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Ethiopia allows Offshore Accounts for Strategic FDI investments

Dr. Taddese Lencho

In a significant and bold move to attract strategic investors into Ethiopia and generate new foreign currency inflows, the National Bank of Ethiopia (NBE) has issued Off-shore Account Opening and Operations for strategic Foreign Direct Investment Projects (Directive No. FXD/86/2023).

The Directive touts this move as necessary to attract strategic investors across multiple sectors that provide much needed public goods as well as create new streams of foreign currency flows into Ethiopia.

The Directive defines strategic foreign direct investment projects as PPP projects in power generation and infrastructure, large-scale mining projects with substantial export earning potential, and other FDI projects to be designated by the Executive Management on the strength of the size of investment, job creation, import substitution, foreign exchange inflows, technology transfer or sector specific impact of the FDI projects.
The Directive allows strategic FDI investments preferential treatments in three distinct areas, namely:

– opening of off-shore accounts;

– currency convertibility guarantees; and

– enhanced debt-to-equity ratios.

The preferential FDI investors can open Off-shore accounts from which they can service their external debts, pay for foreign insurance and other warranty claims, meet their financial obligations to foreign contractors, cover their foreign capital and investment expenses as well as maintenance and operation expenses.

The debt-to-equity ratio for strategic FDI investment projects is raised from 60:40 to 80:20. The preferential debt-to-equity ratio for strategic FDI investments will enable these investments to raise significant amount of debt capital relative to their equity investments.

Finally, the preferential treatment offers foreign currency convertibility guarantee for loan repayments and dividend repatriation. This puts strategic FDI investments on a faster lane of convertibility and places them on a convertibility guarantee superior to all other foreign currency claims except sovereign debt claims. The foreign currency convertibility guarantee is available only after the FDI strategic investor has exhausted all means of purchasing foreign currency from commercial banks. This apparently means that the FDI strategic investor must obtain a letter from commercial banks attesting to the unavailability of foreign currency and must persuade the NBE of real scarcity of foreign currency in commercial banks.

This Directive is a huge boost to the confidence of strategic FDI investors that have for a long time demanded these foreign exchange treatments in order to commit significant amounts of FDI in strategic long-term investment projects in Ethiopia. It is anticipated that these preferential treatments will revive the interest of strategic FDI investors in the stalled or terminated PPP projects and will create much needed boost to large-scale mining projects that have stalled or delayed due to the absence of adequate guarantee for repayments of commitments in foreign currency.