US ready to back Ethiopian reform with $5bn investment

US ready to back Ethiopian reform with $5bn investment

New development agency seeks to counter China by funding private sector
Ethiopia finance minister Ahmed Shide said US funding would depend on implementation of “reform measures” © Getty
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The US is ready to invest $5bn in Ethiopia through its newly created International Development Finance Corporation in an effort to support private-sector reform and counter China’s influence in one of Africa’s fastest-growing economies.

“More than $5bn is expected in the coming three to five years,” said Ahmed Shide, Ethiopia’s finance minister, adding that the US institution had expressed interest in investing in telecoms, geothermal energy, logistics and sugar, all sectors undergoing some degree of privatisation.

Speaking in an interview in Addis Ababa, Mr Ahmed said the deployment of funds would depend on Ethiopia’s successful implementation of “certain reform measures”. Those changes are understood to be related to foreign investors’ ability to hold offshore accounts, repatriate foreign currency and settle disputes under New York arbitration rules.

Washington is keen to encourage the expansion of the private sector in Ethiopia, a strategically located country of 110m people, which has historically followed a state-led development model, partly funded by infrastructure investment from China.

“We are working in partnership with Ethiopia to undertake economic reforms that will further attract private sector capital,” Adam Boehler, chief executive officer of the DFC, told the Financial Times. “If adopted, these reforms could position Ethiopia for a significant DFC commitment that would catalyse billions in financing from the private sector.”

The DFC replaced the US Overseas Private Investment Corporation in 2019 with an expanded lending capacity of $60bn and a remit to help Washington’s foreign policy aims,including countering the influence of China — and Russia — in Africa.

The agency, which has received the backing of Donald Trump, the US president, can support American and other private companies investing in developing countries through loans, insurance and now equity, a tool used by European equivalents such as Britain’s CDC Group.

Last month, Mike Pompeo, US secretary of state, told an audience in Addis Ababa, Ethiopia’s capital, that Washington was offering an attractive investment alternative. Without naming China, he said that “authoritarian countries” came with “empty promises” and encouraged corruption and dependency.

Mr Ahmed said the anticipated US investments would help Ethiopia’s efforts to correct the side-effects of a development model that had produced 15 years of near double-digit growth but had created what he called “macro imbalances”, including balance of payments problems and inflation.

In December, Ethiopia clinched a $2.9bn IMF programme, one of the biggest in the fund’s history in Africa, in an endorsement of Ethiopia’s so-called Homegrown Economic Reform plan.

Under Abiy Ahmed, prime minister since 2018, Ethiopia has committed to opening up its economy and is planning a series of privatisations, including the sale of a 49 per cent stake in Ethio Telecom, the world’s largest remaining telecoms monopoly, and the allocation, through a competitive auction, of two new telecoms licences.

Mr Ahmed said he expected the telecoms sale to be completed in four to six months and to raise several billion dollars, though elections scheduled for August could delay the sales, according to some observers.

MTN of South Africa, Orange of France, Vodafone of the UK — part of a consortium with Vodacom of South Africa and Safaricom of Kenya — and Etisalat of the United Arab Emirates are among those that have expressed interest in the telecoms auction.

Although no US company is expected to bid, the DFC is permitted to invest in foreign companies aligned with US foreign policy goals.

Mr Ahmed said “opening and reform” would “consolidate the gains and correct the imbalances”. He predicted the economy would grow between 9 per cent and 10 per cent in 2020, above the IMF estimate of 6 per cent, which was lowered to reflect the impact of a planned cut in government spending.

Mr Boehler of the DFC said Washington fully supported Mr Abiy’s reform agenda. “Ethiopia has taken important steps recently to advance competitive, open markets, individual freedoms, and rule of law,”