Political unrest hits Ethiopia FDI

3 Nov

Posted by The Ethiopia Observatory (TEO)
by FDiIntelligence
 

Anti-government protests in Ethiopia have been reignited after 55 people were killed at a festival-turned-protest in early October. Widespread demonstrations followed and foreign businesses have become symbolic targets for anti-government protest. A six-month state of emergency now prevails, alongside a plethora of tough counter-measures.

An estimated 24 foreign companies have suffered millions of dollars in damage this October, according to UK-based consultancy Verisk Maplecroft. News site AllAfrica reports that 11 factories have been burned and seven foreign-owned flower farms damaged, such as AfricaJuice, which employs 2000 people.

The violence follows a wave of unrest that began last November among the Oromo, Ethiopia’s biggest ethnic group. Originally, protesters railed against the government’s plan to expand Addis Ababa into surrounding Oromo lands. However, their demands have escalated to include broader reforms, not least because 500 people have been killed by security forces since last year, according to Human Rights Watch.

The Oroma claim they are politically and economically marginalised. The People’s Revolutionary Democratic Front (PRDF), dominated by the Tigray minority, has ruled since 1991 and maintained an ambitious economic programme that relies heavily on Foreign Direct Investment (FDI). Ethiopia’s GDP growth has been exemplary, averaging nearly 10% since 2004, according to the World Bank.

However, industrialisation has been crudely implemented, with Oromo and Amhara land being a prime target. Protesters contend that they have received scant compensation for their displacement and benefited very little from the country’s stellar GDP growth.

For their part, foreign investors have reaped more obvious rewards and privileges as the government “attracts FDI by providing land and services cheaply”, says Awol Allo of the law department at the UK’s Keele University. Foreign investors have thus been increasingly targeted, especially of late.

The US has issued travel warnings, while the PRDF is limiting the movement of foreign nationals, because a US citizen was killed recently during a protest, possibly by accident.

Dutch company Esmeralda Farms and a US-owned farm have already pulled out of Ethiopia. “The government is rattled by the prospect of capital flight,” according to The Economist, and the state of emergency is “an attempt to reassure foreign investors [that] security is under control”.

However, although tough counter-measures such as arbitrary arrests and press limitations have restored stability in the past, the US government fears that the scale and nature of this episode may render such tactics “counter-productive” if grievances are not addressed.

Fitch Ratings states that “the key near-term risk from the unrest is… in particular, lower FDI.” According to greenfield FDI tracker fDi Markets, the number of greenfield investment has significantly fallen since last year. In 2016 to date, Ethiopia has secured only nine projects, while this time last year it reported 25 and in 2014, 31.

More worryingly, Ethiopia’s main sources of FDI – the US, South Africa, India, Turkey, the UAE, Germany and the UK – have not undertaken any greenfield investment since November 2015, an unusually long but unsurprising interval.

Contrastingly, the latest greenfield investment from China, Ethiopia’s second largest source of FDI, was in July 2016. This reflects China’s commitment to increased outward investment – specifically the One Belt, One Road project – as does the recent completion of the $3.4bn Chinese-built railway between Ethiopia and Djibouti.

For some, this is more evidence of China’s geopolitical gains in Africa, while some see the west as floundering.

The PRDF has fallen back on geopolitics to explain the recent unrest. It accused “foreign enemies”, namely sub-state Egyptian and Eritrean groups, of “arming, financing, and training those elements” intent on violence, terrorism and unrest, that is, the protesters.

As it stands, the Ethiopian government is keeping a lid on the cauldron. However, this time there is a sense that, should grievances remain unaddressed, instability could ensue and, with it, the ironic loss of PRDF’s prized FDI.
 

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