Ethiopia | An Economy on the Edge
Ethiopia | An Economy on the Edge
With a population of some 110 million in a country of complexities the emerging market in Ethiopia is set to become a business hub. Rajan Zachariah, Head of Operations Rest of Africa, examines the intricacies and opportunities this untapped territory offers.

Three years ago, the World Bank placed Ethiopia as the second fastest developing economy. Socio-economic progress is making a positive push, from an inward focused country advertising a ‘not open for business’ mindset, to centre-stage. Infrastructure development plans are in place and gradual change coming with a few multi-nationals already managing to invest and a largely un-skilled labour force over time, primed to deliver.

With foreign ownership restrictions making investor opportunities complicated, the pendulum is swinging, encouraging news for entrepreneurs and large organisations keen to extend their business footprint into Africa.

Planned spend has been put in place to strengthen its network of roads which in turn makes goods to market and the creation of new business opportunities a logical next phase. The government is implementing a 2nd phase of Growth and Transformation Plan (GTP II) which aims to continue expanding physical infrastructure through public investment and to transform the country into a business hub. This will initially not affect the man on the street, but it is believed that the ‘opening up’ concept will eventually trickle down.

Huge potential exists for FMCG, consumer durables, telecommunication, and others in this virgin market, with not many players and an untapped consumer base. Couple that with individual aspirations on the up as they tap into global experiences and this becomes a recipe for success with a huge scope for businesses to flourish. The government aims to expand the role of the private sector through foreign investment and industrial parks to make Ethiopia’s growth momentum more sustainable by creating jobs and thereby increasing disposable income. Already, foreign investment restrictions have been adjusted from a 0% holding to a more workable operating base with opportunities in some sectors for a majority holding. With the internet and mobile penetration becoming more of a standard than an anomaly, the platform for buying branded products increases and market penetration is set to evolve at a pace.

The numbers look brisk in a country developing with healthy single digit growth, so while foreign reserves remain few and far between, with not much export trade there are markets that are operating very successfully. Coffee for example is a key sector, accounting for around one-third of total goods exported in 2019 and a relatively bright spot going forward, however the revenue derived is not sufficient yet to meet economic requirements. As is Ethiopian airlines, the biggest in Africa, who using a hub and spoke model have positioned themselves as the gateway to Europe.

Their growth in GDP could also be attributed to the fact that the country operates as a self-sufficient economy, one where trust is a highly valued commodity. On one of my visits we had hired a car with our driver filling up as we went. I asked that he keep a logbook to be able to reconcile mileage to spend. That evening at dinner he called to say he won’t be available to take us the following day, highlighting the fact that there was no point in doing business as he should be trusted to fill the car without keeping a record. While trust runs deep, so does authentic and purposeful engagement with the wider communities. Investors wanting to build a sustainable business need to engage with communities through the likes of school contact or personal programs, whether teaching children about personal hygiene or brushing teeth in so doing positioning product using a different approach.

At the other end of the scale is an urban middle class demanding high value-added goods, food, and quality infrastructure. As rules are beginning to relax, we have seen this to be true with a huge surge in all sectors from medical, to consumer durables and even telecom platforms, moving from one national operator to several entering the market.

As a developing nation, there is a lot at stake. Consider their expansive Grand Ethiopian Renaissance Dam Project on the river Nile, which originates in Ethiopia. With a five-year lagging timeline and rising tensions with Egypt this significant undertaking could be one of the reasons that the current forex requirement is getting consumed in the construction thereof. Economists do believe that once the dam is completed that the shortage of forex will reduce, however these type of risk factors need to be considered in a foreign exchange negative market with a currency that has virtually halved.

With COVID, the need to open-up has become even more evident with a concerted push for laws to change. If this is done correctly, Ethiopia could become one of the shining stars in Africa. So much so that in seven to ten years from now despite restrictions, the country looks set to become one the fastest growing markets in Africa.

Currently, South Africa, Nigeria, Egypt, Algeria, and Morocco hold the cards in terms of being recognised as the most important markets in Africa. This seems set to change and Ethiopia could very well overtake these head liners.

With a winning mindset and clear strategic objectives, now is the time to tap into a country that has a great future. The early bird in this instance will get the worm and for whomever gets to market first, the advantage.



November, 2020