7 business trends to watch in Ethiopia

Trend #1: Investment in infrastructure 

Ethiopia’s economy grew significantly in the past decade, driven mainly by major activity in the infrastructure and construction sectors. Annual per capita growth could increase by 3.8% if the country can get its infrastructure up to the quality of facilities found in Mauritius or South Africa. The Ethiopian government has an ambitious infrastructure development plan that will see to the delivery of adequate power, road, air, rail and telecommunications facilities. The plan will quintuple power generation capacity (to 10,000 MW) by 2015, according to the Growth and Transformation Plan; triple the capacity of the road network to 136,000 km, build new 2,000 kms of railway and facilitate mobile phone operators’ quest to increase the number of subscribers. Additionally, the national carrier, Ethiopian Airlines, plans to expand facilities to become the largest airline in Africa. These programs and others such as the ones that were designed to enable the country fulfil the Millennium Development Goals (MDGs) present huge opportunities for private companies. The key to identifying the opportunities lies in understanding the inputs the government requires to implement various development projects.

Trend #2: An agricultural revolution

Agriculture accounts for 40% of Ethiopia’s GDP and 60% of exports. Despite the lingering perception of the country as famine-struck, there is immense unexploited agricultural potential. The varied agro-climatic and altitude differences allow farming of a wide variety of crops including coffee, tea, oilseeds, pulses, cereals, which are the traditional crops grown, and newer crops such as fruits, vegetables, sugarcane, and palm. Ethiopia is a big exporter of floricultural products, fourth largest sesame exporter in the world, and top ten in the production of oilseeds like linseed and a wide variety of pulses. The livestock sector has the largest base resources in Africa but is grossly unexploited. The high value horticulture sector is likely to overtake floriculture in the coming years as an export earner. Future growth in the agribusiness sector will be driven by improved production by small-scale farmers and further foreign investment in commercial farming and agriprocessing. Some foreign companies are already invested in agri-procesing, for example, beverage production. It is likely that the sector will attract more investment especially in agriprocessing.

Trend #3: Growing market for consumer products

Ethiopia’s population of 93.8m, a rapidly expanding economy (% figures), high urbanisation rates and a young population – 73% of population is under 30 years of age – supports the case for investing in the Fast Moving Consumer Products (FMCG) sector. Foreign investors have recognised this potential, with Diageo buying a minority stake in state-owned brewery, Meta Abo, in 2011 for $225m, while Heineken bought two smaller breweries for $85m and $78m respectively. Diageo is looking to complete the acquisition soon, as it seeks to increase its market share. UK company, Duet Group followed the beer giants in Ethiopia by acquiring a 41% stake in Dashen Brewery for $90 million. Interest in the beer industry has continued with greenfield investment projects such as Raya Brewery and Habesha Brewery taking off. The beer market is expected to grow more than 10% each year to 2015 amid the country’s rising economic growth, which is expected to reach 8% by 2015, according to the IMF.

South Africa’s Tiger Brands acquired majority stake in East African Holdings’ FMCG operations, which is the largest manufacturer of household goods in the country. With industrial parks under construction and government-focus on the development of the light manufacturing sector, the sector is set to take off.

There will be interesting opportunities for smaller companies who aim to supply products and services to big investors. In the barley-malt-beer value chain, for instance, one can see opportunities, from contract farming, distribution and marketing, to advisory services, packaging, and input supplies. In the broader FMCG industry, interesting opportunities exist for expansion of market outlets such as supermarkets, distributions systems, and wholesale/retail operations. The next drive in the growth of FMCG sector may see expansion into regional markets of Somalia and South Sudan.

Trend #4: Unparalleled regional trade expansion

Ethiopia’s trade with neighbouring countries is likely to present a major business and economic opportunity in the near future. This will be made possible by bilateral and multilateral trade agreements under the auspices of COMESA and IGAD. However, a more important factor are the planned transport corridors in the region. There are established road linkages with Ethiopia Djibouti, Sudan, Kenya and to parts of Somalia. New projects are on the way to link the country to the emerging market of South Sudan, which operators in Ethiopia can also reach via river transport on the Baro. Perhaps the most interesting project is the Nairobi-Addis Ababa highway. When complete, it will represent one of the largest business opportunities in Africa, linking Ethiopia’s over 90m population with 130m consumers in the East African Community. There are talks of building a rail transport network, which will link with West Africa, perhaps from Senegal to Djibouti.

Trade figures are growing despite the current inadequate infrastructure - in 2010, Somalia and Sudan were Ethiopia’s fourth and seventh largest export markets, registering more than $200m in value. Imports from the Sudan and Somalia have also reached significant values at 4.5% and 6.6% of total Ethiopian imports respectively. Ethiopia has started supplying power to Djibouti and the Sudan and with additional multi-million dollar agreements to supply Kenya and South Sudan. Kenya in the meantime is developing the port of Lamu, with the aim of supplying South Sudan and Ethiopia. This region is likely to benefit further from a planned railway project connecting Ethiopia and Kenya along with South Sudan.

People are moving freely between Kenya and Ethiopia, while trade between Djibouti, Sudan and Ethiopia is tariff free. Any FMCG business with a good foothold in Ethiopia is thus also in a good position to supply these countries. The emerging interconnection of the East African and Horn of Africa trading blocks will represent some of the best opportunities for investment and value addition.

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