Out-Law / Your Daily Need-To-Know

China to support increased investment in Ethiopia as new deals signed

Out-Law News | 14 Sep 2015 | 11:38 am | 2 min. read

The China Development Bank (CDB) is to provide financial support to Chinese firms “to encourage investment in steel, cement and shipbuilding” in Ethiopia, Chinese state media has reported.

CDB president Zheng Zhijie told the Xinhua News Agency: "The potential of bilateral industrial cooperation is great. Ethiopia is now one of our key partners in Africa.”

According to Xinhua, the two countries signed “five cooperation deals” relating to technologies, electric power, finance, energy and aviation during a visit to Beijing earlier this month by Ethiopia’s prime minister Hailemariam Dessalegn.

Chinese premier Li Keqiang told Dessalegn: “Ethiopia is a priority partner... and China is ready to increase cooperation” in several sectors including building industrial parks and investment and financing, Xinhua said.

According to Xinhua, Chinese direct investment in Ethiopia as of the end of 2014 was $910 million and foreign trade between the two countries increased by 55% to $3.4 billion last year.

China is already a major infrastructure investment partner in Ethiopia. China has backed a $475m metro rail project in Addis Ababa with construction carried out by the China Railway Engineering Corporation and largely financed through a loan from the Export-Import Bank of China.

In January 2014, the Ethiopian Roads Authority awarded contracts for road construction projects worth the equivalent of $320m to three Chinese companies.

Last September, the Beijing-based China Communication Construction Company Ltd started work to expand Bole International Airport, on the edge of Addis Ababa. The project, which aims to triple the number of passengers that can be handled at the airport from the current level of around seven million annually, is set for completion in 2018.

According to the American Enterprise Institute’s (AEI) ‘China Global Investment Tracker’, China’s recent currency devaluation makes the yuan “less valuable and investing overseas more attractive”. The AEI said China’s combined investment and construction overseas to date is worth a total of $1.1 trillion. Chinese investments and contracts in Ethiopia from between 2013 and 2015 amounted to $7.39bn, AEI said.

A report published in 2014 by consultancy Deloitte (22-page / 4.13 MB PDF) said investment in Ethiopia had “ratcheted up” over the past 10 years and “is now amongst the highest in the world relative to gross domestic product”. The report said: “This is entirely necessary, since it is estimated that the country needs to invest an average of $5.1bn per year in infrastructure alone for an entire decade in order to overcome existing constraints to development.”

International Monetary Fund (IMF) managing director Christine Lagarde said last year that the “scaling up” of energy infrastructure investments in Ethiopia and other African nations was “critical for growth to be sustained”.

The IMF’s Regional Economic Outlook for Sub Saharan Africa (116-page / 2.53 MB PDF), published in April 2014, said economic activity in the region continued to be underpinned by large investments in infrastructure, mining and maturing investments. The report said weaker commodity prices and slower growth in emerging markets may reduce net inflows of foreign direct investment, but overall growth across sub-Saharan Africa “should remain in the top 30% in the world”.