Friday, March 6, 2020

Is US Really Ready to Invest $5 Billion in Ethiopia?

The Financial Times published on 5 March 2020 an article titled "US Ready to Back Ethiopian Reform with $5bn Investment" by David Pilling.

Ethiopia's minister of finance told the Financial Times that the United States is ready to invest $5 billion in Ethiopia through its newly created International Development Finance Corporation (IDFC) in an effort to support private sector reform and counter China's influence in the country. Deployment of the funds from IDFC depends on Ethiopia's successful implementation of certain reform measures. The chief executive officer of the IDFC told the Financial Times that if these reforms are implemented, Ethiopia would be well positioned for a "significant" IDFC commitment that would encourage "billions" in financing from the American private sector.

It is time for a reality check. First, funding from the IDFC is predicated on Ethiopian implementation of unspecified reforms. These reforms may or may not occur. Second, the American private sector will have to come up with most of this $5 billion investment, not the IDFC. The private sector will engage in Ethiopia only when it believes it can make a profit. It is too early to determine what projects in Ethiopia are seen as sufficiently profitable to attract $5 billion in investment. Third, the IDFC, which replaces the U.S. Overseas Private Investment Corporation, is designed to support American investment globally, not just in Africa and certainly not just in Ethiopia, which will be competing with the rest of the world for support from the IDFC.

While the IDFC is an important new initiative that has the potential to encourage and support increasing American investment in Africa and globally, it is also important to be realistic about the results in any particular country.