Wednesday, June 12, 2024

Forex crunch affecting FDI


The current hard currency crunch that affects the activity of industries is now challenging the attraction of foreign direct investment (FDI) to the country.
It has been reported that the hard currency shortage has been observed in the past many years, while the recent effect is much higher than what was observed before.
The business community engaged in the import business has been claiming that they are unable to run their business as usual. On the other side the manufacturing industry that is mainly aligned with hard currency to import raw materials and parts for machines claimed that they are forced to undertake their operation with not more than 10 percent of their capacity.
It is also indicated that some of the international investors, who are mainly engaged on huge investments that local investors do not have the know-how or capital, also suffered from lack of hard currency to transfer their dividend out of the country.
Potential upcoming FDIs who are informed about the forex crunch are said to be rethinking their investment in the country.
A company called Square Pharmaceuticals Limited, the flagship company of Square Group, a Bangladeshi company has changed its mind to invest in Ethiopia after it got information that it would be difficult for it to transfer back its dividend within short period of time. The company then changed its first plan and went to Kenya.
The company which is a leader on the pharmaceutical industry in its country was first interested to invest in Ethiopia since the government of Bangladesh allowed the company to invest out of the country as a pilot project.
“Now our company, which is the biggest pharmaceutical industry in Bangladesh that has 267 pharmaceutical industries, has decided to invest in Kenya,” an official at the company said.
About two years ago a Bangladeshi DBL Group, a platinum supplier for H&M, a Swedish based global clothing retail giant, has got promotional support from its government to invest out of the country and is now engaged in integrated industrial complex with over USD 100 million investment in Meqele, Ethiopia.
The developing nation of Bangladesh does not allow local investments to go out of the country, while it has provided permit for the first time to DBL to invest outside the nation as a model. The company has secured significant finance from the state owned Development Bank of Ethiopia and Sewedfund, a parastatal organization in Sweden for its investment in Ethiopia.
Officials at Square told Capital that DBL has been allowed to invest outside Bangladesh “but our case is special since we got a green light to come up with equity from our country to invest outside our nation,” they said.
Square Pharmaceutical that has over 17 percent market share in its country has an experience of 60 years and annual sales of USD 417 million.
Ethiopia has become a favorite FDI destination since it facilitates several preferential advantages to absorb foreign investors. For instance the government is facilitating land with very low lease rate, low electric tariff and the cheap labour is also the another big advantage that FIDs are interested to invest in the country.
In the first half of the current budget year the country attracted USD 2.2 billion FDI according to the data from Ethiopia Investment Commission.

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