Pros and Cons | Investment in Ethiopia

Vast and grossly untapped market with 109 million population, unsaturated with local goods and services. Emerging middle class and returning Diaspora looking for goods and services of high quality. The strategic location between Europe and Asia shortens the time from idea to the delivery. The textil industry is taking already the advantage. Regional hub with connections to quick developing economies.
Low income economy – average 760$/year. Higher monthly income 190 $. Abundant teachable low-cost labour – ca. 70% of the population are under 30 yo, and 50% under 15 yo. Higher education enrolment increased fivefold in 12 y. 70:30 higher education policy – training 70% of students in technology and science, and 30% in social science and humanities.
Business friendly Government promoting business friendly environment including digital services and facilitating the starting of a business. Charismatic and progressive Prime Minister, determined to implement the necessary and much needed reforms. The newly restructured Ethiopian Investment Commission (EIC) is helpful in starting businesses and is highly rated among investors. The government has also created five industrial parks that have spurred the creation of 45,000 jobs, with the aim to set up a total of 30 and increase their manufacturing from 5% to 20% of GDP
Large energy resources (water, geothermal, wind)
Low competition in many sectors and lack of domestic production for multiple goods. Recently opening of some branches for foreign investments.
Independent courts and reformed prosecution. Democratic government respecting the rule of low.
Promising start-up ecosystem. Local challenges around digitalisation, mobility, agriculture, infrastructure and healthcare for a country of Ethiopia’s size (3xGermany), could be turned into a series of opportunities by the start-up movement.
Transportation experience massive ongoing investments in road projects with a length of 1,774Km. The Addis Ababa – Djibouti railroad line has been newly renovated and shorten the transportation time down to 10 h. The peace treaty with Erytrea opened the access to Assab and Massaua Ports, diversifying the see gates and lowing the cost of import/export. The road to Assab is newly renovated with development help of EU. Ethiopian Airlines is the most successful airline in Africa and flies to most African destinations.
Strong political will by donors to make Ethiopia an African story of success
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Landlocked country. Challenging road system with state monopoly in transport are impediment not only for export orientated enterprises. Climate with torrential rains for months.
Low productivity is still issue Nr. 1. Vocational training can miss the targets. Successfully trained employees tend to change jobs, personnel turnaround of 10% are reported. Providing housing is a motivating factor. Skilled professionals are expensive at the level of middle-income economies.
Multiples sectors of the economy are still closed to foreign investors – service sector incl. financial services, banks, insurances, telecom, retail trade, transport excl. rail, construction, hospitality and restaurants, health, import trade, leasing, travel agencies and tour operations, energy distribution, backery products, repair and maintenance, brick and block manufacturing. In other sectors only joint ventures with local investors are allowed and are limited to shares of 49%.
Only local banks allowed with high cost and low level of services. Remittances must be paid in the time of order but executed only after approval by the central bank and after hard currency allocated, which can take months.
Weakened and marginalised business associations straggling for members
Land is government property and can be only leased (up to 99 y), but not bought and sold
Partially extreme custom duties – e.g for used cars up to 500%. Cars are very expensive – new VW Golf has a price tag of 60 000 $! 2004 Toyota Corolla ca. 10 000 $. Investors are allowed to import duty free only specialised vehicles not otherwise available in the country.
Telecom, mobile and internet services are expensive, with low quality service and restricted availability. Nevertheless advancements are on the way and in Addis Ababa advanced LTE ist newly available. Privatisation and opening of the sector for foreign investments are inbound but will need time. Banning the newcomers in the Telecom sectors from mobile financial services, investments in own cell towers infrastructure and legally bound them to buy services from Ethio Telecom will hamper the availability and affordability of high quality services.
Inflation, recently up to 20%. It will take some time until adopted measures show effect and experts still see some 20-25% overvaluation of the Birr. But the “inflation tail should never wag the investment dog”, especially in long-term investments.
Disruption of business and stalemates through ransom