Market Background

During the past two decades, shifting economic paradigms and conditions for investment and capital flows—globalization—have underlined the importance of African countries’ steps to widen and deepen regional integration. They have, in particular, removed open impediments to capital flows, enabling investors to freely select among alternative destinations on the basis of comparative advantage. In the destination countries, the recent financial crisis and the consequent reduction in official development assistance have also prompted governments to increase their efforts to mobilize private financial resources for public projects, especially for infrastructure.

African countries’ wish to attract external resources provides an incentive for them to tighten eco­nomic links among themselves and to take steps to boost intra-regional financial flows. Economic policies nationally have also enhanced countries’ attractiveness. These moves, coupled with abundant global liquidity, have led to a surge in all types of private capital flows into the continent.

Sub-Saharan Africa is set to enjoy a modest growth uptick, and decisive policies are needed to both reduce vulnerabilities and raise medium-term growth prospects. Average growth in the region is projected to rise from 2.8 percent in 2017 to 3.4 percent in 2018, with growth accelerating in about two-thirds of the countries in the region aided by stronger global growth, higher commodity prices, and improved capital market access.

On current policies, average growth in the region is expected to plateau below 4 percent—barely 1 percent in per capita terms—over the medium term. Turning the current recovery into sustained strong growth consistent with the achievement of the SDGs would require policies to both reduce vulnerabilities and raise medium-term growth prospects. Prudent fiscal policy is needed to rein in public debt, while monetary policy must be geared toward ensuring low inflation. Countries should also strengthen revenue mobilization and continue to advance structural reforms to reduce market distortions, shaping an environment that fosters private investment.

In addition to regional agreements, African countries have signed Business Integration Treaties (BITs) with each other and with developed countries. Many African states have also signed double taxation treaties (DTTs). Over 70 per cent of the treaties are signed with developed coun­tries, particularly in Europe, where the United Kingdom, France, Germany and Italy have the greatest number.

African countries are signatories to multilateral instru­ments and are members of related bodies that have pro­visions for the treatment of foreign investors. The most important are the WTO, with 44 African members; the In­ternational Centre for Settlement of Investment Disputes, which provides facilities for conciliation and arbitration of international investment disputes, with 46 African signatories; and the Multilateral Investment Guarantee Agency, which provides political risk insurance, techni­cal assistance and dispute mediation facilities, with 50 countries from the continent.

International investment agreements (IIAs)—RIAs and BITs—are also designed to provide comfort to foreign investors, in particular by clarifying security provisions, fairness, protection, transparency and predictability of the policy and regulatory framework that will govern investment activities.

In the investing sphere, African regional agreements follow the basic pattern of international agreements, and include the following items.

Admission and establishment of investment:

  • Fair and equitable treatment
  • MFN and national treatment
  • Protection against expropriation
  • Transfer of funds
  • Performance requirements
  • Investor–state dispute resolution

Ethiopia is the fastest growing economy in Arica and the 4th in the world (according to IMF 2018 report), besides being one of the few real investment destinations in Africa. The country had an average of 10.3% GDP growth from 2004 – 2015 (World Bank). There are tangible indicators that reveal the future development of Ethiopia is becoming brighter. Forecast of real GDP growth stands at 8.5% in 2018 (IMF 2018); According to forecasts by the British Economist Intelligence Unit (EIU), the country will score real GDP growth between 7.8 and 10.0 percent for 2019 to 2023. This is a success, since on average only half of this figure is likely to be achieved in sub-Saharan Africa, and Ethiopia is the undisputed leader in East and central Africa anyway. The service sector is developing at least as well as industry, benefiting from the demand of a population of over 100 million, which has been almost completely undersupplied, and from prospering tourism.

Products made in Ethiopia enjoy preferential access to the markets of 19 African member countries in the COMESA agreement; with a total population of 400 million+. Ethiopian products qualify for favored access to both the European Union market under the EU’s Everything-But-Arms (EBA) initiative Ethiopian products qualify for US market under the African Growth and Opportunities Act (AGOA) and the Generalized System of Preference (GSP) trade agreements as duty free products with no quota restrictions.