Ethiopia has now established itself as the second most attractive destination for foreign direct investment (FDI) in Africa, after Egypt. This surge confirms the country’s strategic position in the reshaping of FDI flows on the continent, particularly in East Africa.
$18.6 billion in FDI over five years
According to the Ethiopian Investment Commission (EIC), Ethiopia attracted $18.6 billion in FDI over the past five years, placing it second in Africa. For the 2024/2025 fiscal year alone, which ended on July 7, 2025, the country attracted $4 billion, representing a 22.7% increase compared to the previous year.
According to the EIC, Ethiopia issued 1,477 new investment permits to foreign investors during this period, a sign of a broadening investor base and growing confidence in the local market. These massive inflows have made Ethiopia the leading destination for FDI in East Africa, ahead of economies considered more mature, such as Kenya and Uganda.
China Leads the Way Among Investors
Ethiopia’s progress is largely explained by the central role of China, which has become the country’s main investment partner. Official data shows that Chinese companies account for nearly half of FDI projects in Ethiopia, with a strong presence in manufacturing, infrastructure, energy, and telecommunications.
In addition to these flows, capital is coming from other regional and Gulf powers, notably through large-scale PPP projects, such as the $600 million Aysha wind farm developed by the UAE-based AMEA Power. This mix of public and private investors, from Asia, the Arab world, and the West, strengthens the country’s capacity to finance its ambitions for industrialization and upgrading.
Economic Reforms: Addis Ababa’s New Strengths
Beyond the sums involved, it is the quality of the economic policy framework that explains Ethiopia’s repositioning. The authorities have launched a sweeping macroeconomic reform aimed at improving the business environment, simplifying procedures, and reducing bureaucratic barriers for investors.
A key element lies in the “open-door policy”: several sectors previously largely closed to foreign capital—export, import, wholesale, and retail trade—have been opened to international investors. This gradual liberalization is accompanied by tax incentives, an active investment promotion policy, and dedicated forums, such as the fourth “Invest in Ethiopia” forum, where the country aims to secure more than $2.4 billion in deals.
In parallel, Ethiopia has invested heavily in basic infrastructure: energy, transport, telecommunications, industrial zones, and integrated industrial parks—all of which improve the country’s competitiveness and reduce the cost of entry for investors. These investments support priority sectors targeted by domestic reform, identified as levers for attracting more FDI and promoting technology transfer.
Impact on Employment, Technology, and Structural Transformation
The influx of FDI is not limited to financial volumes; it is gradually transforming the productive structure of the Ethiopian economy. According to the Ethiopian Investment Commission, the arrival of new investors contributes significantly to job creation and the diffusion of new technologies across several value chains.
Foreign capital enables better exploitation of natural resources, increases productivity, and integrates Ethiopia into regional and global value chains, particularly in textiles and apparel, agribusiness, renewable energy, and digital services. Landmark successes, such as the rapid deployment of mobile financial services (M-Pesa) and the commissioning of large energy parks, illustrate this rise of a more sophisticated business ecosystem.
What are the implications for Africa and for investors?
Ethiopia’s rise to become the second-largest African destination for FDI comes at a time when flows to Africa have declined by 3% to $53 billion, according to the latest UNCTAD data. The country is therefore an exception: it is attracting a growing share of investment on a continent that is generally lagging behind, even surpassing historically attractive markets like South Africa in certain segments.
For investors, the Ethiopian equation rests on a three-pronged approach: a large domestic market, pro-business reforms, and a geostrategic position in the heart of the Horn of Africa. But this momentum comes with risks that must be monitored: internal political tensions, macroeconomic vulnerabilities (inflation, debt, balance of payments pressures), and dependence on a small number of major partners, foremost among them China.
For the rest of the continent, the Ethiopian example shows that a coherent combination of structural reforms, industrial strategy, and economic diplomacy can quickly reposition a country in the competition for FDI. The central question now will be whether this trajectory can be sustained over time, while also translating into lasting jobs, skills development, and effective diversification beyond traditional sectors.
