Ethiopia has solidified its position as one of Africa’s fastest-rising investment destinations, attracting $18.6 billion in foreign direct investment (FDI) over the past five years as sweeping economic reforms reshape its business landscape.
The inflows place the East African nation second only to Egypt on the continent, according to figures cited by government officials, underscoring growing investor confidence in a market long seen as underpenetrated but high potential.
Speaking at an investment forum in Addis Ababa earlier in the week, Investment Commissioner Zeleke Temesgen said Ethiopia also recorded $4 billion in FDI during the 2024–2025 fiscal year, representing a 22.7% year-on-year increase.
“Ethiopia attracted the highest FDI in East Africa and the second highest in Africa,” Temesgen said, pointing to recent liberalisation measures as a key driver of the surge.
Reforms open new sectors
The rise in capital inflows follows a series of policy shifts that have gradually opened previously restricted sectors of the economy to foreign participation. Authorities have eased rules across retail, wholesale, and import-export trade—areas that were historically reserved for domestic players.
More recently, the government has moved to allow foreign nationals to own residential property, a policy change aimed at broadening the investment base and attracting long-term capital.
These reforms form part of a broader strategy to transition Ethiopia toward a more market-oriented economic model, while maintaining state influence in key sectors.
Officials say the changes are already yielding results. Over the past five years, the country has issued 1,477 investment permits to foreign investors, reflecting sustained interest across industries.
China remains Ethiopia’s largest investment partner, with companies from the Asian giant accounting for a significant share of inflows. Data from the United Nations Conference on Trade and Development indicates that Chinese firms are involved in roughly 60% of FDI projects, particularly in manufacturing and services.
Beyond China, Ethiopia is attracting a more diverse pool of investors, including capital from Saudi Arabia and Turkey, as it positions itself as a regional gateway for growth.
Investor caution persists in banking sector
Despite the strong headline figures, some investors remain cautious, particularly in the financial sector where liberalisation efforts have remained below expectations.
In 2025, several major African lenders expressed interest in entering Ethiopia’s banking industry following reforms that allow foreign participation. However, concrete commitments have yet to materialise.
Under current rules, foreign institutional investors are capped at a 40% stake in local banks, while individual foreign investors can hold up to 49%, limiting their ability to exert control over operations.
Executives say these restrictions, combined with broader macroeconomic challenges, including currency pressures, continue to shape investment decisions.
“We are closely following developments in Ethiopia and we think the first few necessary steps have been taken, but we would like to see more opening of the regulatory environment insofar as it relates to banking in that market,” said Kenny Fihla, chief executive officer of Absa Group, in remarks to local media last month.
Balancing momentum with reform depth
Ethiopia’s recent FDI performance highlights both the progress made and the work still ahead.
While liberalisation has opened new avenues for investment and strengthened the country’s standing on the continent, the pace and depth of reforms will likely determine whether current inflows can be sustained.
For policymakers, the challenge lies in striking a balance between attracting foreign capital and maintaining safeguards for domestic industries—an equilibrium that will likely shape Ethiopia’s long-term position as a competitive investment destination in Africa.
