China cools on Ethiopia investments amid economic uncertainty

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Chinese financial powers are cooling on the idea of investing in Ethiopia as the East African nation’s economy faces fresh challenges, according to reports.

Ethiopia has been one of the top investment destinations in sub-Saharan Africa for much of the last decade and China has been the biggest single contributor of external funds coming into the country. However, state-owned export and credit insurance companies in the East Asian country are scaling back on in investments in Ethiopia amid concerns over foreign exchanges and rising debt.

China scales back on Ethiopia investments

According to investors quoted by the Financial Times, there is growing reluctance in China to back investments in Ethiopia, where various Chinese-financed projects are already performing below their expected capacity – including the much-anticipated railway network between Addis Ababa and Djibouti.

FT reports that two investors from Sinosure, China’s leading export and credit insurance firm is no longer backing Chinese banks for projects in Ethiopia with the same enthusiasm seen over much of the past decade.

Despite rapid economic growth, Ethiopia finds itself in a precarious situation with imports outnumbering imports by roughly 400 percent for the past five years. This has resulted in a shortage of foreign exchange in the country with some reports suggesting the the National Bank of Ethiopia only has enough to cover one month of imports.

As well as concerns over Ethiopia’s foreign exchange supply, the country’s rising debt is another contributor to investor scepticism. Earlier this year, the International Monetary Fund raised Ethiopia’s risk of debt distress to “high” with government debt now standing at 59 percent of the country’s GDP.

Featured image: By Max12Max – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=53114101

About Aaron Brooks

Aaron Brooks is a UK journalist who wants to cut out the international agendas in news. Spending his early years in both England and Northern Ireland he saw the difference between reality and media coverage at an early age. After graduating from the University of Chester with a BA in journalism, his travels revealed just how large the gap between news and the real world can be. As Editor-in-Chief at East Africa Monitor, it’s his job to provide a balanced view of what’s going on in the region for English-speaking audiences.