OPIC INVESTMENT FUND: A GOOD CARROT, BUT ETHIOPIAN

UNCLAS ADDIS ABABA 000380 SENSITIVE SIPDIS DEPARTMENT PASS TO OPIC - BARBARA BRERETON E.O. 12958: N/A TAGS: ECON EFIN OPIC ET SUBJECT: OPIC INVESTMENT FUND: A GOOD CARROT, BUT ETHIOPIAN ENVIRONMENT NOT YET CONDUCIVE REF: STATE 5207 ¶1. (SBU) While an OPIC-supported private equity fund could support U.S. and nominal Ethiopian Government (GoE) economic development objectives in Ethiopia, we assess that Ethiopia's current business and macroeconomic policy environment is not conducive to taking full advantage of such a resource. Many key sectors of interest for the program -- particularly telecommunications, financial services, transportation, distribution, and logistics -- remain subjected to severe constraints to non-Ethiopian investment. The fund could contribute significantly, even in the existing business environment, to the development of Ethiopia's agribusiness sector where the GoE has liberalized and facilitated investment processes notably. While the business environment in this sector may be conducive, we would hazard that Ethiopia's current macroeconomic crisis -- which is driven as much by statist ideology-driven policies as by global dynamics -- does not present an adequately secure investment environment to merit a strong USG recommendation for exposing USG-backed funds to risk. Examples of potential hazards include: the unavailability of foreign exchange to bring in imported inputs, lack of adequate enforcement of contracts, ad hoc reclamation by the GoE of land allocated to investment activities, and potential political unrest. ¶2. (SBU) Despite these many challenges, we do believe that Ethiopia's potential inclusion among recipient countries for this fund may serve as an incentive to the GoE, particularly in light of its emphasis of attracting foreign investment, to be responsive to USG calls for economic reforms. As such, we recommend that OPIC include Ethiopia in consideration for investments under this fund, but subject any potential ventures to case-by-case assessments of viability by Post based on the enabling environment prevailing in country at that time. YAMAMOTO