Successfully investing in Ethiopia

published on May 16, 2018

 

How do you assess the current economic situation in Ethiopia?

In recent years, the Ethiopian economy has substantially grown due to the opening of selected branches of industry to the private sector companies. Between 2005 and 2016, Ethiopia's economy grew at a rate of approx. 10 per cent, and, according to the World Bank's estimates, it is expected to grow at nearly 11 per cent in 2017. The improvement in the economic situation has spurred certain visible changes, e.g. new roads have been built, railway connections to the strategically located Port of Djibouti have been developed, and important power generation projects, such as the Nile Dam project, have been advanced. Nonetheless, there are still problematic aspects which hinder the development of the country, such as corruption, insufficient intellectual property protection and high subsidies for state-run projects. The last factor hinders the development of the private sector of the economy and curbs private investment in segments dominated by the state. In addition, most of the society still barely reaps the benefits of the high growth rates. The annual per capita income is currently only approx 780 US dollar. In October 2017, Ethiopia's central bank took an important step to boost exports and devalued the national currency (Ethiopian Birr) by 15 per cent in one day. This measure was taken primarily thanks to the appeals of the World Bank and the International Monetary Fund which repeatedly criticised the artificially strong value of Ethiopia's currency which in turn curbed the country’s exports being so crucial for its economy.

    

How would you describe the investment climate in Ethiopia? Which sectors offer the largest potential?

Ethiopia is attracting more and more international investors. Sectors that show great potential include Ethiopia's agriculture and the already successful export-oriented textile and clothing industry. Foreign investors implementing agricultural projects are aided by a policy of subsidies and affordable land prices. This has driven the growth of the agricultural sector and is expected to increase the share of products processed in the country. Also infrastructure is an area with great potential to investors. In recent years, the government has massively invested in this sector. Nonetheless, there is still much to do when it comes to achieving the goal of becoming the leading manufacturing hub in Africa by 2025 and achieving the lower-middle-income status. Another important fact is that Ethiopia has a population of 102 million (2016) and a very young and growing middle class. For manufacturers of “fast-moving consumer goods” (FMCG), the young middle class is an attractive sales market.  Ethiopia's another advantage is its duty-free import incentives offered to the USA based on the “African Growth and Opportunity Act” (AGOA) and to Europe based on “Everything-but-Arms-Initiative”.

 

What challenges do German companies face during their business ventures into Ethiopia?

The lack of infrastructure, cumbersome bureaucratic procedures and the underdeveloped legal system are some of the biggest challenges awaiting companies looking to do business in Ethiopia. Another factor that should particularly be mentioned are the extremely problematic money transfers from and to foreign countries. There are hardly any local international banks in Ethiopia. In addition, Ethiopia has a shortage of specialists for highly specialised technology products of small and medium-sized enterprises.

     

What role does Ethiopia play in the renewable energy market in Africa?

In Ethiopia, most of electricity comes from hydropower. Despite the already low-emission technology, the Ethiopian government continues to focus on expanding renewables. Their installed capacity is to be increased from approx. 2,200 MW to 17,300 MW between 2015 and 2020. Great potential lies in geothermal energy and onshore wind in Ethiopia. Concepts of first projects involving the two technologies are being already developed. In December 2017, the first power purchase agreement for an “Independent Power Producer” (IPP) from the geothermal sector was signed, which will pave the way for further private sector entities. In Ethiopia, renewable energy investment incentives are currently confined to import duty exemptions. But the increasing demand for electricity will also bring about other improvements in the electricity market regulation. Investors should thus keep up to date with the latest developments, not forgetting about the political and legal risks.
           

In your opinion, how will Ethiopia develop?

Currently, a range of industrial parks are being developed in Ethiopia, which, although constructed and inhabited mainly by Chinese companies, offer expansion opportunities also to other foreign investors. The extraordinarily young and hard-working population, combined with low pay rates, are also factors which will attract international companies. Great hopes are attached to the inauguration of the new Prime Minister Abiy Ahmed who assumed office in April 2018. He announced numerous reforms. But it remains to be seen whether this young and dynamic – and very popular with the Ethiopian people – state leader will be indeed able to implement the announced reforms amid the existing political structures.

    

 Contact

Contact Person Picture

Anna-Lena Becker, LL.M.

+27 21 4182 350
+27 21 4182 367

Send inquiry

 How we can help

 Further information

We use cookies to personalise the website and offer you the greatest added value. They are, among other purposes, used to analyse visitor usage in order to improve the website for you. By using this website, you agree to their use. Further information can be found in our data privacy statement.
Deutschland Weltweit Search Menu