Ethiopian Business Review

Beyond the Diplomacy: The Need to Enhance Ethio-US Business, Investment Relations

United States Secretary of State John Kerry was in Addis Ababa earlier this month. During his visit, he met with high-ranking officials including Prime Minister Hailemariam Desalegn and his counterpart Tedros Adhanom to discuss a number of issues, including Ethiopia’s role as peacemaker in a number of conflicts on the continent, fighting terrorism in the Horn of Africa, and on the effects of U.S. aid that the country receives yearly. The visit marks Secretary Kerry’s second time in Ethiopia within a year, suggesting that ties between the two countries are stronger than ever. Yet, as EBR’s Editor-in-Chief Berihun Mekonnen reports, even though Ethiopia has proven a reliable and strategic ally of the U.S in Africa, when it comes to economic and business ties, the two countries have a weak partnership. The Ethiopian government hopes to strengthen these ties and there are signs that change is coming.

The United States Secretary of State John Kerry recently visited Ethiopia -- the second such visit within a year. During his visit, he met with Prime Minister Hailemariam Desalegn and Foreign Affairs Minister Tedros Adhanom (PhD) and discussed a variety of issues, including the conflicts in South Sudan and other African countries as well as touching upon the issues of democracy and human rights, development, economic cooperation, business and investments. 

Historically, the relationship between Ethiopia and the United States has generally been considered good, with the exception of the 1970s and 1980s, when the Dergue regime was in power in Ethiopia. The socialist orientation of the military junta put the interest of the United Sates aside. This caused the United States to reduce Ethiopia’s diplomatic status down from the “Most Favored Nation” ranking it had held under the imperial regime.

When the EPRDF rose to power in 1991, the relationship between the two states began to mend and made significant strides forward.  Currently, diplomatic relations between the two countries is at its peak, particularly on matters of regional security (in particular, fighting terrorism) and peace-building initiatives. Ethiopia, with its increased role as peacemaker in the troubled Horn of Africa region, will continue to be a strategic ally of Unites States. 

As a result, Ethiopia is now the largest recipient of American development assistance in sub-Saharan Africa, receiving, on average, close to USD800 million annually over the past few years. This development assistance is used to support the country’s endeavours in health, capacity building, education and other economic developments. Though some military training funds are provided to Ethiopia, they are explicitly limited to nonlethal assistance, training, and peacekeeping support, according to State Department sources. 

Support in the health sector is particularly strong, with the United States contributing aid to providing antiretroviral drugs for people living with HIV/AIDS and protection against mother-to-child transmission. Secretary Kerry has applauded these efforts in Ethiopia. He visited the Gandhi Hospital in Addis Ababa, where services to protect against mother-to-child transmission of HIV/AIDS are provided, and stated his appreciation of these kinds of efforts.

Despite the strategic partnership in security and cooperation in the health sector, the relations between the two countries in business and investment doesn’t enjoy a similarly beneficial relationship. 

Foreign Direct Investment (FDI) from America is miniscule compared with that of Ethiopia’s major business and investment partners such as Turkey, India, China or even neighbouring Sudan. While Turkey, China and India are the three biggest sources of FDI in Ethiopia -- with an investment capital of ETB72.5 billion, 51.3 billion, and 32.6 billion, respectively -- the US lags behind in 7th place, investing only 17.7 billion birr. This is out of the total 447 billion birr registered as FDI in Ethiopia from January 1999 to February 2014, according to data from the Ethiopian Investment Agency. That figure, according to economic analysts, is diminutive considering the relationship between the two countries and America’s investment potential as the richest country in the world.

Ambassador Dina Mufti, spokesperson for the Ministry of Foreign Affairs, says that Ethiopia and the U.S. have a relationship that both governments cherish deeply, “but the business and investment linkage hasn’t reached the level we desire.”  Yet, this link isn’t just weak with the U.S.:  Ethiopia’s business and investment relations with the West in general haven’t been strong and the government is working to change that, the spokesman added. 

The recent visit of the Japanese Prime Minister Shinzō Abe, who was accompanied by the country’s top business moguls and Finnish Prime Minister Jyrki Katainen, was aimed at changing this situation, according to Ambassador Dina. Frank-Walter Steinmeier, Germany’s Federal Foreign Minister, also made a trip to Ethiopia in March. The Minister came with a large number of the country’s business community to explore areas of investment in Ethiopia. All this is an attempt to strengthen Ethiopia’s economic, business and investment ties with the West, the Ambassador said.

US development assistance to EthiopiaThe Ethiopian government is hopeful that the mix of FDI sources will soon change by attracting more investors from the West. Huge American companies like General Electric are coming to Ethiopia, a hopeful sign for the new direction of business and investment ventures. 

Another hopeful sign of future economic ties between the U.S. and Ethiopia is the African Growth and Opportunity Act (AGOA), which provides trade preferences for quota- and duty-free entry of certain goods into the United States. Yet, according to Solomon Mebre (PhD), professor of international relations at Addis Ababa University, this might not be as fruitful as the government may wish: “Ethiopia couldn’t utilize fully this opportunity because of capacity limitations.” Since the economic capacity of Ethiopia is inadequate, it limits the capacity to do business with countries like the United States, which has a vast and sophisticated economy, he adds.

Trade relations between Ethiopia and the United States are also weak in comparison to other countries. Ethiopia is currently one of the lowest-ranked trading partners of the United States, holding the 101st position out of countries worldwide. The lack of a robust trading partnership is evident from the Ethiopian side as well.  The United States is not at the top list of countries Ethiopia trades with; it stands 7th among destinations for Ethiopia’s export, while conflict-ridden Somalia came in first, accompanied by China, Germany, Netherlands and Saudi Arabia, which rounded out the top five. 

In 2013, the trade transactions between the two countries amounted to USD872 million. While goods exported to the US -- such as coffee, Niger seeds, footwear,  and knit apparels-- amounted to USD194 million, Ethiopia’s imports from the US -- including aircrafts, machineries, wheat, optic and medical instruments -- cost the country USD678 million, amounting in a trade deficit of USD485 million to Ethiopia.

Despite the unbalanced trade relationship, Ethiopia is benefiting from institutions in which the United States has a big stake, like the World Bank (WB) and the International Monetary Fund (IMF). Since the influence of the United States in these financial institutions is immense, Ethiopia has been benefiting from substantial loans and grants they offer. “Of course, our good relations with the US has helped us a lot in securing loans and grants from international financial institutions like the IMF and WB and other multilateral negotiations,” says Ambassador Dina. 

The support and partnerships between the two nations, however, is not without its tension points. America has repeatedly criticized Ethiopia for its lack of press freedom and human rights violations, among other things. During a press conference, Secretary Kerry said that he had concerns about Ethiopia’s recent detainment of six bloggers and three journalists during a meeting with high-ranking officials.

Ethiopia and United Stated trade relationHowever, since the two countries’ relations are largely diplomatic, things that happen within the countries don’t affect their relationships, says Professor Solomon. “America’s primary concern is its interests, which are largely security issues in the Horn of Africa,” he notes,  “other things are secondary.” Ethiopia’s role in stabilizing the crises-ridden Horn of Africa and being a partner to the U.S.’s “War on Terror” have made the country one of its key allies in the post-Cold War era. 

Experts note that the increasing importance of Ethiopia as a key ally to the United States may evolve into economic cooperation, especially in the private sector. During his visit, Secretary Kerry said that the United States will support Ethiopia’s endeavor for economic development.

Secretary Kerry also met with the foreign ministers of Ethiopia, Kenya and Uganda to discuss the challenges of getting South Sudan’s warring sides to halt their months of deadly fighting. He told the press that too many nations are at risk of descending into broad-based violence. “It is clear that the unspeakable violence in the Central African Republic, the deliberate killing of civilians on both sides in South Sudan… underscore the urgency of the work that we have to do together,” the Secretary added. Political or diplomatic relations between nations are usually accompanied by development assistance and support. Ethiopia seems to be getting its fair share in this regard. Development aid may help a country fix some challenges and deficits in the near future, but are ultimately difficult to sustain without stronger economic relations. Despite its century-long relationship and the current strategic partnerships, Ethiopia should take advantage of the business and investment opportunities America can offer. 

In his concluding remarks after Ethiopia and the U.S. signed the first Treaty of Commerce, which meant to strengthen the friendly relations between the two countries on December 27, 1903, in Addis Ababa, Emperor Menelik II said that “this little ceremony marks the beginning in our relations which will have some place in history.”  Over a century later, that day seems to echo in the historic ties the two countries have forged to date. And yet, there is still a long way to go before the promise of the Treaty of Commerce – to build stronger ties diplomatically and economically – is fully realized.

2nd Year . June 2014 . No.15

Berihun Mekonnen

EBR Staff Writter

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