Ethiopia’s recent macroeconomic reforms have created significant opportunities for renewable energy investment, a sector that has long faced challenges due to regulatory and financial constraints. Despite the government’s ongoing efforts to promote renewable energy development in the private sector, progress has been limited. However, the introduction of a floating exchange rate by the National Bank of Ethiopia (NBE) and the focus on convertibility guarantees are now seen as game-changers for foreign investors.
The Ethiopian Investment Commission (EIC), led by Commissioner Hanna Araya Selassie, has highlighted the importance of these reforms in overcoming one of the key barriers to foreign direct investment (FDI) in the country: the lack of access to foreign exchange. “When investors think of Ethiopia, although our results in foreign direct investment are good, the lack of foreign exchange remains a challenge. However, the current macroeconomic reforms are great news for investors inside and outside the country,” said Hanna.
The NBE’s new directive, which allows local currency funds to be converted into foreign currency at the prevailing exchange rate, addresses a long-standing concern among foreign investors regarding the convertibility of funds. This guarantee is expected to significantly enhance investor confidence, particularly in the renewable energy sector.
Ethiopia has vast renewable energy resources, with the potential to generate over 60,000 megawatts of electricity from hydroelectric, wind, solar, and geothermal sources. However, the country’s current installed generation capacity stands at only 5,200 megawatts, reaching less than 60% of the population. The government has ambitious plans to increase this capacity to 17,000 megawatts within the next decade, but ongoing economic development and population growth could still outpace supply.
The renewable energy sector in Ethiopia has been hampered by several challenges, including inadequate infrastructure, technical and financial difficulties in developing renewable energy technologies, regulatory and policy bottlenecks, and limited access to financing. Additionally, the temporary nature of some renewable energy sources and challenges related to grid integration and stability have further complicated efforts to scale up the sector.
In response to these challenges, the EIC, in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and the Ministry of Water and Energy, has announced a three-year project aimed at promoting Ethiopia as an investment destination for renewable energy. This initiative seeks to attract international investors by addressing policy and regulatory barriers, improving investment options, and showcasing Ethiopia’s vast potential in solar, wind, and other renewable energies.
“Ethiopia’s potential in the energy sector has not been sufficiently promoted,” said Commissioner Hanna, adding that the country is working to boost the sector by attracting investors through targeted promotional efforts. By identifying and addressing problematic policies and practices, Ethiopia hopes to create a more favorable environment for renewable energy development.
The recent macroeconomic reforms, particularly those related to foreign exchange, are expected to play a crucial role in driving foreign direct investment in Ethiopia’s energy sector. With the right policies and incentives in place, Ethiopia could emerge as a leading player in the renewable energy market, harnessing its abundant natural resources to power its economic growth and development.
