Here at MIGA, I’m responsible for fielding initial investor inquiries about our political risk guarantees, which is an interesting vantage point from which to note trends. Last year I blogged about the rising interest of foreign investors in Sierra Leone. Talking with investors around the world interested in emerging markets and examining MIGA’s Preliminary Application (PA) data, I see a similar trend emerging in Ethiopia. Investor interest has grown dramatically.
MIGA was created to promote foreign direct investment into developing countries by mitigating political risk. The agency offers insurance to private investors against
several risks. I spend much of my day on the phone or email with investors in the initial stages of considering projects in emerging markets. Without MIGA cover many of these projects might not happen. The investors MIGA speaks with are a small subset of investors interested in emerging markets. They are often the investors interested in countries perceived to have a high rate of political risk, but also potential for a healthy internal rate of return.
Since January 2008, MIGA has received 28 PAs from investors interested in Ethiopia. A PA is the first step toward a MIGA guarantee against political risk. This contrasts with 33 PAs the agency received between 1991, when Ethiopia joined MIGA, and 2007. Close to half the PAs from Ethiopia over the last 20 years arrived in the last three.
In addition to the measurable rise in PAs, over the last few years I am communicating with more investors considering Ethiopia by phone and email. The investors I speak with from my office in Washington skew toward US and Canadian-based investors with ties to the Ethiopian diaspora. These investors contrast with those interested in other parts of Africa, who tend to be based in Europe or other parts of Africa. The investors interested in MIGA cover for Ethiopia also skew toward MIGA’s Small Investment Program set up for small investors seeking cover on less than $10 million. Another trait of Ethiopian investors is they tend to be interested in the agriculture, manufacturing, and services sectors. Roughly 55 percent of MIGA PA’s in general are in those sectors while 80 percent of Ethiopian PAs are in the three sectors.
Not only is interest rising, but the quality of investors and projects is improving. Last year MIGA guaranteed its first investment in Ethiopia, Africa Juice. The project is a medium-sized farm and juice-processing facility employing hundreds of people in an area of the country that has seen little in the way of opportunity. I am seeing an improvement in the sophistication and quality of investor combined with higher quality projects that have more chance of becoming a reality. This certainly bodes well for Ethiopia.
The United Nations Conference on Trade and Development is the world’s go-to source for data on foreign direct investment (FDI). Its UNCTAD STAT database shows an increase in foreign direct investment into Ethiopia every year since 1992, the first year data is available. The rise is relatively constant from USD $941 million in 2000, to $2,821 in 2005 and $3,697 in 2009. The economic crisis may have slowed investment into Ethiopia somewhat, but positive growth continued.
The UNCTAD numbers confirm the trend I am seeing in MIGA. The UNCTAD data includes other West African countries with similar increasing flows of FDI, but Ethiopia appears to have the biggest corresponding jump in MIGA PAs and inquiries from investors by phone or email.