Majority Of FDI Projects Go Unrealized, Investment Commission Asleep At Wheel: Report

Less than 40 percent of foreign direct investment (FDI) projects registered over the last six years have gone operational, while many factories have been forced to cut or cease production owing to a lack of support, reveals a new report from the Anti-Corruption Commission.

The Commission’s ‘FDI Licensing and Post-investment Implementation Systems’ covers six years leading up to 2025 and was published this month despite being finalized in the first half of the year.

It indicates the Ethiopian Investment Commission (EIC) issued a total of 1,509 permits to foreign investors during the reporting period. However, only 586 investors (39 percent) have managed to start operations since receiving their permits, according to the report.

Its authors criticized the EIC for failing to duly support investors.

The report reveals the Commission responded to only a fifth of the 213 FDI-related complaints it received over the reporting period. Many of the complaints and requests for special support stemmed from security risks, according to the report.

More than half (116) came from investors in Oromia, while 59 investors in the Amhara Regional State made appeals to the EIC.

However, the Commission responded only to 48 of the appeals, according to the report.

For instance, Emirates Steel Ethiopia PLC leased a plot in Gelan, Oromia, for a basic iron and steel manufacturing plant. However, the lack of a power line meant the company was unable to start production, and the Oromia regional administration eventually reclaimed the land.

The report notes the Commission failed to resolve the issue despite repeated appeals from the UAE’s embassy in Addis Ababa. It reveals the manufacturer had paid electricity bills in advance.

Another example is Saudi Agricultural Investment Co Ltd Ethiopia, which planned to build a manufacturing plant in Burayu, Oromia. The company paid lease and right of way compensations ten years ago but authorities denied it access to land, according to the report.

As a result, it was forced to lease space in warehouses to store its equipment for years, incurring huge losses.

The report highlights that while Ethiopia has attracted an average USD 3.3 billion in annual FDI over the six-year period, only 586 foreign-investor-backed projects valued at 281 billion Birr (around USD 1.8 billion at current exchange rates) have been able to get off the ground.

It also indicates that while FDI-backed businesses managed to register USD 953 million in exports over the period, their performance has been declining for the last two years.

Some of the FDI projects assessed by the Anti-Corruption Commission include Ayka Addis Textile and Investment Group PLC, and Saygen Dima Textile SC.

In April 2020, the Council of Ministers opted to write off 2.1 billion Birr in unpaid taxes from Ayka Addis after the textile plant’s Turkish investors defaulted on loans they took from the state-owned Development Bank of Ethiopia (DBE) following years of reported losses.

Ayka Addis also enjoyed 773 million Birr in tax breaks and failed to pay 112.5 million Birr towards its employees’ pensions.

Similarly, the Council wrote off 28 million Birr in unpaid taxes for Saygon Dima, whose Turkish investors also failed to repay loans taken from DBE. The Ethiopian embassy in Ankara, the Foreign Ministry, EIC, and the bank are reportedly moving towards auctioning off the company.

The report notes that 307 FDI permits remain valid despite remaining inoperational for more than two years, giving the Commission the right to revoke them. Not revoking the permits is illegal, according to the report, which accuses the Commission of renewing permits despite an evident lack of progress.

The report alleges the Commission allowed foreign investors to skirt around the USD 200,000 minimum capital threshold, while others, such as the investors behind Ayka Addis and Saygon Dima, were permitted to access huge loans without collateral.

The report criticizes EIC and the Customs Commission for lacking procedures to follow up on incentives offered to investors, leaving them open to abuse that can cost the government billions of Birr in revenue.

The report highlights that EIC has failed to address forex shortages that have crippled manufacturers like Transsion Manufacturing PLC, domestic producers of Tecno mobile devices. The firm has been forced to shut down 12 of its 14 production lines due to a lack of forex to import inputs.

While presenting quarterly report to the parliament few weeks ago, MPs urged officials of EIC including Commissioner Zeleke Temesgen, to address multiple challenges investors are facing.

Led by Commissioner Samuel Urkato, the Federal Anti-Corruption Commission has recently produced reports across several sectors, seriously criticizing government institutions for the various types of corruption loopholes ending at loss of billions of public money, underperformances.