Tuesday, October 15, 2024

Investment opportunities in Ethiopia channeled to interests such as real estate, report

A new study has revealed that most opportunities for diaspora investing in Ethiopia reflect and cater to the current interests in the market which is majorly tied to buying real estate and starting a business.
The report dubbed ‘Diaspora Remittances Mapping Report’ submitted to Pangea Trust by DMA Global and Islamic Finance Laywer and Advocate, Economic Justice in Africa, Rhama Hersi reveals that the traditional definition of investing, in which someone buys shares in a stranger’s business and hopes for a return or shared profits, is still relatively new in Ethiopia.
“We need to find ways of leveraging untapped financial resources to support Startups in Africa. The findings of this report are relevant to increasing overall awareness of the role of diaspora in economic development,” said Sofie Berghald from Swedish International Development Agency (SIDA) Headquarters.
“The Ethiopian government and Ethiopian organisations, most especially banks, are genuinely interested in foreign investments, including those of the diaspora,” reads part of the report.
According to the analysis, like countries such as Nigeria and Kenya, Ethiopia does not have a stock market, making buying shares in companies a bit more complicated and something the investor would have to do directly with the business in question.
However, there remains a high appetite for investment opportunities in Africa from the diaspora with nearly 56 percent who had never invested in Africa in the past were interested to start and receive more information about investing.
On Islamic Finance, the report further shows some of the key drivers for growth in Islamic investments include oil revenues from the Islamic States, increasing propensity for ethically driven products and the rise of enabling institutions.
“Islamic finance is known as interest-free banking in Ethiopia and while it is growing, it is not yet pervasive. Ethiopia has a long history with Islam and 34 percent of the country identifies as Muslim, with that percentage varying greatly by region,” Islamic Finance Laywer and Advocate, Economic Justice in Africa, Rahma Hersi.
“Islamic finance must be tied to assets- to a real economy- it cannot be about something you don’t own Prohibition of interest- money is only a medium of exchange, not a commodity in itself,” she added.
Primary research of the study was carried out in the form of stakeholder interviews with public and private organizations in Ethiopia, as well as diaspora community leaders in the U.S. and Canada.
At the same time, a survey was also disseminated among diaspora communities across the US, Canada and Europe mainly because of the diaspora profiles in those regions, compared to diaspora members in regions such as the Middle East and Eastern and Southern Africa.
The report also highlights some of the barriers to investing in Ethiopia which include: promising developments have been occurring in Ethiopia’s financial sector that have opened it up to diaspora investors, but some major regulatory hurdles, specifically around foreign exchange, remain.
“Many of Ethiopia’s parallel market and informal remittances issues stem from the tight controls the government imposes on their currency,” it reads in part.
“In terms of financing for MSME’s in Ethiopia,61 percent have used their own money, 26.5 percent used banks, 7.2 percent used savings and credit associates and 4.5 percent got funding from their family and friends,” said Omolayo Nkem Ojo who is the Research Manager DMA global limited.
Most Ethiopians in the diaspora consider their remittances as separate from investments.
Most respondents sent money monthly, and predominantly sent between USD 100 to USD 499.
Those surveyed also indicated that they sent money to their parents (27 percent), followed by their siblings (13 percent) and friends (13 percent).
Food is the primary use of remittances to Ethiopia with almost 21 percent of respondents saying that remittances go towards feeding their families back in Ethiopia.
Most respondents (49 percent) said that the person receiving the money decides what to spend it on and this was consistent across age groups.
Respondents reported using a variety of channels to send money to Ethiopia, but the majority stated that they used online money transfer operators (24 percent).
The Pangea adopted document that was primarily funded by Swedish International Development Agency also revealed that the Muslim respondents further preferred using Hawalas as their main channel of remitting their funds back home.
“There is potential to provide the right information for the right investment decisions- We need to provide education and engage with the right stakeholders. There is interest in investment in social impact and innovation businesses- the question is what mechanisms we can put in place to harness this interest as an opportunity,” said Pangea Trust Managing Director Anne Lawi.

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