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Why Foreign Investment Is Still Flowing to Ethiopia

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By all accounts, Ethiopia has had a tough year. The effects of El Nino were deeply felt across the country. Agriculture was impacted. So was the life of millions of Ethiopians earning a living from it.Global mainstream media reported the return of drought to Ethiopia. These negative stories tested the rapidly improving image of the nation. Further, governance issues spilled into the streets and the nation went through a turbulent few months. Normally, these issues should be enough to deter investors from any country.

Nevertheless, the Ethiopian Investment Commission (EIC) announced that more than half a billion dollars in Foreign Direct Investment (FDI) entered the country in the last three months. Even more interestingly, 3.5 billion dollars worth of foreign direct investment from 124 investors was being processed. So how do we reconcile these two seemingly irreconcilable events?

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The answer lies in Ethiopia's emerging global competitiveness in light manufacturing industries, particularly garments and leather products. You don't have to take my word for it. McKinsey Global Institute (MGI) recently noted that Ethiopia's "unit labor costs for the manufacture of polo shirts are 0.14 dollar per unit, less than half the level in China and Vietnam. In the case of leather loafers, its unit labor costs are one-third those in Vietnam and one-fifth those of China.