Top 10 FDI Sources in Ethiopia in 2011/12

The foreign direct investment (FDI) in Ethiopia, in 2011/12, was hugely dominated by two countries. Perhaps, contrary to what many people might think, Turkey and India took 58.75 per cent of the total FDI capital registered in the last fiscal year. If we see the data of only the top 10 total capital, the two countries’ contribution increases to more than 81 per cent. In terms of job opportunities, 62 Indian projects which created employment opportunities for 46,131 people (over 28 per cent of the total jobs FDI brought in the year) leads the group, while Turkish investors with 22 projects created 12,004 people is the second. Investment from neighbouring Sudan which created 11,645 jobs was the third. Though the Ethiopian Investment Agency should be credited for facilitating the Turkish and Indian investment to grow, the need to diversify sources of FDI is equally important. Huge dependency on few countries will create its own problem at the end. What if these few countries are hit by an unexpected economic meltdown?

Editor’s Note: A developing nation may increase the amount of capital stock by incentivizing and encouraging capital inflows. This is done more commonly through the attraction of FDI.

While FDI help countries via productivity improvements and technological transfers, critics have also raised concerns over the usefulness of direct investments. This follows the rationale that the long-run balance of payment position of the host economy is jeopardized. This is because once the initial investment starts to turn profitable; it is inevitable that capital returns from the host country to where it originated from.

The key implication of this is economists argue: While the levels of FDI tend to be resilient during periods of economic uncertainty, it has the potential of adversely affecting the net capital flow of a developing economy especially if it does not have a healthy and sustainable FDI schedule.

This calls for coming up with a clear investment map where the country’s needs are clearly identified. It also calls foe identifying the investment gaps the nation has to design sustainable FDI schedules.