This politicization of investment can create significant hurdles for actors seeking to invest in politicized sectors; even those not aligned with major political interests. In Ethiopia, foreign investment in the agricultural sector has been associated with the forced displacement of local populations.[18] During protests, increased resentment among the population has led to the burning down of foreign-owned farms.[19]

Similarly, the eruption of the civil war in Tigray in November 2020 has created major challenges for companies investing in Ethiopia’s recently liberalized telecommunication sector. For instance, the winner of the first bid is likely to face challenges in accessing funding following US sanctions, which aim to address government conduct surrounding the Tigray conflict.[20] Moreover, due to fears of damage to telecommunications assets following political unrest, the second bid launched by the Ethiopian government was shunned by a major African telecommunications operator.[21]

Conclusion

Politicization surrounding certain trade practices, sectors, and corridors reflects but does not fully acknowledge investment and trade policy as highly politicized tools influenced by a host of foreign and domestic considerations. Development and growth are not politically neutral affairs. Actors who fail to consider underlying political drivers in their impact assessments or political procedures incur potentially significant risks. Such risks are illustrated in the examples from the Horn of Africa and the Red Sea, although they can extend to far more developed countries.

On the one hand, this region’s geostrategic position along a major maritime trade route has attracted several external players, notably China and the UAE, which have implemented activist economic strategies largely shaped by their own political interests.

On the other hand, these strategies have had a significant impact on Horn countries, where local actors have sought to leverage the involvement of external players to their own political favor. With political incentives actively shaping investment and development patterns, investors not actively monitoring or managing the associated risks may find themselves lacking impact at best – and face significant operational and reputational risks as well.

This report would have not been possible without the contributions of Aisha Hassan and Mostafa Sadiqi, as well as the insightful comments from Peter Haasbroek.

[1] - Roberts, A., Choer Moraes, H. and Furguson, V. 2019. ‘Towards geoeconomics order in international trade and investment’, Journal of International Economic Law, 22(4), 655-676.

[2] - Olson, S. 2019. ‘Trade tension rise on dual use technologies, protectionism and geopolitics’, Hinrich Foundation, 30 October, https://www.hinrichfoundation.com/research/article/tech/dual-use-technology-trade-tensions/ (accessed 1 August 2021); Meester. J. 2021.’Designed in Ethiopia; Made in China: The widening partnership brings both benefits & risks to the African country’, fDi Intelligence, 5 May, https://beta.fdiintelligence.com/article/79650 (accessed 1 August 2021).

[3] - On a firm level, this is reflected in ESG approaches, risk management and Due Diligence procedures. Matos, P. 2020. ‘ ESG and responsible institutional investing around the world: A critical review’. CFA Institutes Research.

[4] - Lasswell, H. 1936. Politics: Who Gets What, When, How. New York: Whittlesey House.

[5] - For a brief exploration, see CRU - Public Methodology document

[6] - Leke, A., Van Wamelen, A. and Lund, S. 2010. ‘Lions on the Move: the Progress and Potential of African Economies’, McKinsey Global Institute, 1 June, Lions on the move: The progress and potential of African economies | McKinsey (accessed 1 August 2021).Hattingh, D., Leke, A. and Russo, B. 2017.’Lions (still)on the move: Growth in Africa’s consumer sector’. McKinsey Global Institute, 2 October, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/lions-still-on-the-move-growth-in-africas-consumer-secto (accessed 1 August 2021).

[7] - Conflict Sensitivity Consortium. 2012. ‘How to guide to conflict sensitivity’, https://www.saferworld.org.uk/downloads/pubdocs/CSC_HowToGuide_CS_WEB.pdf (accessed 1 August 2021).

[8] - Gupta, J., and Vegelin, C. 2016. ‘Sustainable development goals and inclusive development’. International environmental agreements:Politics, Law and economics, 16(3), 444.

[9] - Leke, A., Van Wamelen, A. and Lund, S. 2010. ‘Lions on the Move: the Progress and Potential of African Economies’, McKinsey Global Institute, 1 June, Lions on the move: The progress and potential of African economies | McKinsey (accessed 1 August 2021). Figures reflect authors’ own calculations based on UNCTADstat data.

[10] - Vertin, Z. 2019. ‘Red Sea rivalries: The Gulf, the Horn of Africa & the new geopolitics of the Red Sea’, Brookings, https://www.brookings.edu/interactives/red-sea-rivalries/ (accessed 1 August 2021).

[11] - Meester, J. and Lanfranchi, G. 2021. The UAE and China in the Horn of Africa, Clingendael. Note however that other states’, including US and EU, trade and investment strategies may also be politically motivated.

[12] - Meester, J. and Lanfranchi, G. 2021. The UAE and China in the Horn of Africa, Clingendael.

[13] - Copper, J. 2016. Using Aid and Investment Diplomacy to Isolate Taiwan, In: China Foreign Aid and Investment diplomacy, New York: Palgrave, (3), 141-169. Figures reflect the authors own calculations based on the American Enterprise Institute’s China Global Investment Tracker (both investments and infrastructure investments included).

[14] - Meester, J. and Lanfranchi, G. 2021. The UAE and China in the Horn of Africa, Clingendael.

[15] - Meester, J., Van den Berg, W. and Verhoeven, H. 2018. Riyal Politik: The political economy of gulf investments in the Horn of Africa, Clingendael, 22.

[16] - Meester, J., Van den Berg, W. and Verhoeven, H. 2018. Riyal Politik: The political economy of gulf investments in the Horn of Africa, Clingendael, 21.

[17] - For examples, see Abbink, J. 2011. ‘Ethnic-based federalism and ethnicity in Ethiopia: reassessing the experiment after 20 Years’. Journal of Eastern African Studies’, 5(4), 596-618.

[18] - Shepherd, B. 2013. ‘GCC states’ Land Investments Abroad: The Case of Ethiopia’. CIRS Summary Report.

[19] - Davison, W. 2016. ‘Dutch, Israeli Farms in Ethiopia Attacked by Protesters’, Bloomberg, 1 September, https://www.bloomberg.com/news/articles/2016-09-01/ethiopian-protesters-burn-dutch-owned-flower-farm-in-north (accessed 1 August 2021).

[20] - Gebre, S. and Prinsloot, L. 2021. ‘U.S. Sanctions Complicate Vodafone Funding for Ethiopia Entry’, Bloomberg, 24 May, https://www.bloomberg.com/news/articles/2021-05-24/u-s-sanctions-complicate-vodafone-funding-for-ethiopia-entry (accessed 1 August 2021).

[21] - Prinsloo, L. 2021. Africa’s Largest Wireless Carrier to Shun Ethiopian Bid’, Bloomberg, 5 August, https://www.bloomberg.com/news/articles/2021-08-05/war-hurts-ethiopia-s-second-bid-to-secure-foreign-telecom-sale (accessed 1 August 2021).