Some three or four decades ago, Ethiopia was categorized among the poorest countries in Africa. One thing that Ethiopians have always been proud of, was the fact that it was one of the only countries to have never been colonized by a European nation. Mussolini, during World War II, tried to colonize Ethiopia as part of his project of rebuilding the Roman Empire. The attempted colonization of Ethiopia was an utter disgrace for Italy and a historical event for Ethiopians. But Ethiopia in the 1980s and 1990s was portrayed as a low-income country whereby mass starvation and abject poverty were the country’s lot.
Source: World Bank
Indeed, at least 20% of Ethiopian households in a given area faced extreme food shortages with limited ability to cope, more than 30% of children suffered from acute malnutrition, and at least two deaths per 10,000 people occurred each day as a result of hunger or a combination of hunger and illness. The causation of these horrible circumstances was mainly based on the failed policies of the Ethiopian government. Beyond the failed government policies, there were also natural causes that led to starvation. Recurring drought and failed harvests triggered starvation. Improvement started to occur during the 2000s, but this improvement was not sufficient to improve the whole economic condition of Ethiopia. Poverty in Ethiopia fell from 44% in 2000 to 30% in 2011. This 10% percent decline in poverty was mainly driven by agricultural growth, which was underpinned by high and consistent economic growth. As we can see in the graph, economic growth from the 1980s to the early 2000s was negative. Growth became positive in the mid-2000s.
Ethiopia today is a different country than it was a couple of decades ago. Indeed, it became a leading country in terms of economic opportunities. The reason why Ethiopia became a country of economic opportunities is that the Ethiopian government adopted market-oriented policies to stimulate economic growth. And one of the market-oriented policies was to facilitate the process of starting a business in Ethiopia. The Ethiopian Investment Commission, which is the regulatory agency for businesses, has implemented a simple application process for business owners to obtain their permits.
One of the major policies that make Ethiopia a lucrative place for investment is that it has a custom-import-duty policy, which guarantees a 100% exemption from the payment of import customs duties and other taxes levied on imports. This law allows investors to import all investment capital goods. Another investment incentive that the Ethiopian government set in place is the income tax holidays, which allow a business owner or an investor to be exempted from paying income tax within a period ranging from 2 to 6 six years of profit tax holiday. That law was specifically designed for approved new manufacturing and agro-industry investments or investments made in agriculture. Another investment-incentive policy that the Ethiopian government implemented was the loss-carried-forward policy. This law stipulates that companies that suffered losses during the tax holiday period can carry forward such losses for half of the income tax exemption period following the expiry of the exemption period.
Source: World Bank
These market-oriented policies exerted a tremendous effect on the Ethiopian economy. Since the mid-2000s, income per capita rose dramatically, from $134 in 2004 to $925 in 2021. This was a 590% increase in income per person. The liberalization of markets encouraged foreign investments in the country. Indeed, current economic data shows that investment is rising and the economy is growing at an unprecedented rate and tangible progress in Ethiopia. Between 2006 and 2016, foreign direct investment grew from 3.6% to 5.5%. Ethiopia is definitely a country in full economic development. It is not yet a middle-income country but it is on its way to becoming one since it averages 10% growth per year, according to a World Bank report. The economic opportunities it provides to investors, the laws set in place to facilitate the creation of businesses, and the stability of political institutions make Ethiopia one of the leading African nations in terms of investment opportunities.
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