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Ethiopia: Infrastructure Investment for FDI Inflow

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The Ethiopian government has pursued extensive development of industrial parks that can serve for specific sectors such as textile & apparel, leather & leather products, pharmaceuticals, agro-processing and the like. Among these parks, the Hawassa Industrial Park that is approximately located 275 kms south of Addis Ababa has been dedicated for textile & garment. The foreign companies engaged in textile and garment making at the Park have been exporting their products to the global market. As Ethiopia bids to be the leading manufacturing hub in Africa, some high-profile multinational corporations are making their harbors here.

American apparel corporations like Calvin Klein, Tommy Hilfiger have leased spots at the Hawassa Industrial Park. Besides, similar gigantic corporations from Europe like that of Swedish H&M, PVH Corp are settling in the country.

Multinational companies commonly prefer countries with well-established and reasonably developed infrastructure, as they can optimally utilize the imported machinery in such economies. The amount, availability and quality of supportive infrastructure is essential for the smooth functioning of multinational’s affiliate production and trade activities.

Better infrastructure can significantly reduce overhead costs and thereby positively affect investor’s decision. Though infrastructure functionality alone is not multinationals’ engine of production, it for sure is their wheel of economic activity in the developing countries.

Realizing this phenomenon, the Ethiopian government has been allocating huge amount of resources in infrastructural development to make sure the flourishing of private investments in the country. For instance, the road infrastructure under construction throughout the country that stretches for over 2000 kms is considered to remarkably increase foreign trade by cementing regional integration, according to the Ethiopian Road Authority.

The roads are said to have colossal significance to Ethiopia and the region as they are instrumental in boosting trade and economic integration in the Horn, Samson Wondimu, Authority Communication Director told The Ethiopian Herald. He further added that the infrastructure also enables the nation to diversify port options amid its ever increasing need for additional trade outlets.

Accordingly, the Addis Ababa – Nekemt – Asosa – Kurmuk main road is in its final phase with an expense of over 500 million Birr. This infrastructure conveniently enables Ethiopia to utilize Port Sudan, explained Samson.

As part of the Mombasa – Nairobi – Addis Ababa corridor, the asphalt concrete road that stretches from Hawassa to Moyale is under construction, according to the Authority. The road is part of the Trans-African Highway and it directly connects Addis Ababa to Mombassa availing another port connectivity to the nation.

Similarly, Jigjiga-Togochale asphalt concrete road that is open for traffic connects the nation to Berbera Port enhancing legal import and export in the region, added Samson. Moreover, the roads from Shire to Lugdi and Gondor to Metema in northern part of the nation are open to traffic to foster trade between Sudan and Ethiopia. On top of these road links, Gambella – Jikawo, Woyto to Namurapuz in South Omo and the Mizan Teferi – Boma road that connects the nation to South Sudan have tremendous advantages in greasing the countries economy.

These and other road networks that have been built on the expense of 12.2 billion Birr in the country play considerable roles in fueling foreign trade, cementing regional integration and attracting foreign investment to the region in general and the nation in particular. From a total of 2000 km of road project, 1230 km which accounts for 62.5 percent is completed so far, according to the Authority.

The Ethiopian Investment Commission claims that state investment in infrastructures has helped to intensify Foreign Direct Investment (FDI). It also contributed a lot in accelerating Ethiopia’s target to become Africa’s leading manufacturing hub in a near future. Commission commissioner Fitsum Arega in an exclusive interview with The Ethiopian Herald said that the government of Ethiopia is hugely investing on infrastructures in a bid to boost nation’s foreign trade.

“State investments on railway lines, road networks, maritime, dry ports, airline cargo, industrial parks among others are significantly heightening private sector investment in consistence with the magnitude of investment the government is undertaking,” stated Fitsum.

The importance of state investment in fostering the private sectors’ involvement in the construction sector is considerably highlighted. Moreover, state investments are also colossal to encourage the private sector to take part in a variety of manufacturing industries thereby transforming nation’s foreign trade.

Fitsum added “The general overhaul of infrastructures through state investment accelerates swift trade exchange on top of availing less expensive means of business transaction that puts Ethiopia in a competitive advantage on the global business arena.” He also highlighted the centrality of the notion “speed to market” particularly crucial to perishable and fashionable commodities deepening nation’s business culture.

Hence, in sealing the quick link of manufacturing spots to transit posts, the government’s effort in improving Hawassa’s connectivity with the Addis-Adama highway through extension to Hawassa, the construction of a domestic airport at Hawassa, and the extension of the Addis – Modjo – Djibouti railway to Hawassa can be a remarkable leap.

Abundance of competitive labor, repatriation of investment and profit, temporary income tax exemptions for investments in selected sectors, duty-free imports of capital goods, an excellent national airline, fast growing infrastructures, competitive energy costs and the untapped consumer markets are key elements for attracting FDI to Ethiopia.

Renewable energy, construction, health-care, tourism, textile and apparel, leather products, telecommunication infrastructure and value-added services, and aviation support services and products are some of the key sectors targeted by the government in GTP II.

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