Ethiopian Business Review

Far-Flung Possibilities? : The Potentials and Challenges of Engaging the Ethiopian Diaspora in Economic Development Featured

The Ethiopian government estimates that it has more than two million Ethiopian-born people who comprise its vast global diaspora, living in the United States, Europe, Australia and the Middle East, among other places. Much of the diasporic migration took place during the Derg regime (1974-1991); before that, during the time of the Emperor, it was common to see Ethiopians attending institutions of higher education abroad and returning home from western countries. 

Still, the number of Ethiopians leaving the country these days, largely for economic reasons, is considerable. Based on data from the Ministry of Labour and Social Affairs (MoLSA), the total number of Ethiopians who traveled to Arab countries through legal channels from 2010 to 2013 reached 450,000. However, those who traveled through illegal channels are estimated to be roughly 1.5 million. This number might defy the estimations of the Ministry of Foreign Affairs, which puts the number of people in the diaspora at two million.  

Though there are controversies about the number of Ethiopians who have moved abroad, there is no question about the role they play in terms of helping their families and the economy through remittances and tourism. 

On the other hand compared to other countries with vast Diasporas, the involvement of Ethiopian diaspora in investments is limited and restricted only to service areas, according to sources close to the issue. Most of the money that comes from ‘Diasporas,’ as they’re often called by Ethiopians, has not been translated into savings and investments and mostly goes toward consumer spending. 

The World Bank estimates that African immigrants living abroad, mostly in North America and Europe, send home between USD32 and USD40 billion annually.  This figure far exceeds the money that is given to Africa through formalized development aid channels. In 2007, in response to recognition by the international community of the African Diaspora as a major development partner, the World Bank launched the African Diaspora Program to support the African Union in its Diaspora global program and projects. 

In Ethiopia’s case, the number of unskilled and semi-skilled Ethiopians who have moved to the Middle East is ample. The Ministry of Foreign Affairs also states that some African countries like Botswana and Equatorial Guinea have also become destinations for skilled Ethiopian migrants.

Among the countries praised for using their Diaspora as a resource to spur economic growth is the Philippines. Escaping colonial rule after World War II, the country that was expected to achieve great economic success but didn't perform well. As a result, millions of its citizens migrated to neighbouring Middle East and Far East Asia countries. However the country’s government seemed aware of the potential of the Diaspora community early in the migration process. Consequently, 34 years ago, the Filipino government established an office that works to promote and uphold the interests, rights and welfare of Filipinos overseas and strengthen their ties with the country. 

Recently, it seems that Ethiopian government has also started paying attention to the Diaspora community, especially since 2002, when The Diaspora Engagement Affairs General Directorate, formerly called the Ethiopian Expatriate Affairs General Directorate, was established within the Ministry of Foreign Affairs. The mission of the Directorate is to engage the Ethiopian Diaspora and facilitate their activities in various affairs of the country. 

Before establishing a separate department that deals with the diasporic community, there were only limited efforts focused on them.   Because of the Directorate, the Ministry of Foreign Affairs needed to address this lack of engagement, and did so by preparing a Diaspora policy to ensure active participation of the ‘Diasporas’ in economic, political and social activities. The 22-page document, which came to light in 2005, stipulates the executive bodies of the policy, major goals, basic principles and others.

As a result of these policies, the government states that there’s been an increase in the investment activities of the Diaspora: “Based on data available since 2002, the amount of money that has been invested by Ethiopian Diasporas has reached more than USD23.2 billion,” says Ephrem Beshah, Diaspora Information and Research Directorate Minster Counselor at MoFA. 

He also states that the diasporic community has created 126,175 permanent and temporary jobs.  The main investment areas in which Diasporas are taking part are agro-processing, mining and hotels. However, the government wants them to invest in the education and health sectors as well. In addition to this, Ephrem states that the ‘Diasporas’ are expected to contribute a lot in terms of involving themselves in import substitution investments; at the same time he dismisses the claim that the Diasporas’ investments are limited only on the service sector. 

Also incorporated in the Diaspora policy is the yellow card, which confers many of the rights of full Ethiopian citizenship to Ethiopians in the Diaspora. MoFA also believes this kind of moves will encourage furthering the Diasporas’ active participation.   

The Ethiopian Investment Commission (EIC) states that it has given two options for diasporic Ethiopians—to be treated like a foreign investor or a local investor. “We are providing them with these choices because of their Ethiopian origin, no foreign investor gets similar privileges,” said Getahun Negash, public relations director at the EIC.

However, the USD23.2 billion that has been invested by Ethiopian ‘Diasporas’ over ten years is still small compared to that of other countries, such as the Philippines. In 2012, remittances in the Philippines reached a record high of USD23.8 billion. The remittances that came from Ethiopian Diasporas in 2012/13 and 2013/14 was USD1.8 billion and USD2.1 billion, respectively, according the MoFA. 

Despite the incentives and encouragement from MoFA, the diasporic community complains about bureaucratic red tape and infrastructure problems when doing business in the country. 

EBR met with Mohammed Ahmed at MoFA’s headquarters to discuss his experience of doing business in Ethiopia as a member of the Diaspora. Mohammed is a returnee from Saudi Arabia after having lived there for ten years. He says the reason he was at MoFA was to ask for information for an investment that he is planning to start with his two friends. However, he says that starting this investment project has proven difficult, as he and his friends have faced many logistical and bureaucratic barriers. “We were also here last Friday, but the people [MoFA employees] were at a meeting as well,” said Mohammed. 

Other diaspora investors also complain about weak implementation of incentives and other policies at the low levels of the government’s structure. “The government is always calling us to come back home and invest. But the reality on the ground is a lot different; we usually don’t get good solutions when we encounter problems,” says a ‘Diaspora’ investor who runs two factories in Ethiopia and wished to remain anonymous. 

Along with certain bureaucratic barriers, some ‘Diaspora’ investors who spoke to EBR complained of other problems that exist across the business community, including power interruptions, water shortages and bureaucratic red tape. 

Mohammed says that the problems he’s faced don’t necessarily come from the institutions or laws drafted, but from their lofty goals that are hard to attain, creating high expectations but often yielding meager results.

But the difficulty of managing a bureau that focuses on engaging a vast, expansive diaspora isn't specific to Ethiopia; other developing countries face similar difficulties. According the International Organization for Migration (IoM), in many developing countries, creating effective and viable government institutions that address the needs of local (and diasporic) populations continues to present a major challenge. Their main problem is insufficient resources, financial, technical, and political, which often results in institutions rich in ambition but poorly able to implement their vision. Diaspora institutions are in many ways no different from other institutions in developing countries, a fact that is not surprising to some analysts. It is difficult to fully assess the effectiveness of Diaspora institutions, not to mention their impact on development efforts at home, according to the IoM.

MoFA understands there are problems facing the diasporic business community and vows to come up with more solutions shortly. “Recently we are trying to address the problems by our joint steering council in which the ‘Diasporas’ representatives are also represent,” says Ephrem. “There is also lack of awareness about the Diaspora among various stakeholders and they leave the issue for our Ministry alone [to fix]; it shouldn’t be like that.” 

In addition to the Council, MoFA helped to establish the Ethiopian Diaspora Association (EDA) almost two years ago. According an official in the Association, who spoke to EBR on the condition of anonymity, the number of the members is around 1,300. EDA mainly focuses on facilitating the investment efforts of its members and other non-member ‘Diasporas’.  The official also states that many ‘Diasporas’ face bureaucratic problems and most of the time EDA deals with these kinds of problems.

To support these kinds of efforts by developing countries, the IOM and the American government have also started various programs. For instance, the International Diaspora Engagement Alliance (IdEA) is an organization established by the American government and is aimed at making various Diaspora communities contribute to the development of their countries of origin or ancestry. Investment & entrepreneurship, innovation, volunteerism, and philanthropy are the key areas in which the Alliance works. 

The Ethiopian government is also involving itself in similar internationally-driven efforts. For instance, there is a separate web portal that provides the diasporic community with information, which was developed in cooperation with the World Bank.  

Despite criticism from some, research conducted by the Maastricht Economic and Social Research Institute on Innovation and Technology says Ethiopia’s policies towards the Diaspora have been promising: “the policies have resulted in increased Diaspora businesses and investment in Ethiopia, although this has not occurred to the degree of initial expectations. One challenge is that the Ethiopian Diaspora is primarily comprised of low-skilled refugee populations that may not have the resources to invest in the country.” 

Some Ethiopian economics scholars also share this analysis and see it as a potential pitfall. The Ethiopian diasporas’ financial strength is not particularly strong (as compared to other countries) and the strict financial system forbids them to bring money to finance their projects from their country of citizenship. For instance, an Ethiopian-American may have easy access to borrow money from an American bank using his or her citizenship status, rather than borrowing money from the Ethiopian Development Bank by offering money thats worth 30Pct of the project.

Another bottleneck, bureaucratic red tape, is also something that many economists feel needs to be solved. “The government can’t provide efficient service both for the Diaspora and others while having a dissatisfied and low paid civil servants,” says Costantinos Biruhtesfa (PHD), lecturer at Addis Ababa University. “The government has to outsource these kinds of services for private companies, so that investors could get better services.”

The Growth and Transformation Plan (GTP), which has been under implementation for the last four years, has also taken the Diasporas’ role into consideration. The country’s late prime minster, Meles Zenawi, said “Ethiopians in the Diaspora need to further consolidate their efforts and do their part for the efficient implementation of the GTP, a plan which aims at extricating the country out of poverty.” 

On the other hand, experts say the abuse of privileges by some diasporic investors is another bottleneck in the efforts to engage the Diaspora community. Still, others say it will take time before the country learns how to fully utilize its Diaspora for the purposes of economic development.

In order to solve the lack of experience the government says that it has taken best practices from China, India and other South East Asia countries that have been able to meaningfully engage their far-flung Diasporas.

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