The recent Anti-Corruption Commission report, as detailed in a local newspaper, paints a picture not of minor bureaucratic hiccups, but of a systemic failure so profound it undermines the very foundation of Ethiopia’s economic strategy. It goes beyond detailing all the stalled factories and unbuilt power lines. While stories of bureaucratic frustration are justified and visceral, the report points to something far more fundamental. It highlights our national blind spot – that we are exceptionally good at writing checks for our economic future, but we have utterly failed to build the accounting system to see if they ever clear.
When Ethiopia offers a five-year tax holiday or a duty-free import privilege, we are not just being hospitable. We are making a deliberate, calculated fiscal trade-off. We are forgoing immediate public revenue, revenue that could fund the very roads and power grids these investors need, in exchange for a promised future return. This is a classic investment: we incur a cost today for a larger asset tomorrow. But any first-year finance student will tell you that an investment without a clear mechanism to measure its return is not a strategy. It is a speculation. And right now, the evidence suggests we are speculating with the public purse.
The statistics that less than forty percent of registered projects become operational is not merely an indicator of administrative failure, it is a direct ledger entry on the nation’s fiscal balance sheet. For every ten investment agreements we sign with ceremony and backed by incentives, we are functionally writing off the fiscal cost of six from the outset. The government forgoes revenue based on promised future returns, and when a majority of these projects fail to materialize, that forgone revenue becomes a permanent, unrecoverable expense. In commercial terms, we are paying the full cost for products that never leave the warehouse. This represents a severe drain on public capital with no corresponding asset creation. A private equity fund operating with this hit rate would be out of business in a year. A country, however, carries the debt and the social repercussions indefinitely.
The most glaring issue is the rise of the free rider. Without a rigorous, transparent post-investment monitoring framework, we cannot distinguish actors drawn by the subsidy itself from genuine partners. The system, as it stands, is all carrot and no stick. It invites investors to enjoy the benefits of state support while bearing none of the risk of underperformance. The cases of massive tax write-offs for failed ventures are the terminal symptom of this disease. They socialize the losses of private failure after privatizing the gains of public incentives.
This distortion creates a toxic secondary effect that corrodes the very foundation of a healthy economy: local entrepreneurial confidence. An Ethiopian entrepreneur navigating cumbersome regulations and paying taxes in full must then watch as a foreign entity receives a package of financial advantages they could never access. If that entity then fails after absorbing all that support, the message is devastating. It signals that the system is not meritocratic. It tells local talent that their grit is less valued than a foreign passport and a glossy proposal. This feeling of being hard done by translates into discouraged investment and talent seeking opportunities elsewhere. We are, in effect, subsidizing the demoralization of our own most critical business cohort.
Other developing nations have confronted this very challenge and shifted from speculative giveaways to strategic investment. Rwanda, for instance, integrated rigorous performance tracking into its incentive governance. It maintains clear dashboards of key performance indicators for every deal, monitoring job creation and local procurement as contractual obligations, not just promises. This allows for transparency, public accountability, and enables the state to provide support or enforce consequences. Some other countries adopt a meticulously tiered model, never offering blanket giveaways. Incentives are activated upon meeting verifiable milestones, such as factory commissioning or hiring local staff, aligning the investor’s financial interest perfectly with national development goals. Costa Rica, when attracting major foreign investment, proactively mandated local linkages, using the incentive package as a tool to upgrade domestic small and medium enterprises and embed global firms into the local economy.
The lesson from these peers is clear: incentives must be transformed from upfront gifts into conditional, performance-based contracts. For Ethiopia, this requires a fundamental shift from promotional thinking to portfolio management. We need a public dashboard to display the key performance indicators tied to each incentive package, allowing citizens and analysts to see the return on our public investment. The current model is far too front-loaded; we give the most valuable perks right at the start when the investor’s community contribution is zero. We should flip this script. The investment permit grants market access, but substantive benefits should be earned. The first year of a tax holiday could be activated upon the verified commissioning of the plant, with subsequent years contingent on hitting employment or export targets. The most valuable benefits should be reserved for proven performers who train local technicians or develop local supply chains.
Finally, we need to empower the watchdog. The Ethiopian Investment Commission’s role must evolve from a glorified sales department to a skilled portfolio manager. This requires a dedicated, technically proficient monitoring and compliance division insulated from political pressure, with a mandate to provide hands-on support to struggling but viable projects and to initiate the revocation of incentives from chronic under-performers. Its sole key performance indicator should be the aggregate return on investment in real jobs, real exports, and real local linkages.
This is not a call for more bureaucracy. It is a call for smarter economics. It is about moving from a strategy of hope to a strategy of accountable partnership. Every birr we forego in revenue is a birr not spent on a classroom, a clinic, or a kilometer of road. We have a right, indeed a fiduciary duty, to demand a verifiable return on that sacrifice. By tethering incentives to performance, we do more than weed out free riders. We create a powerful magnet for the serious builders and the long-term partners, those who are not afraid of accountability because they are confident in their ability to deliver. We also finally level the playing field for our homegrown entrepreneurs, showing them that value creation, not origin, is what the new economy rewards. That is how we turn a speculative giveaway into a true national investment, and how the balance sheet finally turns from red to black.
Befikadu Eba is Founder and Managing Director of Erudite Africa Investments, a former Banker with strong interests in Economics, Private Sector Development, Public Finance and Financial Inclusion. He is reachable at befikadu.eba@eruditeafrica.com.
