The 2024 World Investment Report paints a concerning picture for Ethiopia’s efforts to attract foreign direct investment (FDI) and financing for sustainable development projects.

According to the report published by the United Nations Conference on Trade and Development (UNCTAD), global FDI flows remained stagnant at $1.3 trillion in 2023, with developing countries like Ethiopia seeing a 7% decline. This downturn was driven by a combination of global crises, trade tensions, and tightening financing conditions.

Notably, the report found that investment in new industrial and infrastructure projects in developing countries declined, while investment in sectors relevant to the Sustainable Development Goals (SDGs) fell by more than 10% globally. This is particularly troubling for Ethiopia, which has made the SDGs a central pillar of its development strategy.

“Stagnant SDG investment and insufficient funding is severely hindering implementation of the 2030 Agenda and the SDGs, particularly in least developed countries,” said UN Secretary-General António Guterres in the report’s preface. “We need urgent action to remove obstacles and provide a transparent, streamlined investment climate for sustainable development.”

The report highlights that investment facilitation and digital government solutions have become more prominent features of national policies and international agreements, but these efforts have yet to translate into a significant increase in financial flows to developing countries.

“Despite these efforts, finance is not flowing at sufficient scale, due to high interest rates and geopolitical conditions,” Guterres said. “That means we must redouble our efforts.”

For Ethiopia, the challenges are multifaceted. The country has made strides in improving its investment climate, including through the establishment of a one-stop shop for investors and the introduction of digital government services. However, the report suggests that more needs to be done to ensure that these reforms effectively channel investment towards sustainable development projects.

“The SDG Stimulus we have proposed is a practical and achievable means of delivering this,” Guterres said, referring to UNCTAD’s call for a coordinated global effort to mobilize sustainable finance at scale.

As Ethiopia continues to navigate the complex global investment landscape, policymakers will need to prioritize strengthening investment governance and aligning financial flows with the country’s sustainable development agenda. The 2024 World Investment Report serves as a stark reminder that the road to achieving the SDGs remains long and arduous, but with concerted action, Ethiopia and other developing countries can overcome these challenges.

As Africa grapples with the daunting task of financing its ambitious development agendas, one country has emerged as a standout performer – Ethiopia.

According to the 2024 Mo Ibrahim Foundation Forum Report, Ethiopia is bucking the continental trend when it comes to mobilizing domestic resources. The report notes that Africa as a whole has government revenues that are only half that of OECD countries relative to GDP.

However, Ethiopia is an exception. “Ethiopia has been able to steadily grow its tax revenues, which now account for a respectable 15% of its GDP,” the report states. This places Ethiopia well above the African average, demonstrating the country’s ability to effectively harness its own resources to fund development.

The report also highlights Ethiopia’s success in tapping into other domestic financing sources, such as remittances and pension funds. Ethiopia accounts for over 12% of Africa’s total remittance inflows, which reached nearly $100 billion in 2022. Additionally, the country’s pension funds, while still small compared to global standards, have grown to over $10 billion in assets.

“Ethiopia’s approach to financing its development priorities serves as a model for other African countries,” said Akinwumi Adesina, President of the African Development Bank Group, who contributed to the forum report. “By focusing on enhancing domestic resource mobilization, Ethiopia is charting a more sustainable path forward.”

The report notes that while substantial external financing is still needed to fully implement Africa’s development agendas, countries like Ethiopia are showing that the continent’s own resources can play a central role. As Africa works to unlock its vast potential, the report suggests that other nations would do well to follow Ethiopia’s lead in mobilizing domestic resources for growth and transformation.

The report notes that while substantial external financing is still needed to fully implement Africa’s development agendas, countries like Ethiopia are showing that the continent’s own resources can play a central role. As Africa works to unlock its vast potential, the report suggests that other nations would do well to follow Ethiopia’s lead in mobilizing domestic resources for growth and transformation.

The report, “Financing Africa: Where is the Money?” provides a comprehensive analysis of both the financial needs deemed necessary for Africa to meet its development and climate goals and the resources that are currently available. The report makes the point that the resources mostly exist, but either lack the relevant processes to be effectively allocated where needed, or, significantly when it comes to domestic resources, are either dormant or misused.

Commenting on the release of the report, Mo Ibrahim, Founder and Chair of the Mo Ibrahim Foundation, said “We need a complete change of paradigm. This is not about Africa coming to the developed world with a begging bowl and developed countries considering how much more they can pledge.  This is about smarter money, not just more money. As this report outlines, the money is already there. But current processes prevent resources from being used to properly address the challenges. Steps must be taken to reform the international financing system and update African debt structuring, risk assessment and mitigation and aid conditionalities. Even more, our continent must stop squandering its own assets and take proper ownership and responsibility. In short, we must apply good governance to ensure these assets are adequately leveraged for the best interests of our people.”

The report first identifies the substantial but often incoherent numbers associated with Africa’s development and climate goals. While the task of assessing financial needs is complicated by inconsistent data from multiple sources, the figures all point to staggering numbers. And whatever the numbers, the report underscores the critical need to ensure climate finance does not crowd out development finance, forcing African nations to choose between development for their population and environmental sustainability.

The report then analyses financial contributions from non-African sources. Official Development Assistance (ODA) accounts for nearly 10% of the continent’s financial resources. But ODA from western donors remains primarily directed towards health and education, and often comes with specific conditionalities. Meanwhile non-DAC countries commitment to Africa is growing steadily and addresses the demand. Debt cannot be the way out, as stock and servicing costs have tripled since 2009, and its increasingly complex structure renders traditional relief efforts obsolete. Other key issues include inadequate African risk assessment and mitigation, the IMF’s specific surcharges, and dormant ODA funds.

But the main source could well be Africa’s domestic resources, which, according to the African Union, should on average cover between 75% and 90% of the needs to finance Agenda 2063. However, most of those resources appear to be potential or dormant at best and are too often misused. Preventing leakages through Illicit Financial Flows (IFFs) could bolster resources by up to $100 billion annually, surpassing both ODA received ($81 billion annually) and remittances sent back to the continent ($97 billion annually). With the average tax-to-GDP ratio in Africa still at 15.6% – half the OECD average – strengthening tax systems appears a quick win. Indeed, Africa lost $46 billion in corporate taxes due to tax incentives in 2019, more than half of ODA received. The report also highlights the potential of leveraging remittances, sovereign wealth funds, pension funds, and private wealth. Additionally, monetising Africa’s green assets including biodiversity, critical minerals, carbon-sinking potential can unlock notable financial resources, provided that good governance and allocation of resources to people’s development is ensured.

In a move to strengthen control over its agricultural exports and imports, the Ethiopian government has announced the completion of preliminary processes to build a new digital control center called the e-Phyto system.

The $700,000 project, supported by the European Union and TradeMark Africa, will enable the transformation from manual to digital regulation of agricultural products. The system will allow the Ethiopian Agricultural Authority (EAA), the regulatory body for agricultural product quality, to digitally track all imported and exported agricultural goods.

“The e-Phyto system, which has been tendered internationally for construction by the EU, is scheduled to be completed within the next five months,” said Diriba Kuma, Director General of the EAA.

The new digital system is being developed in consultation with the Customs Commission, the Ministry of Trade and Regional Integration, and the Ministry of Innovation and Technology. It is intended to address past issues with the quality of Ethiopia’s agricultural exports, which were previously measured through non-modern practices.

To further support product quality and competitiveness, Ethiopia recently held a National Product Quality Assessment Conference. The conference aimed to create an enabling environment to maintain the quality of Ethiopia’s horticulture exports.

Additionally, a successful National Phytosanitary Conference was held, jointly developed by the Ethiopian Horticulture Producer Exporters Association and the EAA. The conference focused on enhancing EU plant health regulations, the impacts on East African countries, and the roles of the public and private sectors in efficient export trade.

Officials say the new e-Phyto digital control system, combined with the quality assurance efforts, will pave the way for a more secure and sustainable future for Ethiopia’s agricultural export industry.

The particular analysis of how to address the accumulated debt of certain state-owned enterprises (SOEs) has raised concerns at the Office of the Federal Auditor General (OFAG).

The Auditor General of OFAG, Meseret Damte, appeared before parliament earlier this week to present the audit findings for the 2022/23 budget year.

Based on the performance audit evaluation at Public Enterprises Holding and Administration (PEHA), she stated that there are gaps in the process of transferring SOEs’ debt to the government, which led to the establishment of the Liability Asset Management Corporation (LAMC) to manage the debt of selected enterprises.

She mentioned that before the debt was transferred to the government, there were no assessment documents available at PEHA or the SOEs.

Meseret provided more details in her report, stating, “The assessment presented by the Ministry of Finance (MoF) to the auditing team does not indicate the source of the debt, the reasons for the inability to repay, and the benefits that would be gained if the debt is absorbed by the government.”

She further stated that it does not fully reflect the amount owed by the SOEs.

“The identification of the benefits resulting from the transfer of debt to the government is also lacking,” she stated.

According to the audit report, the Ethiopian Railway Corporation (ERC) and five SOEs under PEHA failed to repay their 50.8 billion birr debt, which was due at the end of the previous fiscal year.

Due to ERC’s failure to repay its foreign financiers the 1.8 billion birr debt in the previous budget year, “its debt has reached 126 percent of its total assets.” (LAMC was established in 2021 to oversee the consolidation and servicing of a portion of the debts of SOEs in an attempt to address macroeconomic instability in the economy. LAMC has taken on and managed the debts of a few heavily indebted public enterprises. After a comprehensive evaluation of the debts of its SOEs, the MoF stated that when LAMC was established three years ago, seven SOEs were found to be at high risk of financial distress.

These SOEs include Ethiopian Electric Power, Ethiopian Electric Utility, Ethiopian Railway Corporation, Ethio-Engineering Group (formerly METEC), Chemical Industry Corporation, Construction Works Corporation, and Sugar Corporation. Together, these SOEs hold nearly 780 billion birr in domestic and international debt as of three years ago when LAMC was formed.

It stated that after considering various options, LAMC was selected as the most effective way to address the high debt distress of the SOEs. LAMC was established as a commercial entity with an authorized capital of 570 billion birr, which will be funded by privatization proceeds and SOEs’ dividends.

Depending on the SOE, the government has decided to transfer between 20 to 100 percent of the SOEs’ debt to LAMC, with clear terms of engagement between LAMC and the SOEs to avoid moral hazard.

The audit findings of OFAG have exposed various shortcomings in government offices and enterprises, although there have been improvements compared to previous years.