While Ethiopia is yet to announce the promised list of investment opportunities, its Minister of Finance, Ahmed Shide, is once again urging ambassadors to work on the matter of inviting foreign capital holders.

This comes amid news of the ceasefire following the two-year civil war in northern Ethiopia, although considerable risks still remain in Tigray and other regions.

Last year, Ethiopia launched a fund to lure billions of dollars in foreign investment, but the prolonged conflict put those plans on hold. Now, the government might be desperate to pile up investment incentives.

“There will definitely be interest from Chinese companies in the natural resources, [as] there are numerous Chinese mining companies and associated service providers with strong track records in Africa, bringing projects to life,” Peter Arkell, the chairman of the Global Mining Association of China, tells The Africa Report.

“Ethiopia’s gold is a very attractive commodity. However, Chinese mining companies are interested in all manner of commodities. Often, they will be seeking cooperation from the government to assist or partner with them in the provision of infrastructure,” Arkell adds.

Additional minerals of considerable value to the Chinese states and enterprises may also be discovered in Ethiopia, as the country is brimming with valuable minerals that are vital to the green energy revolution.

But China has done more than digging and shipping the minerals, Arkell says. It has also built huge industrial parks, adding value to the raw material. “These industrial parks attract other Chinese companies as well as local companies. They provide an economic multiplier to the country’s development, attracting investors and technology to the industrial parks,” he adds.

For many years, China has been Ethiopia’s greatest commercial partner and source of investment. Ethiopia is also courting Chinese investors in order to increase its export potential to China and elsewhere across the world.

Bilateral trade volume in 2021 reached $2.66bn, with China importing about $370m in commodities from Ethiopia, an increase of 8.1% year on year.

Cementing the relationship

Last week, Qin, China’s foreign minister met Ethiopia’s Prime Minister Abiy Ahmed and other government representatives, to declare a partial forgiveness of Ethiopia’s debt to China, amounting to ¥30m ($4.5m).

Since 2000, Ethiopia has borrowed $13.7bn from China, and since 2021, it has been looking to renegotiate its debt with international lenders.

Though neither party revealed further information, Kai Xue, a Beijing-based lawyer who has advised Chinese investors on building textile factories in Ethiopia worth $450m says: “It has been a long-standing practice for China to cancel zero interest loans, which are foreign aid.”

“As an example, commercial loans advanced by China Development Bank, one of the two major Chinese policy banks, to African countries are not cancelled,” Xue adds.

“However, Chinese policy banks have delayed repayments for a borrower country during a prolonged period of national crisis.”

This comes amid Ethiopia’s deteriorating financial situation as Ethiopia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) has been lowered by FitchRatings from “CCC” to “CCC-.” With a rating of “CCC” or lower, Fitch normally does not provide Outlooks to sovereigns, therefore, the Long-Term IDRs have been deleted by Fitch from Under Criteria Observation (UCO).

Ethiopia’s economic recovery depends on whether the peace will be long-lasting, and so far, there have been some positive signs. Yet, the devil is in the implementation of the deal. One promising development has been that Tigrayan fighters agreed to give up heavy weapons; this alone sent Ethiopian Eurobonds skyward last week.

Nevertheless, the country’s shortage of US dollars makes servicing its dollar-denominated debt more difficult. A weakening birr makes Ethiopian assets, commodities, and exports less expensive in dollar terms, potentially making Ethiopia a more competitive market in the Horn of Africa and beyond.

Fragile peace

“Chinese products might not be perceived as of the best quality, but we have a very fruitful cooperation, especially in the construction sector,” Hailu Metassebia, an Addis Ababa-based mining investment lawyer, tells The Africa Report.

“So far there are no big companies from the US. We need to have big American companies, too, but they are reluctant to invest [for unknown reasons],” he adds.

Since the start of 2022, Ethiopia has remained suspended from the AGOA, but “its impact was smaller than expected,” Metassebia says.

Throughout the period of the Tigray war, China has advanced its interest in the region, while the US has seriously strained its relationship with Ethiopia – the biggest country in the region – as they pushed for the cease-fire deemed by many as detrimental to the country’s interests.

“Ethiopia remains for the US a main player in the region because of the population size, and bordering all other countries in the Horn of Africa,” Metassebia says.

Security cooperation with the countries of the Horn of Africa as well as humanitarian assistance has not, however, gone hand in hand, with investments from the American side.

“It seems an easy approach to constantly raise national security threats and to promote engagement through military aid,” says Arkell. “They appeal to vulnerabilities posed by external threats that can only be addressed with military aid.”

Yet, security matters can strangle a country’s ability to execute its economic plans. Now, as the US Africa Command is preparing to conduct intensive training in Somalia’s breakaway territory of Somaliland, and US Congress is urging the Pentagon to deepen its security partnership with this territory, Ethiopia is eager for an economic miracle, having suffered serious blows from dual impacts of the civil war.

One visible impact has been its inability to join in on Somaliland’s Berbera harbour project through its 19% interest purchase, a move that was cut short by the economic impact of the war. It lost its investment for failure to fulfil conditions set out by the government of Somaliland.

“If there’s peace, there’s investments,” says Metassabia. “Hopefully it will last, and investments will flow again”.