Wednesday, July 17, 2024
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Ethiopia’s plan to allow foreign ownership of property signals economic opening

Ethiopia is taking a bold step towards economic growth by considering the opening of property ownership to foreigners. While the country’s legal principles apply to anyone regardless of nationality, the realm of property ownership has long been closed to non-Ethiopians. However, recent developments indicate that the government is seeking to amend existing laws, allowing foreigners to own real estate and bolster the country’s economy.

Historically, Ethiopia’s legal framework prohibited foreign ownership of immovable property since the 1960s. The Civil Code of that era limited property ownership exclusively to Ethiopian nationals. Although amendments were made in 2012 to allow foreign investors to own property for investment purposes, broader ownership rights have remained restricted.

However, on March 23, 2024, the Ethiopian Prime Minister announced plans to pass legislation permitting foreigners to own real estate. This move is part of the government’s strategy to open up the economy and attract foreign investors. While specific details and the legislative timeline have yet to be disclosed, this shift in policy signals a significant departure from the previous approach.

The Prime Minister’s announcement signifies a significant shift in Ethiopia’s approach to property ownership. The existing laws currently prohibit foreigners from owning houses or commercial buildings, which has been a major obstacle in attracting foreign investment, especially as the country recovers from the recent conflicts with the TPLF and in the Amhara region.

Opportunity for Employment:

The potential opening of property ownership to foreigners is expected to generate employment opportunities in Ethiopia by spurring investments in new construction. Although the precise mechanisms of the proposed scheme are yet to be determined, it is crucial to prioritize the interests of locals, making sure they are not pushed out or sidelined from owning property. The responsible authorities must ensure that labor laws are properly applied, safeguarding fair wages and benefits for employees based on their positions. Striking the right balance between attracting foreign investment and protecting the rights of local workers is essential for sustainable growth.

Addressing Foreign Currency Challenges:

Ethiopia currently faces foreign currency challenges, which have hindered its economic progress. Despite ongoing negotiations with international financial institutions such as the World Bank and the International Monetary Fund (IMF), tangible progress has been limited. However, recent reports suggest that meetings have been held recently in a bid to reach an agreement in a timely manner. To effectively implement the planned investment deals, it is imperative that Ethiopia expedites these negotiations.

The country has sought assistance from the World Bank to ensure universal energy access and is also in talks with the IMF to secure a USD 3.5 billion loan under its reform program. The Paris Club has warned that Ethiopia’s debt payment suspension agreement could be voided if an IMF loan is not secured by March 31, 2024. Given these circumstances, swift action is necessary to secure the loan and stimulate the economy.

Mitigating Drawbacks on the Economy:

While Ethiopia is on the path to recovery from recent conflicts in the North, achieving economic stability remains a significant challenge. The planned privatization of property ownership is a step towards progress, but its successful implementation requires careful consideration. Balancing the interests of foreign investors and local entrepreneurs is crucial to harnessing the positive effects on the economy.

The introduction of foreign investors may bring competition to the existing local investors, and the outcome will depend largely on the laws and regulations governing foreign investment. Striking a fair and transparent balance is essential to ensure a level playing field for all stakeholders.

Ethiopia’s decision to open property ownership to foreigners reflects the government’s commitment to driving economic growth and attracting foreign direct investment. This move holds the potential to create employment opportunities and stimulate the economy. However, it is vital to prioritize the interests of local employees and ensure fair practices.

Addressing foreign currency challenges through expedited negotiations with international financial institutions is critical for sustaining economic progress. By carefully managing potential drawbacks, embracing global frameworks and implementing effective regulations, Ethiopia can maximize the benefits of foreign investment and achieve enduring economic growth.

Economic reforms and the establishment of money and capital markets can expand the scope for financing green growth and support the transition to a more sustainable economy.

Addressing political instability through open governance and inclusive policies, investing in infrastructure development to enhance efficiency and competitiveness, and diversifying the economy away from primary commodities are pragmatic approaches to improving economic uncertainty and fostering long-term stability. While Ethiopia faces significant challenges, there are avenues for progress. By implementing reforms, attracting investments, and prioritizing sustainable growth strategies, Ethiopia can overcome its current obstacles and pave the way for a more stable and prosperous future.

(Eden Tafesework holds a PhD in International Law and is a senior researcher analyzing areas of concern in the Horn of Africa and the wider East Africa region.)

Contributed by Eden Tafesework

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