Ethiopia’s economic liberalization attracts increased FDI: Pakistani Ambassador

Addis Ababa, August 16, 2024 (FBC) – The economic liberalization in Ethiopia is expected to draw more Foreign Direct Investment (FDI), similar to the success seen in Pakistan following its recent reforms, according to Ambassador Atif Sharif.

In an interview with EPA, the Pakistani Ambassador to Ethiopia praised Prime Minister Abiy Ahmed’s administration for tackling economic obstacles by allowing greater participation of the private sector, leading to a more balanced economic environment.

Ambassador Sharif noted that Ethiopia has historically operated under a more state-controlled economic model, contrasting with many nations that have shifted towards liberalization where the private sector plays a pivotal role, and governments primarily focus on regulation.

As a result of this controlled approach, he pointed out that Ethiopia’s imports significantly exceed exports, resulting in foreign exchange challenges.

“In my country and in many parts of the world, the exchange rate is determined by the forces of supply and demand. When demand for USD exceeds supply, the local currency depreciates,” he explained. This mechanism fosters a natural equilibrium and encourages exports.

The Ambassador commended the PM Abiy’s administration for making the strategic choice to implement homegrown economic reforms, which have facilitated Ethiopia’s participation in the IMF program and attracted billions in funding from the IMF and World Bank.

Sharif highlighted that these reforms have introduced a demand-and-supply framework for market pricing, thereby stimulating investment opportunities in the country. Ethiopia has also opened its banking industry, wholesale and retail sectors, and commodity export markets to foreign investors.

He noted that countries previously considered socialist, such as China, are also liberalizing their economies by enhancing the role of the private sector and implementing market-based exchange rates. Pakistan adopted a similar economic structure two years ago, allowing its currency to depreciate significantly before achieving stability.

While acknowledging that Ethiopia may experience short-term effects from these economic reforms, such as inflation and rising prices, he is optimistic that adjustments will occur over time. He stressed the importance of strengthening the private sector and promoting public-private partnerships for major projects, a strategy that has proven successful in Pakistan.

The reforms have helped Pakistan cultivate competitive companies that reduce prices and attract FDI, which he believes bodes well for Ethiopia’s future prospects.

In the past two years, two significant investment delegations from Pakistan, comprising 17 companies, have visited Ethiopia to explore opportunities within the country. The Ethiopian government has provided incentives, including affordable electricity, industrial park facilities, and duty-free import privileges.

“I believe these incentives are sufficient; now we need to focus on helping investors understand the market,” Sharif stated. He added that the recent foreign exchange reforms will facilitate a smoother entry for foreign investors, including Pakistani firms, eager to invest in Ethiopia.