs.  If we take a look at the positive sides, it is important to ensure that indigenous Ethiopian companies will enjoy benefits from the activities and business of foreign companies.  For instance, it will be beneficial if Ethiopian companies are incorporated in the latter’s supply chains so that they supply raw materials, intermediate goods or components to those foreign companies.  It will also be beneficial if the local managerial class has a chance to learn foreign technology, either production technology or management skills.  It will be useful if the local work force has a chance to have their skills developed through training.  All these points are related to FDI-linked technology transfer to be presented by Professor Ono later today.

Then, if we take a look at the negative aspects, it will be important to ensure that indigenous Ethiopian companies should not be forced out of business by incoming foreign companies as this will create serious economic and social issues such as bankruptcy, unemployment or monopolies.

As a whole, thanks to your efforts, FDI has been steadily increasing in Ethiopia in recent years.  According to UNCTAD statistics, while FDI in Ethiopia was about 300 million USD in 2010, it increased to over 600 million USD in 2011 and to nearly one billion USD in 2012.  However, more can be done to make further achievements.  In this sense, I am anxious to hear your findings from your survey mission to Malaysia in June.

Now, changing focus slightly, I would like to touch briefly upon the case of Tanzania as I recently had a chance to visit Dar es Salam to exchange views on Tanzanian FDI policies.

First of all, Tanzania is the most successful country in attracting FDI in East Africa.  UNCTAD statistics indicate that FDI in Tanzania recorded 1.8 billion USD in 2010, 1.2 billion USD in 2011, and 1.7 billion USD in 2012.  These figures are impressive, much larger than those in Ethiopia or Kenya and comparable to those in Cambodia.

Second, FDI in Tanzania is diversified across various sectors, unlike resource-rich countries.  Tourism is an important sector for FDI.  Thanks to FDI in tourism, one million foreign tourists visit Tanzania per year, and as a result, tourism is the driving force in Tanzania to earn hard currency.  In addition to tourism, FDI is also sizable in mining, manufacturing and utilities.

Third, institutional arrangements play an important role in Tanzania.  The key organization to promote FDI is the Tanzania Investment Center (TIC), which has a strong mandate as it is part of the Prime Minister’s Office.  The National Investment Steering Committee (NISC), chaired by the Prime Minister and composed of four concerned Ministers and the Governor of the Central Bank, also plays a critical role in facilitating large FDI projects by addressing all the challenges facing those projects.

Fourth, among incentives offered by the TIC, a unique one is for items deemed capital goods.  For example, when a foreign company invests in hotel construction, the items used for the construction, such as cement, iron bars, steel, etc. are deemed capital goods and therefore exempted from duties and taxes.  This has been conducive to attracting FDI in tourism.

I hope that these examples are useful when studying and formulating policies regarding FDI in Ethiopia.

Amesegenalehu.