Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank arm that guarantees foreign investors in signatory countries against non-commercial risks.  That could help explain why Ethiopia licensed $16 billion worth of new investments in 2008, compared with $11 billion in 2007.  However, according to Abi Woldemeskel, director of the Ethiopian Investment Authority, only 20% of the investors actually began operations, due in part to tight credit standards.  Ethiopia’s credit markets are notorious, it seems, for their stinginess.  Domestic banks will rarely lend any significant amount without equivalent collateral (sometimes even up to 130%).

Abi added that the global slowdown may affect the country’s export volumes.  Ethiopia is Africa’s biggest coffee producer, and since 2004, the Ethiopian economy has enjoyed double-digit growth rates, thanks largely to surging coffee prices (during which time its share of the global coffee market increased by 50%).  But with such growth has come, expectedly, rapid inflation (largely driven by the steep rise in world food and oil prices), a steep fall in foreign currency reserves, and a surging real exchange rate (which threatens exports).  The pullback in oil prices helps inflationary trends (as does the high exchange rate).  But only further devaluation of the Birr will help with the country’s competitiveness.  From The Economist:

In terms of the World Bank’s Doing Business indicators, Ethiopia is near the top of the African league table, behind only Botswana, Kenya and South Africa. Despite this and despite the country’s impressive export performance, it seems clear that competitiveness is under threat from high inflation and an appreciating real exchange rate.

In part this reflects economic fundamentals—very rapid import growth caused by strong output expansion. As growth slows in the next few years import growth will decline, but this may well be insufficient to counter overvaluation of the exchange rate. It is therefore likely that the Birr will continue to depreciate over the next two to three years.