Ethiopia: Diaspora investment bond enhances economy

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Investment in their home countries by migrants from Africa is contributing to economic growth on the continent. This business development has caught the attention of African governments, development agencies and the world’s largest cash-transfer company, Western Union Company, which are working to facilitate such investment.

Liesl Riddle, a scholar of diaspora studies at George Washington University in Washington, said Ethiopia leads sub-Saharan Africa in opening its economy to investment by emigrants. The term “diaspora” historically has referred to the dispersion of Jews, but in recent years it has come to include the dispersion of any group of people to areas outside their traditional homeland.

“Ethiopia is growing its economy in large measure due to the constant pressure that the Ethiopian diaspora puts on the government. The Ethiopian government has recently opened an investment promotion agency. … It is a one-stop shop for the Ethiopian investor. You don’t have to go to dozens of offices here and there to get your business established. It is a clearer, more transparent type of system,” she said.

In recent years, Ethiopia has had one of the best performing economies in Africa, growing at an annual rate of close to 8 percent.

The 1.5 million Ethiopians who are living in other countries are estimated to send about $1 billion in remittances to the eastern-African country annually, according to Access Capital Services, an Ethiopian financial advisory company. Access Capital has worked with another Ethiopian financial company, Precise Consult International, to attract diaspora investment through annual Ethiopian business conferences in New York or Washington since 2006.

Riddle, who spoke at the 2008 conference, said there is creative tension between the Ethiopian government and the diaspora community that has led to favorable economic changes in Ethiopia, such as clearer tax and investment policies and less bureaucratic red tape. A great success story of cooperation between the Ethiopian government and the diaspora is the creation of the Ethiopia Commodity Exchange, according to Riddle. The brainchild of Eleni Gabre-Mahdin, an Ethiopian economist who was educated in the United States and worked for the World Bank, the exchange links farmers to a computerized national market, which is connected to international markets.

Yohannes Assefa, an Ethiopian-American trade lawyer in Washington, works closely with Gabre-Mahdin to transfer business and technology skills from Ethiopians abroad back to local employees of the exchange. Ethiopian Americans with the needed skills are offered jobs at the exchange for specific time limits, typically three years. By the end of that time, their skills must have been transferred to a local resident for them to receive a bonus.

Ethiopian-American investors often create the same sorts of businesses in Ethiopia that they run in the United States, such as taxi companies, restaurants and hair salons. In many cases, they establish chains of businesses, which involve establishing brand awareness and protecting intellectual property, notions that have not achieved much acceptance in Ethiopia so far, according to Riddle.

Other ways to invest

Many members of Ethiopia’s and other African diasporas have the capital and desire to invest in their homelands but are unable to travel there because of obligations and responsibilities in their new home nations. To attract investment from such people, the Ethiopian government has created a diaspora bond. Other countries in Africa, including Liberia, Kenya and Ghana, also are at various stages of issuing bonds. A diaspora bond is a certificate of debt issued by the government of a developing country to its own migrants with a promise to repay the investment plus interest at the time of maturity. The funds raised by diaspora bonds are used to finance development projects.

World Bank economist Dilip Ratha estimates that African countries can raise between $5 billion and $10 billion a year by issuing diaspora bonds. He adds that an additional $1 billion to $3 billion could be raised by reducing the cost of international remittances from migrants.

Western Union Company, the world’s largest cash-transfer company, has been encouraging diaspora investment in Africa. The company is devising new methods to help migrants invest in their homelands, such as installment payments for insurance, school tuition and business equipment. The company’s development arm, Western Union Foundation, has contributed more than $50 million to development and disaster relief projects since its formation in 2001.

The foundation, along with the U.S. Agency for International Development and other development groups, is sponsoring a competition for budding entrepreneurs among African migrants to the United States. The winners, who will be announced in early 2010, will receive grants of between $50,000 and $100,000 to start businesses in their home countries.


Liberia, which also has a large diaspora community in the United States, is courting investment from its migrants through the creation of the Liberian Diaspora Advisory Board. In July 2009, the Liberian ambassador to the United States, Nathaniel Barnes, announced that the board will help the Liberian government shape its development policies. The ambassador said Liberian migrants send about $90 million to Liberia annually. The board will be “infinitely more effective than the unilateral and isolated, although significant, contributions of … individuals and groups within the diaspora,” the ambassador said.

Riddle said the advisory board may deter corruption. In her survey of Liberian migrants’ attitudes toward investment in their country of origin, she said, she heard people say repeatedly, “We’re interested in investing. We have money. We have know-how. But we’re not going to go in until corruption abates in the country.”

With about 2 million to 3 million people migrating to richer countries annually, the potential influence of diaspora communities on business growth in developing countries is immense, World Bank economist Lev Freinkman wrote in 2002. Seven years later, his view has turned out to be prophetic.

Africa News Report  Africa News Report is a specialist information dossier dedicated to providing news information and analysis from a diplomatic and political perspective. Topics covered include some of the most pressing health, economic, political and social issues. Besides bringing its multi-facetted news, views and analysis to the fore, Africa News Report seeks to highlight the United States' policies and positions on diverse issues affecting the African continent.
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