IBM Assign Indivi Assign Final

International Business Management Individual Assignment 2022
1. Analyze the implication of the political, economic, and legal environment on

international business in Ethiopia?
International business is the trade of goods, services, technology, capital and/or knowledge
across national borders and at a global or transnational scale. It involves cross
border transactions of goods and services between two or more countries. Transactions of
economic resources include capital, skills, and people for the purpose of the international
production of physical goods and services such as finance, banking, insurance, and construction.
International business conducted worldwide in the form of import and export of trade, foreign
direct investment (FDI), licensing, Franchising, and Management contracts.
For Ethiopia, the integration to this global business aids to exploit the opportunities to transform
the economy from agricultural economy to a modern economy. There are three aspects to this
transformation- from a subsistence peasant agriculture to a market based agriculture, from a past
centralized command economy to a market economy and from a more inward oriented to an
outward oriented trade regime(Sarath Rajapatirana, 2004).
With this regard, Ethiopia started implementing the structural trade policy adjustment and
reform imposed by the International Monetary Fund and the World Bank beginning from
the 1980’s. This structural adjustment program was courageously recommended by the two
organizations (World Bank and IMF) to open foreign trade competition and decrease barriers
of trade as a long-term strategy of economic growth and development globally (Emagne,
2017).
since 1980’s Ethiopia has set many incentives to attract international businesses like, tariffs have
been cut, licensing bureaucracy has been shortened by using an online registration system,
quota constraints have been relaxed, control over foreign exchange has been minimized,
control over interest rates has been relaxed, and open different sectors for different foreign
business. With the aim, to encourage economic growth by capturing the static and dynamic gains
from trade through technological transfer and innovation, proper allocation of resources, creating
more competition among nations, and increasing the inflow of investment and capital
accumulation.
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Political environment implication on Ethiopian’s international business

Governments intervene in trade for a combination of political, economic, social, and cultural
reasons. Politically, a country’s government may seek to protect jobs or specific industries. Some
industries may be considered essential for national security purposes, such as defense,
telecommunications, and infrastructure—for example, an Ethiopian government may be
concerned about who owns the ports, telecommunication, and weapons manufacturing.
In Ethiopian history, the governments followed different political and economic philosophies.
After the fall Haile Selassie I (reigned 1930–74), The Derg took power in 1974 and promised to
bring revolutionary change to Ethiopia. The Derg regime follows communist political philosophy
and the government nationalized all means of production, including land, housing, farms, and
industry. The internal business relation emphasized on import of important goods and exported
state owned export companies, geographic diversification of exports towards the markets of
socialist countries and neighboring African countries as well as diversification towards
manufactured products, to a greater extent (Lakew, 2003). Next to the Derg regime, Ethiopian
People Revolutionarily Democratic Front (EPRDF) takes place the role of leading the country.
EPRDF followed Revolutionary Democracy which is considered a mixture of communist and
liberal thought with the courage of free market economy.
As we have seen clearly in the Ethiopian history every government followed different political
and economic philosophy which fever or discourages the international business of Ethiopia.
However, the democratic political and free market economy adds remarkable value on
Ethiopian’s international business, which also aid countries to get significant economic growth.
Source: The World Bank; The Economist; The Ministry of Finance and Economic Development
Economic environment implication on Ethiopia’s international business
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There are two different attitudes on this issue; many researchers belief and revealed that
international business has a positive relationship with Ethiopia economic growth. Mkubwa and
Babiker (2014), Echekoba and Okonkwo (2015), Babula (2009), Babula and Andersen (2009),
and (Emagne, 2017) have concluded that, there exists a positive and significant relationship
between international business and growth. On the contrary, few researchers conclude the
negative economic impact of international business, and justifying it with the ‘infant industry’
argument. That is, most manufacturing industries are small and medium enterprises whose
financial and production capacity is limited. Therefore, in times of involving in international
business, such enterprises will face strong competition from external companies, and this will
immediately liquidate or demolish them. However, supporters of international business or free
trade are against the ‘infant industry’ argument contending that infant industries that are being
protected by the government have not grown and they always want a long-lasting protection
from external competition.
The Ethiopian government opens its market for different international business and provides
incentives to attract international investor to gain economic benefits from the international
market. The government prepares different platforms and incentives to attract international
business like Foreign Direct Investment (FDI), industrial parks, infrastructures, tax exemptions,
import and export duty exemptions. In return, the government expects significant economic
growth with GDP, higher job opportunity, import substitution, higher export rate, and empower
the local companies etc. Even if the government and many researchers believe in the benefits of
international business, there is still reservation or protection in some business areas like banks,
power, energy distribution and mining sectors, etc. by the government.
The Ethiopian government has initiated significant reforms since 2018, aimed at opening up the
economy for the private sector and attracting FDI. The decision was made to liberalize key
sectors of the economy and to partially or fully privatize state monopolies such as Ethio-
Telecom, Ethiopian Electric Power, Ethiopian Airlines and the Ethiopian Sugar Corporation. The
Government has also begun to engage the private sector in public works and infrastructure
projects through PPP schemes.
The legal environment implication on international business in Ethiopia

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Ethiopia is a federal state with a civil law legal system combined with procedural laws,
principally inspired by the common law system. Sources of Ethiopian law include the
Constitution, international treaties, proclamations, decrees, regulations, directives and customary
laws. A ruling of the Cassation Division of the Federal Supreme Court interpreting the law has a
binding effect on federal and state courts. The Constitution provides legal status to some pre-
existing religious and customary courts, and gives federal and regional legislatures the authority
to recognize other courts. Sharia courts may hear religious and family cases involving Muslims.
Ethiopian investment law provides that foreign investors can engage in all areas of investment
that are not expressly prohibited to them. Foreign nationals must obtain an investment permit
from the Ethiopian Investment Commission before starting a business in Ethiopia. Likewise, a
foreign investor intending to buy an existing enterprise or to purchase shares in an existing
enterprise must obtain prior approval from the Commission.
Restrictions on Foreign Shareholders

The following include the areas that are not open for foreign investment:
 Banking, insurance and micro-credit and saving services.
 Broadcasting and mass media services.
 Legal practice and legal consultancy services.
 The preparation of indigenous traditional medicines.
 Advertisement, promotion and translation.
 Air transport services using aircraft with a seating capacity of up to 50 passengers.
However, foreign nationals of Ethiopian origin have recently been allowed to engage in financial
services, legal practice and legal consultancy.The investment laws do not apply to mining and
petroleum operations, which are governed by Petroleum Operations Proclamation No. 295/1986
and Petroleum Production and Sharing Agreement (PPSA) and Mining Operations Proclamation
No. 678/2020 as amended by Proclamation No. 816/2013 and Proclamation No. 1213/202.
Governments have several key policy areas that can be used to create rules and regulations to
control and manage trade.
 Tariffs. Tariffs are taxes imposed on imports.

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 Subsidies. A subsidy is a form of government payment to a producer.

 Import quotas and VER. Import quotas and voluntary export restraints (VER) are two
strategies to limit the amount of imports into a country.
 Currency controls. Governments may limit the convertibility of one currency (usually its
own) into others, usually in an effort to limit imports.
 Local content requirements. Many countries continue to require that a certain percentage
of a product or an item be manufactured or “assembled” locally.
 Export financing. Governments provide financing to domestic companies to promote
exports.
 Free-trade zone. Many countries designate certain geographic areas as free-trade zones.
These areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to
promote trade with other countries.
 Administrative policies. These are the bureaucratic policies and procedures governments
may use to deter imports by making entry or operations more difficult and time consuming.
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2. Analyze the FDI flow (inflow and outflow) of Ethiopia. Analyze the effect of
Ethiopian's Political, economic, and legal environment on FDI? Who is FDI
inflow benefiting in Ethiopia? Support your argument with facts and figures
based on specific evidence?
FDI flow (inflow and outflow) of Ethiopia
Foreign direct investment (FDI) is an investment from a party in one country into a business
or corporation in another country with the intention of establishing a lasting interest. Lasting
interest differentiates FDI from foreign portfolio investments, where investors passively hold
securities from a foreign country. A foreign direct investment can be made by obtaining a lasting
interest or by expanding one’s business into a foreign country.
Ethiopia is embarking on a mission to join the middle income country group by 2025. Ethiopia
has set a target for 2025 to increase the share of the industry sector to GDP from the current 13%
to 27% and the manufacturing sector from current 4% to 17% . Massive expansion of investment
both from domestic and abroad is expected to achieve these targets. Similar to many other
developing countries, Ethiopia faces two types of capital shortages arising from the investment-
saving and export-imports gaps. It also suffers from the deficiency of knowledge/technology
which is critically needed to transform and make the industry internationally competitive.
Foreign Direct Investment (FDI) can help bridge these gaps and generate multiple benefits to the
host country, among others, as a source of foreign (saving) capital, technology transfer (technical
knowhow, business expertise and knowledge), and employment.In recognition of this, the
Ethiopian government has renewed its interest to attract FDI the country has started to become
the preferred destination for FDI in the sub-Saharan Africa. Like many other developing
countries, Ethiopia’s focus has, however, been on attracting FDI while little attention has been
given to maximizing the benefits from FDI(Gebreeyesus, Beshah, & Abebe, 2017).
FDI Inflows (% of GDP)
Foreign direct investment, net inflows (% of GDP) in Ethiopia was reported at 2.2256 % in 2020,
according to the World Bank collection of development indicators, compiled from officially
recognized sources. Ethiopia - Foreign direct investment, net inflows (% of GDP) - actual values,
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historical data, forecasts and projections were sourced from the World Bank on April of 2022.
Ethiopia also have benefited from a significant increase of FDI influx; FDI inflow has grown
from 135 million USD to 953 million USD from 2000 to 2013 (UNCTAD, 2014).
FDI outflows (% of GDP)

Foreign direct investment are the net inflows of investment to acquire a lasting management
interest (10 percent or more of voting stock) in an enterprise operating in an economy other than
that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term
capital, and short-term capital as shown in the balance of payments. This series shows net
outflows of investment from the reporting economy to the rest of the world and is divided by
GDP.According to NUCTAD Between 1982 and 2020, Ethiopia net FDI outflows (% of GDP)
remained stable at around 0 % or no registered outflow FDI
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FDI (Inflow and outflow)of Ethiopia by country
Analyze the effect of Ethiopian's Political, economic, and legal environment on FDI?
While most of the theoretical literature present market size and relative factor costs (i.e., price of
land, labour and other inputs) as essential determinant of FDI inflow (Markusen et al. 1995), a
number of empirical studies identify political and macroeconomic stability and the absorptive
capacity of the host countries as vital factors that affect the inflow of FDI. For instance, earlier
studies by (Schneider & S. Frey 1985&Singh & Jun 1995) reveal that the prevalence of political
risks in the host countries has statistically significant negative effect on FDI inflow. Recent
studies by (Reinhart &Rogoff 2003; Fu 2012) have also identified political stability as a
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prominent determinant that affect the inflow of FDI to Africa. In line with this, a study on
Chinese FDI in Ethiopia by (Geiger &Goh 2012) also confirmed that a considerable proportion
of the Chinese investors operating in Ethiopia are found to be motivated to invest in the country
due to the prevailing stable political environment.
On the other hand, it is argued that countries with stable macroeconomic situation and high
growth potential will tend to receive greater FDI inflow than those nations with a more volatile
economy. Studies by (Klein et al. 2001; Wei 2009 & Fu 2012) demonstrate the positive causality
between inward FDI and the economic growth of nations. A very recent Meta-regression analysis
by (Iamsiraroj & Doucouliagos 2015) on 946 estimates from 140 empirical literature have
reached on a robust conclusion that, on average economic growth is an important determinant of
FDI inflow. Similarly, (Fu 2012) argued that Chinese investors that are engaged in automobile
assembly and other manufacturing activities in Ethiopia are attracted by the prevailing low
market competition and promising growth potential of the country. 26 Thus, Ethiopia’s recent
rapid economic growth performance would further attract more FDIs from other parts of the
world if the nation alleviates other obstacles that can prevent foreign nationals from investing in
the country.
Foreign direct investment absorptive capacity of the host country depends on a number of factors
such as, the state of infrastructure, institutional factors (i.e., the investment legislations and trade
regimes), scale factors (i.e., the balance of payment position and the size of domestic market)
and complimentary factors like human capital and availability of land (de Mello 1996). For
instance, the availability and quality of infrastructures like energy supply, main and feeder roads
and the transportation system play a vital role in attracting FDI and reaping the maximum
possible benefits that can be acquired from such investments. On the other hand, FDI may also
contribute towards the improvements of infrastructure in the host country (Owusu-antwi et al.
2013).
Institutions are also important factors that influence FDI inflow to host countries.
Busse&Hefeker (2007), using data from a sample of 83 developing nations identified law and
order, democratic accountability of government, corruption and the quality of bureaucracy as
highly significant determinants of inward FDI.It is argued that developing countries including
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Africa might improve their attractiveness for FDI by introducing policies that can scale up local
skills and build up the labour force capabilities.
(Meskerem, 2013) Foreign Direct Investment (FDI) affects economic growth of developing
countries positively through transfer of capital, know-how, and technology (Li and Liu (2005)).
It increases activity not only in FDI beneficiary firms. The effect can spread to other firms in the
country and sectors through technology spillover, human and capital formation and increasing
competition, thus raising productivity for the whole economy. FDI can accelerate growth in the
ways of generating employment in the host countries, fulfilling saving gap and huge investment
demand and sharing knowledge and management skills through backward and forward linkage in
the host countries (Frenkel, Funke et al. (2004)).
Who is FDI inflow benefiting in Ethiopia?

FDI has as having both benefits and costs. The policy implication is, pursing policies designed to
maximize the benefits and minimize the costs of FDI that include restricting FDI where costs
outweigh benefits, bargaining for greater benefits, and aggressively courting beneficial FDI by
offering incentives. In FDI both the host country and investors are benefited.
Advantages of foreign direct investment to Ethiopia
 Economic growth:-The creation of jobs is the most obvious advantage of FDI, one of
the most important reasons why a nation (especially a developing one) will look to
attract foreign direct investment. FDI boosts the manufacturing and services sector
which results in the creation of jobs and helps to reduce unemployment rates in the
country. Increased employment translates to higher incomes and equips the population
with more buying powers, boosting the overall economy of a country.
FDI inflows to the Ethiopia have quickened in later a long time. In any case, in 2018, FDI
inflows diminished to USD 3.3 billion in 2018 compared to USD 4.2 billion in 2017 (UNCTAD,
2018). Nearly half of the streams from the East African locale were ingested by Ethiopia.
Totally, FDI stocks were evaluated at USD 22.2 billion constitutes 27.7 percent of GDP in 2018.
Agreeing to the most recent information from UNCTAD, in spite of a 24% drop in speculations
to USD 3.1 billion in 2018, Ethiopia kept up its beat rank in East Africa, with investments in
petroleum refining, mineral extraction, real estate, manufacturing, and renewable energy
resources.
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 Human capital development: Human capital involved the knowledge and competence
of a workforce. Skills that employees gain through training and experience can boost the
education and human capital of a specific country. Through a ripple effect, it can train
human resources in other sectors and companies.
 Technology: Targeted countries and businesses receive access to the latest financing
tools, technologies, and operational practices from all across the world. The introduction
of newer and enhanced technologies results in company’s distribution into the local
economy, resulting in enhanced efficiency and effectiveness of the industry.
 Increase in exports: Many goods produced by FDI have global markets, not solely
domestic consumption. The creation of 100% export oriented units help to assist FDI
investors in boosting exports from other countries. According Ethiopian investment
commission to FDI had played major role in filling the domestic investment gap and
enhancing linkages with global markets (EIC, 2020).
• Export increased from zero to about 300million USD per year.
n
• 2 in floriculture exports in Africa and among top 4 exporters in the world.
• Created over 180 thousand jobs,

• Ample rooms for attracting additional investment:
• EIB reforms in the agri-business sector
 Improved Capital Flow: Inflow of capital is particularly beneficial for countries with
limited domestic resources, as well as for nations with restricted opportunities to raise
funds in global capital markets.
 Creation of a Competitive Market: By facilitating the entry of foreign organizations
into the domestic marketplace, FDI helps create a competitive environment, as well as
break domestic monopolies. A healthy competitive environment pushes firms to
continuously enhance their processes and product offerings, thereby fostering
innovation. Consumers also gain access to a wider range of competitively priced
products.
 Climate: The United Nations has also promoted the use of FDI around the globe to help
combat climate change
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Disadvantages of foreign direct investment to Ethiopia

 Hindrance of domestic investment: - Sometimes FDI can hinder domestic investment.
Because of FDI, countries’ local companies start losing interest to invest in their
domestic products.
 The risk from political changes: - Other countries’ political movements can be
changed constantly which could hamper the investors.
 Negative exchange rates: - Foreign direct investments can sometimes affect exchange
rates to the advantage of one country and the detriment of another.
 Higher costs: - When investors invest in foreign counties, they might notice that it is
more expensive than when goods are exported.
 Economic non-viability:- Considering that foreign direct investments may be capital-
intensive from the point of view of the investor, it can sometimes be very risky or
economically non-viable.
 Expropriation:- Constant political changes can lead to expropriation. In this case, those
countries’ governments will have control over investors’ property and assets.
 Modern-day economic colonialism:- Many third-world countries, or at least those with
history of colonialism, worry that foreign direct investment would result in some kind of
modern-day economic colonialism, which exposes host countries and leave them
vulnerable to foreign companies’ exploitation.
 Poor performance:- Multinationals have been criticized for poor working conditions in
foreign factories.
Beneficiaries of FDI inflow in Ethiopia
 Government: FDI can elevate the economy of the country by creating job opportunity,
enhancing income, generating forighen currency, import substitution, technology transfer
and, etc.
 Society: political and economic stability, enhance per capital income, better living
standard
 FDI of Investors The investors can get higher competitive advantages in global market
because there are different FDI incentives offered by Ethiopia
 Land availability for investment on lease-hold and rental basis, The government
reserves dedicated land for commercial farming of cotton, horticulture etc, Lease
right is given for up to 80 years (depending on location and sector of engagement),
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Industrial park enterprises have the option of sub-leasing developed land to construct
own production facility in industrial parks (they can also rent or buy factory sheds)
 Labor: Ethiopia has a growing educated labor force over 50 Universities with
around half million student population; over 1,300 Technical and Vocational
Education and Training (TVET) Institutes with an annual intake close to one million
students, Globally competitive wage rates, Government-supported provision of skills
trainings through industry development institutes, Flexible domestic labor laws and
regulations (EIC, 2019):
1) No minimum wage requirement on private sector employers
2) Normal working hours per day is 8 (excluding breaks for lunch)
3) Maximum number of working days per week is 6 (288 days per year)
4) No general restriction on night works
5) The number of paid annual leave days for a starting employee is 14; slight
increment for additional years of service.
6) Average premium pay for overtime work is 50%
 Infrastructure; Electricity, water , Transport
 Different incentives: tax exemption , long term land lease,
 Favorable market factors: Duty-free, quota-free access to EU markets through
EBA, Duty-free, quota-free access to Japan, Canada, China, Turkey, Australia and
New Zealand – covering substantially all export goods from Ethiopia, Preferential
market access to India and Member of COMESA with preferential market access to a
regional market of 400 million people.
 Availability of raw material for manufacturing firms: cotton for textile, hides and
skin for leather, different agricultural products.
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3. Discuss the concept of comparative advantage taking Ethiopia as a context?

Comparative advantage is an economy's ability to produce a particular good or service at a
lower opportunity cost than its trading partners. Comparative advantage is used to explain why
companies, countries, or individuals can benefit from trade.
When used to describe international trade, comparative advantage refers to the products that a
country can produce more cheaply or easily than other countries. While this usually illustrates
the benefits of trade, some contemporary economists now acknowledge that focusing only on
comparative advantages can result in exploitation and depletion of the country's
resources.Comparative advantage suggests that countries will engage in trade with one another,
exporting the goods that they have a relative advantage in.There are downsides to focusing only
on a country's comparative advantages, which can exploit the country's labor and natural
resources.
According to (Hunegnaw, 2021), Ethiopia has comparativeadvantage on primaryproduct
production and export, and low technology manufactured products over other product groups for
the periods 1996 to 2018. The primary products are Coffee, sesame seeds, leather, spices, pepper,
cut flowers and bamboo products were identified accordingly; and technology manufactured
products are textile, garment and footwear.
(EIC, 2019) Ethiopia offers a remarkable competitive advantage for manufacturing industries
due to:
 Government facilitation of efficiency enhancing investment solutions including industrial
parks that are ready for ‘plug and play’;
 Large pool of trainable work force available at competitive wages;
 Cheapest energy rate on a global standard;
 Geographic proximity and preferential access to key markets; and
 Abundance of high-quality industrial raw materials;
The following example wills clearly indicates the actual comparative advantage of Ethiopia on
the leather sector.
Comparative advantage of Ethiopia on leather and leather products
The first comparative advantage commonly considered for Ethiopia is the size of its livestock,
being the second largest population in Africa. However, in the Ethiopian agriculture, skins and
hides are only considered as by-products from meat consumption.
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The Ethiopian Central Statistics Agency recorded, for the year 2012, 52,129,000 cattle including
10.5 million dairy cattle; 24,221,000 sheep; and 22,613,000 goats. The country ranks sixth in the
world for cattle population, seventh for goats and tenth for sheep which collectively put Ethiopia
among the top ten producers of these animals altogether globally. In Africa Nigeria and Ethiopia
possess the two largest livestock of the continent by far(Coppeaux et al., 2016).
The second and crucial segment in the industry is the tanneries. They are key actors as they
process the transformation of the raw material into finished leather that will then be transforming
into commercial goods. The business model of tanneries was highly transformed after the 150
percent export tax on semi-transformed leather.
(UNCTAD, 2018), The Revealed Comparative Advantage (RCA), evaluates export performance
as the total exports of a specific product, divided by the total exports of that country compared to
the world exports of the product, divided by total world exports. The factors that contribute to
movements in RCA are economic: structural change, increased world demand and trade
specialization.Table 1.11 shows a comparison of the revealed comparative advantage indexes for
two sub categories of leather industry for the period of 2006 to 2015 based on the data extracted
from ITC. The first group is the RCA for the raw hides and skins (RHS) and the other category is
finished leather products and (FLP) which includes leather, leather products and its fractions.
The RCA indices of Ethiopia and other countries namely Kenya, South Africa and Nigeria are
compared. The table indicates that the RCA index for raw hides and skins for all the countries is
greater than 1 which indicates that all of these countries have a comparative advantage from the
export of the hides and skins. However, the RCA index for the leather and its articles is less than
1 showing that they have a disadvantage in exporting value added leather products. Ethiopia’s
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leather sector in general enjoys significant international comparative advantages owing to its
abundant and available raw materials, highly disciplined workforce and cheap prices.
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4. Discuss the role of the International Chamber of Commerce, the World

Trade Organization, and the International Monetary Fund? Make a
comparison of the contribution of the three international organizations
to developing and developed nations?
 The role of International Chamber of Commerce (ICC)
ICC is the world business organization, enabling business to secure peace, prosperity and
opportunity for all. It represents 45 million companies in over 100 countries with broad business
interests. ICC has three main activities – rule setting, arbitration and policy – and provides
essential services such as ICC Arbitration, training, commercial crime fighting and customs
facilitation. The International Chamber of Commerce (ICC) aims to foster international trade and
commerce to promote and protect open markets for goods and services and the free flow of
capital. The ICC's vast networks of committees and experts belong to a full range of business
sectors and keep members informed of all issues that affect their industries. The ICC maintains
contact with the United Nations (UN), the World Trade Organization (WTO), and other
intergovernmental agencies.ICC International Chamber of commerce is the world's only truly
global business organization facilitates in regulating world economy. The ICC lobbies for open
trade, business self-regulation, and fighting corruption and commercial crimes. The International
Chamber of Commerce ICC speaks for world businesses when governments consider issues as
intellectual property rights, trade regulations, and environmental protection legislation. The ICC
also develops rules and standards that companies can adopt voluntarily, and that can be
incorporated in binding contracts.
 The role of World Trade Organization(WTO)
After the World War II the World Bank and the International Monetary Fund (IMF) were created
as international financial institutions. It was intended that a third institution be created to regulate
the trade aspect of international economic cooperation among nations. More than fifty countries
were part of the negotiations to create International Trade Organization (ITO) as a specialized
organ of the United Nations. The scope of the draft ITO Charter included rules on employment,
commodity agreements, restrictive trade practices, international investment, and
services(HERBERT, 2020).Meanwhile, 23 countries had entered into trade negotiations in
Geneva in 1947. The agreement was known as the General Agreements on Trade and
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Tariffs (GATT) and was to come into force on 1st January, 1948. The agreement aims to
remove the use of import quotas and to reduce tariffs on goods. Signatory states of GATT took
a long walk to form the WTO.The World Trade Organization (WTO) is an international
institution that oversees the global trade rules among nations, Created in 1995.
WTO is the only international organization dealing with the global rules of trade. Its main
function is to ensure that trade flows as smoothly, predictably and freely as possible.
The WTO has six key objectives:
1. To set and enforce rules for international trade,
2. To provide a forum for negotiating and monitoring further trade liberalization,
3. To resolve trade disputes,
4. To increase the transparency of decision-making processes,
5. To cooperate with other major international economic institutions involved in global
economic management, and
6. To help developing countries benefit fully from the global trading system.
 The role of International Monetary Fund (IMF)
The IMF works to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and reduce
poverty around the world.
The IMF's primary purpose is to ensure the stability of the international monetary system—the
system of exchange rates and international payments that enables countries and their citizens to
transact with each other. It does so by keeping track of the global economy and the economies of
member countries, lending to countries with balance of payments difficulties, and giving
practical help to members.
 Make a comparison of the contribution of the three international organizations to
developing and developed nations?
ICC plays a pivotal role in the growth of the private sector, to enhance their management and
service capabilities so that they can stimulate and foster private sector development. With this
regard, the chamber focuses on private sector investments and beliefs the development of this
privet sector secure the countries and world’s economic growth in the long-term. But in order to
support the existence of private sectors in any nation’s weather developed or developing, the
chamber works together with different organizations like UNDP and World Bank. On 8
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September, 2002 UNDP and ICC signed the agreement strengthening private entrepreneurship
and chambers of commerce in developing countries, and in countries in transition to a market
economy, such as Eastern Europe and the Commonwealth of Independent States.
About two thirds of the WTO’s around 164 members are developing countries. They play an
increasingly important and active role in the WTO because of their numbers, because they are
becoming more important in the global economy, and because they increasingly look to trade as
a vital tool in their development efforts. Developing countries are a highly diverse group often
with very different views and concerns. The WTO deals with the special needs of developing
countries in three ways:
 The WTO agreements contain special provisions on developing countries
 The Committee on Trade and Development is the main body focusing on work in this area in
the WTO, with some others dealing with specific topics such as trade and debt, and
technology transfer
 The WTO Secretariat provides technical assistance (mainly training of various Kinds) for
developing countries.
The WTO agreements include numerous provisions giving developing and least-developed
countries special rights or extra leniency — “special and differential treatment”. Among these
are provisions that allow developed countries to treat developing countries more favorably than
other WTO members(Wto et al., n.d.).
Other measures concerning developing countries in the WTO agreements include:
 Extra time for developing countries to fulfill their commitments (in many of theWTO
agreements)
 Provisions designed to increase developing countries’ trading opportunities through
greater market access (e.g. In textiles, services, technical barriers to trade)
 Provisions requiring WTO members to safeguard the interests of developing countries
when adopting some domestic or international measures (e.g. In anti-dumping,
safeguards, technical barriers to trade)
 Provisions for various means of helping developing countries (e.g. To deal
withcommitments on animal and plant health standards, technical standards, and
instrengthening their domestic telecommunications sectors).
The International Monetary Fund (IMF) is an organization of 190 countries, working to foster
global monetary cooperation, secure financial stability, facilitate international trade, promote
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high employment and sustainable economic growth, and reduce poverty around the world.As
originally envisaged, the International Monetary Fund (IMF) had three functions. It was an
adjustment agency providing advice on balance of payments policy, a financing agency
providing short-term liquidity to countries encountering balance of payments problems and
finally an agent for managing the Bretton Woods international monetary system, which was
based on an adjustable peg exchange rate regime.
The IMF's membership is divided along income lines: certain countries provide financial
resources while others use these resources. Both developed country "creditors" and developing
country "borrowers" are members of the IMF. The developed countries provide the financial
resources but rarely enter into IMF loan agreements; they are the creditors. Conversely, the
developing countries use the lending services but contribute little to the pool of money available
to lend because their quotas are smaller; they are the borrowers. Thus, tension is created around
governance issues because these two groups, creditors and borrowers, have fundamentally
different interests.
The criticism is that the system of voting power distribution through a quota system
institutionalizes borrower subordination and creditor dominance. The resulting division of the
IMF's membership into borrowers and non-borrowers has increased the controversy around
conditionality because the borrowers are interested in increasing loan access while creditors want
to maintain reassurance that the loans will be repaid.
20
5. Conceptualize regional economic integration and evaluate IGAD's role and
contribution to its member countries?

Regional integration has attracted several definitions from scholars. Accordingly, the European
Commission (2019) defines the concept of regional integration as “the process of
overcoming barriers that divide neighboring countries, by common accord, and of jointly
managing shared resources and assets. It is a process by which groups of countries liberalize
trade, creating a common market for goods, people, capital and services”(Ibori, Obiageli,
& Idagu, 2019).
(Cole, John, College, & Lyons, 1999)Regional Economic Integration can best be defined as an
agreement between groups of countries in a geographic region, to reduce and ultimately remove
tariff and non-tariff barriers to the free flow of goods, services, and factors of production
between each other. The following are examples of Regional Economic Integration:
 NAFTA (North American Free Trade Agreement)-An agreement among the U.S.A.,
Canada, and Mexico.
 EU (European Union)-A trade agreement with 15 European countries.
 APEC (Asian Pacific Economic Cooperation Forum) - This includes NAFT A members,
Japan, and China.
 IGAD (Intergovernmental Authority Development) - currently comprising eight
countries in the Horn of Africa including South Sudan.
The assignment focuses only on IGAD.
The IGAD region stretches over an area of 5.2 million km2 that comprises the countries of
Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda.
21
The Intergovernmental Authority on Development (IGAD) in Eastern Africa was created in 1996
to supersede the Intergovernmental Authority on Drought and Development (IGADD) which
was founded in 1986 to mitigate the effects of the recurring severe droughts and other natural
disasters that resulted in widespread famine, ecological degradation and economic hardship in
the region. Djibouti, Ethiopia, Kenya, Somalia, Sudan and Uganda - took action through the
United Nations to establish the intergovernmental body for development and drought control in
their region. Eritrea became the seventh member after attaining independence in 1993 and in
2011 South Sudan joined IGAD as the eighth member state.
With the new emerging political and socio-economic challenges, the assembly of Heads of State
and Government, meeting in Addis Ababa in April 1995, resolved to revitalize IGADD and
expand areas of cooperation among Member States. The new and revitalized IGAD was
launched during the 5th Summit of IGAD Assembly of Heads of State and Government held on
25-26 November 1996 in Djibouti. The Summit endorsed the decision to enhance regional
cooperation in three priority areas of food security and environmental protection, economic
cooperation, regional integration and social development peace and security.
IGAD's role and contribution to its member countries
The Major roles are
 Promote joint development strategies and gradually harmonize macro-economic policies
and programs in the social, technological and scientific fields;
 Harmonize policies with regard to trade, customs, transport, communications, agriculture,
and natural resources and environment, and promote free movement of goods, services, and
people within the region.
 Create an enabling environment for foreign, cross-border and domestic trade and
investment;
 Initiate and promote programs and projects to achieve regional food security and
sustainable development of natural resources and environmental protection, and encourage
and assist efforts of Member States to collectively combat drought and other natural and
man-made disasters and their consequences;
 Develop and improve a coordinated and complementary infrastructure, in the areas of
transport, telecommunications and energy in the region;
22
 Promote peace and stability in the region and create mechanisms within the region for the
prevention, management and resolution of inter-State and intra-State conflicts through
dialogue;
 Mobilize resources for the implementation of emergency, short-term, medium-term and
long-term programs within the framework of regional cooperation;
 Facilitate, promote and strengthen cooperation in research development and application in
science and technology.
 Provide capacity building and training at regional and national levels; and
 Generate and disseminate development information in the region
Contribution to its member
The IGAD region is located in a strategic place in the Horn of Africa and blessed with a good
climate, rich hinterland, a long coastline with deep natural ports and situated on major air traffic
routes for tourism and commodity markets in Africa, the Far East, Middle East, and Europe. It is
endowed with substantial natural resources such as oil and gas reserves, wildlife, high tourism
potentials, diverse ecosystems, alternative energy resources (hydroelectric, solar and
geothermal), marine, water and livestock resources. A population of over 230 million and vast
expanses of territory coverage provide a sizeable market, which has the potential to attract both
domestic and foreign investors.
The economic mainstay of the region is agriculture, both livestock and crop production, which
provides the basis for food supplies and export earnings, as well as employment for over 80
percent of the population. The contribution of industries to the respective national economies of
the IGAD Member States is about 15-20 percent, on average. Since they produce similar
commodities and there is a low level of infrastructure development in the region, the level of
intra-state trade remains low and markets are neither inter-dependent nor inter-linked. Among
the impediments to development within the region is the poor transportation infrastructure, more
so, for landlocked countries such as Ethiopia, South Sudan and Uganda. IGAD’s over-arching
objective of regional integration is to create an open, unified, regional economic space for private
operators – a single market open to competitive entry and well integrated into the global
economy. This requires both regional infrastructure as well as the gradual harmonization of
policies for removal of physical and non-physical barriers to inter-state transport and
communications. Competitiveness of the region through trade expansion is hampered by the poor
23
and inefficient road and railway network systems that in turn raise transport costs and lead to
burdensome trade logistics. The road and railway missing links entail that the existing networks
are not optimally utilized, and that opportunities are being lost due to the lack of economies of
scale necessary to attract and sustain private investments in these networks. The other modes of
transport also have specific challenges within the region. Key challenges for the railway sector
include aging tracks and lack of maintenance, different gauges of tracks which prevents seamless
regional connectivity, shortage of serviceable rolling stock that limits operational performance,
and limited ranges of investment versus profitability choices for railway companies to invest in
upgrading existing or developing new rail networks. Seaports within the region have capacity
constraints that result in congestion and berthing delays. Lastly, growth in the region’s air traffic
is not being matched with enhanced connectivity within the region. The air traffic control
systems and the airport infrastructure are also inadequate.
Most of the IGAD Member States belong to the world’s Least Developed Countries (LDC).
They face both human and material challenges in their pursuits for development. Nevertheless,
the region has a wide range of agro-ecological zones (AEZ) with rich biodiversity and diverse
agricultural potential, which if effectively cultivated and managed could turn the Region into a
breadbasket for Africa and neighboring Asian countries. It is against this backdrop that IGAD
Member States have chosen to enhance their regional co-operation in an effort to maximize the
potential of the vast resources and propel the region to new economic growth levels. Mobilizing
the necessary resources for the implementation of development programs at the national and
regional levels is a huge challenge for both IGAD and its Member States. The capacity of IGAD
and the Member States to cope with development problems of the region on their own and
without substantial external support is a consideration, which highlights the importance of
regional cooperation and the IGAD as a regional organization.
As part of the effort to deliver its mandate, IGAD has devoted considerable resources and energy
towards mitigating the effects of drought, desertification and food insecurity in the region.
Despite these efforts, however, drought and food insecurity continue to be major critical threats
to the region.
IGAD’s focus for regional economic cooperation and integration is to create an open, unified,
regional economic space for the business community – a single market open to competitive entry
and well integrated into the continental and global economies. This focus requires both regional
24
infrastructure as well as the gradual harmonization of policies for the removal of barriers to inter-
state communications. Globalization trends of the world economy which offer vast opportunities
at the same time pose major constraints for the IGAD region. However IGAD focuses on major
areas of the Economic Cooperation and Integration and Social Development Division which has the following
programs areas:
 Trade, Tourism and Industry

 Infrastructure Development
 Health and Social Development
Peace and security are fundamental prerequisites for the attainment of sustainable development.
Threats to peace and security are interlinked and comprise various human insecurities that
emanate from both inter and intra-state conflicts and transnational security threats such as
terrorism, human and drug trafficking, illicit use of small arms and light weapons among other
causes. The resulting political and social problems further threaten development efforts and
complicate interventions to alleviate various related challenges.
In Africa, no region is more plagued with protracted violent conflicts than the IGAD region. The
presence of more than four United Nations and African Union peace support operation with more
than 50,000 troops in the region (Darfur-Sudan, Abyei, Somalia, South Sudan), hundreds of
Qatari military observers on the Djibouti-Eritrea Border and thousands of western military forces
on the Djibouti, emphasizes the peace and security challenges afflicting the IGAD region.
IGAD has also been at the forefront in the efforts to address these peace and security challenges.
Indicative of the progress the region has made in the past two decades or so, in actual terms,
IGAD, as institution, has now been transformed from being primarily a group of states
determined to fight drought and desertification into a prominent Regional Economic Community
(REC), without which no peace and security issues could be effectively dealt with in the region.
IGAD is also contributing to the continental peace and security mechanisms and peace support
operations. In terms of actual troop contributions, IGAD MSs (Ethiopia, Uganda, Kenya,
Djibouti) are the leading troop contributing countries to the AU Mission in Somalia (AMISOM),
the UN and the AU Hybrid Peacekeeping Missions in Darfur –UNAMID, Abyei-UNISFA),
South Sudan-UNMISS, UNMIL and the Verification and Monitoring Mission in Sudan (2003) as
well as the on-going Monitoring and Verification Mission in South Sudan since 2014.
6. Reference
25
Cole, K., John, S., College, F., & Lyons, R. (1999). Regional Economic Integration How has open access
to Fisher Digital Publications benefited you ? A Journal of Undergraduate Student Research
Volume, 2, 70–76.
Coppeaux, Z., Savu, C. C.-C., Ilhami, A., Laigle, R., Narcis, & Soudan, M. (2016). Does Ethiopia have a
comparative advantage in the leather industry ? Mines Paristech Working Paper Industrial
Organization.
EIC. (2019). An Investment Guide to Ethiopia: Opportunities and conditions.
EIC. (2020). Investment presentation Genoa2nd April2019.
Emagne, Y. (2017). Exploring the Relationship between Trade Liberalization and Ethiopian Economic
Growth. Ethiopian Journal of Economics, 26(2), 109–141.
Gebreeyesus, M., Beshah, B., & Abebe, G. (2017). Foreign Direct Investment in Ethiopia: Challenges ,
Opportunities and Policy Options for Effective Use to Stimulate Industrialization., (April), 1–274.
HERBERT, E. B. L. . (Uyo). (2020). The role of world trade organisation in international trade and
investment *, 2(2), 47–55.
Hunegnaw, F. B. (2021). Analysis on Ethiopia ’ s Revealed Comparative Advantage and Its Structural
Transformation. Research Square, 1–9. https://doi.org/https://doi.org/10.21203/rs.3.rs-715630/v1
Ibori, M., Obiageli, L., & Idagu, E. (2019). Intergovernmental Authority on Development and Regional
Integration in East Africa: Achievements, Challenges and Prospects. Global Journal of Political
Science and Administration, 7(2), 1–11. Retrieved from www.eajournals.org
Lakew, B. (2003). National Bank of Ethiopia Economic Research Department Prospects for Export
Diversification in Ethiopia, 1–48.
Meskerem, D. M. (2013). Impact of foreign direct investment & domestic investment on economic
growth of Malaysia. Malaysian Journal of Economic Studies, 50(1), 21–35.
Sarath Rajapatirana. (2004). Volume 2 ETHIOPIA Trade and Transformation Synthesis DIAGNOSTIC
TRADE INTEGRATION STUDY, 2(July).
UNCTAD. (2018). National Green Export Review of Ethiopia: Leather and Sesame Seeds.
Wto, T., Secretariat, W. T. O., Wto, T., Agreement, T. G., Gatt, B., & Agreement, G. (n.d.). How the
WTO deals with the special needs, 93–100.
https://en.wikipedia.org/wiki/International_business
http://en.reingex.com/Ethiopia-Business-Economy.asp
https://uk.practicallaw.thomsonreuters.com/w-016
https://saylordotorg.github.io/text_international-business/s06-02-political-and-legal-factors-th.html
https://iccwbo.org/about-us/who-we-are/
https://howtoexportimport.com/The-Role-of-the-International-Chamber-of-Commerce--186.aspx
https://en.wikipedia.org/wiki/International_Monetary_Fund
https://www.investopedia.com/terms/c/comparativeadvantage.asp
https://igad.int/about-us/what-we-do
https://igad.int/about-us/the-igad-region
https://researchfdi.com/foreign-direct-investment-advantages-disadvantages/
https://www.macrotrends.net/countries/ETH/ethiopia/foreign-direct-investment
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International Business Management Individual Assignment 2022

1. Analyze the implication of the political, economic, and legal environment on

Political environment implication on Ethiopian’s international business

The legal environment implication on international business in Ethiopia

Restrictions on Foreign Shareholders

 Tariffs. Tariffs are taxes imposed on imports.

 Subsidies. A subsidy is a form of government payment to a producer.

FDI flow (inflow and outflow) of Ethiopia

FDI Inflows (% of GDP)

FDI outflows (% of GDP)

FDI (Inflow and outflow)of Ethiopia by country

Who is FDI inflow benefiting in Ethiopia?

• Created over 180 thousand jobs,

Disadvantages of foreign direct investment to Ethiopia

3. Discuss the concept of comparative advantage taking Ethiopia as a context?

4. Discuss the role of the International Chamber of Commerce, the World

 The role of World Trade Organization(WTO)

5. Conceptualize regional economic integration and evaluate IGAD's role and

contribution to its member countries?

 Trade, Tourism and Industry

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