Tesfa Tadesse
Managing Partner, TAY Authorized Accountants & Auditors, Ethiopia
Tesfa Tadesse is the Managing Partner at TAY Authorized Accountants & Auditors, offering extensive expertise in internal and external audits, internal business process analysis, and financial management. With a focus on enhancing internal controls and financial health, Tesfa leads a team dedicated to elevating financial frameworks and providing comprehensive consultancies across East Africa, including Ethiopia, Djibouti, and SomaliLand.
Ethiopia’s fast-growing economy built on a 10-year reform agenda
April 30, 2024
Ethiopia’s fast-growing economy is an African success story and at the centre of that is economic reform and a 10-year plan. Ethiopia has one of the fastest-growing economies in the world and the country is undergoing a huge amount of reform to modernise its economy and attract investors.
Is Ethiopia’s economy fast-growing?
Ethiopia is becoming one of the fastest-growing countries in Africa, with an estimated 7.2% growth in FY2022/23. Its strong growth rate builds on a longer-term record of growth over the past 15 years where the country’s economy grew at an average of nearly 10% per year, one of the highest rates in the world.
But the country still has a lot of problems to overcome, the biggest being that its economy is still very much under the control of the state. In an effort to open the region up to foreign investment, Ethiopia is moving toward more private-sector involvement.
What is supporting Ethiopia’s rapid economic growth?
To encourage this, the government has launched a 10-Year Development Plan, based on its 2019 Home-Grown Economic Reform Agenda, which runs until 2029/30. It aims to foster efficiency and introduce competition in key sectors such as energy, logistics, and telecoms. It is also focused on solving macroeconomic imbalances such as high inflation, high levels of indebtedness and foreign exchange deficits.
“The Ethiopian economy has faced different challenges emanating from internal conflicts and the impact of climate change,” said Tesfa Tadesse, Managing Partner of TAY Authorized Accountants & Auditors, a Kreston Global firm. “Despite those challenges, there have been some remarkable developments that help fuel growth in the country, particularly in the energy sector. Ethiopia is generating cheap electricity from the hydroelectric stations and has been investing heavily in this sector to unleash the potential. Now the country has started to sell energy to neighbouring countries such as Kenya, Djibouti, and Sudan.”
China significant investor in Ethiopia
China stands out as a significant investor, accounting for 60% of new Foreign Direct Investment (FDI) projects approved, with substantial investments in manufacturing and services. Other major investing countries include Saudi Arabia and Turkey. Notable investments include Safaricom’s pledge to invest USD 300 million annually for ten years and the United Kingdom’s Marriott Drilling Group securing financing for the construction of two geothermal power stations in Tulu Moye and Hawassa, which will be the country’s first.
“Ethiopia is also attracting direct foreign investments to the telecom and fintech sectors,” said Tadesse. “Geographically, Ethiopia is in a favourable location to link Africa with the Far East, the Middle East and Europe. The banking sector in the country has been performing exceptionally well in the past 30 years, while the service industry in general is growing and overtook the agriculture sector some years back.”
Investment banking in Ethiopia
The country has to make a lot of changes before it can offer a truly favourable investment environment, but it took a significant step forward in January 2024, when it announced it would issue licences to let foreign investment banks operate in the country.
There are currently no investment banks in Ethiopia, and commercial banks are only able to offer limited funding to businesses due to prudential requirements. Businesses are currently paying up to 25% interest on commercial bank funding and have to provide collateral worth 70% of the value of the loan.
The regulator is offering licences to global and regional investment banks, securities brokers and dealers and credit rating services providers who can help businesses list shares on the securities exchange and issue corporate debt.
“In terms of the investment laws and the bureaucracies, there are areas that need improvement,” said Tadesse. “In March 2024, the government lifted almost all of the restricted business areas to allow foreign investors. In the previous law, some business areas were restricted to local investors only. These include import and export business, and retail business including running super-markets. Now the multinational supermarket chains can open branches in Ethiopia.”
Direct foreign investment in Ethiopia
Foreign companies now have the right to establish, acquire, own, and divest most types of business enterprises. While private land ownership is currently not permitted, land can be leased for up to 99 years. However, the government recently announced plans to introduce a law that would allow foreigners to own real estate, but there is no date yet as to when the legislation will be brought to parliament.
“The government is also trying to fully liberalise the economy,” said Tadesse. “Foreign exchange control may be eased or fully liberalised. This may have a short-term effect of depreciating the value of the local currency.”
Ethiopia is full of potential and certain sectors, such as Fintech, are poised for a gold rush. If it can ease the growing pains of a reformed economy and currency, it can transform itself.
If you would like to talk to one of our experts about setting up a business in Ethiopia, please get in touch.
