Saturday, August 24, 2013

Chinese FDI in Ethiopia

I recently ran across an excellent World Bank case study titled "Chinese FDI in Ethiopia: A World Bank Survey" dated November 2012.

The World Bank surveyed 69 Chinese enterprises doing business in Ethiopia with a 95-question survey in May/June 2012.  The Survey covered various aspects of the foreign direct investment climate in Ethiopia.  FDI from China to Ethiopia increased from almost nothing in 2004 to an annual amount of $74 million in 2009 and $58.5 million in 2010.

There are 4 principal drivers of Chinese FDI in Ethiopia:
--To take advantage of a good understanding of the investment climate gained from entrepreneurs' social networks.
--To take advantage of the perceived opportunities provided by the current state of the Ethiopian economy.
--To maximize cross-border investment incentives provided by the Ethiopian and Chinese governments.
--To make a strategic move of the parent company into the African market to invest in favor of the stable political environment in Ethiopia.

Chinese investors encountered 6 principal obstacles:
--Trade regulation and customs clearance inefficiency.
--Perceived foreign exchange rate risks that deter investment.
--Tax administration inconsistency and inefficiency.
--Inadequate education levels that impede productivity and skill transfer.
--Insufficient local access to finance.
--Government regulation that affects business efficiency.

The survey findings found that despite the perceived obstacles, Ethiopia is an attractive business destination for Chinese enterprises.


  1. Most of the obstacles cited seems to be common across Africa and most other developing nations. It would have been much better had the US and Europe arrive in Africa first with their investments. As US and most European businesses somehow observe the business ethics backs home, the cancer of corruption and nepotism would have been discouraged and Africa would have a chance of coming out less ugly.

    With China going there first, I am afraid their culture of "Guanxi" will be an enforcement of bad behavior in Africa, although I have great admiration for the Chinese to dare go there in the first place with a 'win-win' business strategy.

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