Diaspora Investments,
Motivations and Challenges:
The Case of Ethiopia
Elizabeth Chacko 1 & Peter Gebre 2
1 Associate Professor
Geography & International Affairs
The George Washington University
2 Senior Associate
Lark-Horton Global Consulting
Washington, D.C.
World Bank International Conference on Diaspora and Development
July 13-14, 2009
Diasporas and Development
Diaspora –”…groups of migrant origins residing and acting in host countries but maintaining strong sentimental and material links with their countries of origin …”
Development - The improvement in the standard of living in a country through increased opportunities for its citizens as well as a more equitable distribution of income and wealth.
The Ethiopian Diaspora:
Context and CharacteristicsContext of Diaspora: Conditions under which migration took place, who left and when, where diaspora settled.
Initially, well educated persons of a high SES ( 1970s, early 1980s)Settled mostly in North America, Europe, Africa and AustraliaLabor migration (20,000) of unskilled workers to Middle Eastern countries
Group characteristics: Socio-cultural and economic factors.Gross income of Ethiopian Diaspora estimated at 10-20 billion USD per annum, roughly equal to the home country’s GDP of 13 billion USD in 2006Diaspora investment in last decade has been about 10% of total “domestic” investment in Ethiopia2007-2008: Remittances of USD 1.8 billion from Ethiopians abroad to home countryEthiopian Diaspora Business Conferences held since 2007 in Addis Ababa and Washington, DC.>50% of diaspora investment in Ethiopia originates in the USA and Canada.
Fostering Transnationalism
Enabling institutions: The state and its institutions, bi- and multilateral agencies, NGOs, corporations etc. The Ethiopian State Encourages Diasporic Consciousness
2002 –Person of Ethiopian Origin Identity Card (Yellow Card) 2002 – Creation of General Directorate in charge of Ethiopian Expatriate Affairs within the Ministry of Foreign Affairs 2004 -National Bank of Ethiopia allows Yellow Card holders to open foreign currency bank accounts in Ethiopia, raising the limit to $US 50,000 in 2006Diasporas with Yellow Card allowed to bring in personal goods free of duty until 2006
Enabling environment: Legal framework, provide easy access to institutions and information, political environment and political stability.
Fostering Transnationalism and
facilitating investmentAllow EASIER MOVEMENT OF CAPITAL AND GOODS
100% duty exemption on importation of machinery and equipment for investment projects.100% customs exemption on spare parts whose value does not exceed 15% of total value of capital goods imported Ethiopians in the diaspora with Yellow Cards can also engage in investment ventures below US$ 100,000 (normally reserved for domestic investors only)
Residential Housing Associations (RHAs) The Ethiopian government encouraged the diaspora to form RHAs, that were given land for housing (average 24 units, at least 12 individuals). Maximum from N. America (430), Europe (291), Asia/M.East (261), Africa (52), Australia (2). This program no longer exists.Transportation linkages: Ethiopian Airlines is a global airline; flights to Washington, D.C. 6 days a week.EFFECT: Diaspora members become increasingly involved in businesses, professional networks and volunteer activities.
Ethiopia’s GDP Growth Rate by Sector
(1999- 2008) Ethiopia's GDP Growth Rate By Sector (1999-2008)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Years
Gro
wth
Rate
Agriculture
Manufacturing
Electricity and Water
Construction
Real Estate
GDP
Total Investment Flows
Ethiopia, 1992-2008
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
Domestic Capital Diaspora Investment Foreign Capital Public Investment
Diaspora Investments in Ethiopia
1992 to mid-2009: Ethiopian Investment Agency issued 1,805 investment licenses, mostly (~40%) to residents of the USA, with about half that number to Canadian residents.Mostly small business venturesBut big business also exists: MIDROC companies – biggest investor after the government, with large capital investments in hotels and tourism, manufacturing, mining and energy, agriculture, education, construction and health.
SECTOR
Capital Invested in million Ethiopian Birr
% of total capital invested
Total projects
% of total projects
Real estate 11,027 68 % 1059 59 %
Manufacturing 1,963 12 % 326 18 %
Hotels and restaurants
697 4 % 93 5 %
Construction 530 3 % 76 4 %
Health/ social work
415 3 % 70 4 %
Education 394 2 % 64 4 %
Agriculture 386 2 % 62 3 %
INVESTMENTS BY MAJOR SECTOR.
1992 – 2008.
Source: Ethiopian Investment Agency, Addis Ababa
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
Agriculture Manufacturing Real Estate, Others Total Capital.
Implementation
Operation
Pre-Implementation
Grand Total
0
200
400
600
800
1000
1200
1400
1600
Agriculture Manufacturing Others Real Estate Total No of Proj.
Implementation
Operation
Pre-Implementation
Implementation by
# of Projects
Implementation by
amount of capital
Diaspora Investment by Region
(Addis Ababa, 1992-2008)
69.8%
18.2%
3.3%2.8% 2.4% 1.8% 1.8%
Real Estate and Construction Manufacturing Health Education Trade Agiculture Hotel
ADDIS ABABA
REAL ESTATE
& CONSTRUCTION
MANUFACTURING
90.2% of diaspora
investments are in
Addis Ababa
INVESTMENTS BY GEOGRAPHIC REGION2000 – 2008
42%
26%
23%
3% 6%
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
OROMIA (61)
AMHARA (66)TIGRAY (21)
1
2
3
4
5
6
SNNPR (16)
1
2
3
4
5
DIRE DIWA (8)
HARARI (2)
(2)
AMHARA
Agriculture (51%),
Real estate (20%),
Hotels (14%)
OROMIA
Agriculture (41%),
RE (26%), Mfg (21%)
TIGRAY Real
Estate (33%)
SNNPR Hotels
(31%)
DIRE DIWA
Manufacturing (40%)
MOTIVESEconomic
Growing economy, good business opportunity, Availability of land – the main component of real estate costs in Ethiopia. Land initially provided at no cost or below fair market price (now restricted or stopped)400 real estate agents currently licensed in Addis Ababa aloneExemption from duty, customs, other privileges for diaspora (initially)
FamiliarityAddis Ababa prime destination because of acquaintance and awareness, security, relative ease of conducting business
Social incentivesDesire to help country, community, social remittances and investment of personal skills, human capital
Possibility of return
CHALLENGESChallenges for the Diaspora
Delays, bureaucratic red tape
Land no longer easily available, particularly in Addis Ababa
Duty exemption privileges have been suspended
Access to finance is difficult in most sectors (particularly agriculture)
Downturn in the economy – many construction projects are stalled
Frequent changes in government policies with regard to access to land, finance, duty exemption and sectoral priorities
Lack of information on how to do business in Ethiopia
CHALLENGES
Challenges for Development
Concentration in Addis Ababa
Concentration on real estate & construction
Lack of diversification – could make better use of natural resources
Diaspora’s political activism is a major concern of Ethiopian government (drop in investment after contested 2005 elections)
CONCLUSIONSEthiopians have strong connections with their homeland, the Diaspora is keen to engage in business ventures and development.Diasporas can contribute to the country’s future developmentCreating a business environment conducive to diaspora investment is importantNeed to consider the impacts of policies that may not be sustainableMost diasporans will not return permanently. Policies should facilitate and promote circulation – of diaspora business partners, of knowledge circulation through input from professionals and expertsNeed to help investors setting up businesses in Ethiopia, navigate bureaucracyPromote natural resource clusters for expansion of exportsEncourage partnerships: public-private, diaspora-local, govt-NGO