Is Ethiopia ready for foreign investment? BBC

By James Melik Reporter, Business Daily, BBC World Service

Ethiopia was once a byword for poverty and famine.

It is still one of the poorest countries in the world, with an estimated third of the population earning less than $1 (63p) a day, but the country also has one of the world’s fastest growing economies.

Opinion is sharply divided, however, as to whether or not it is wise to invest in the country.

Since 2004, its economy has been expanding by about 10% a year. The government expects growth to continue in double digits – but a report by the International Monetary Fund (IMF) suggests it will slow to 6.5% in 2013.

Even the IMF predictions are impressive, however, considering the current global financial climate and the fact that unlike many other countries on the continent, Ethiopia does not have much in the way of natural resources.

 

Entrepreneurial spirit

Coffee is one of the biggest export earners in Ethiopia.

In Addis Ababa, the country’s capital, coffee exporter Michael Girma says it was a challenge to launch his business.

“To start up in the export sector, you need to perform with your own cash. Then after that, you can approach the banks,” he says.

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Apart from exporting coffee, he now also owns a cafe, a bar, and a pizzeria, employing 140 people altogether.

Although the business environment is getting very competitive, he is achieving a profit margin of 20-30% each year and feels confident about the future.

Ethiopian-coffee

“A lot has changed in the last seven years,” he says. “You need to be aggressive, but not arrogant.”

Although foreign investors are encouraged, many sectors are reserved for domestic investors.

“The restricted sectors are those which supply to the local people. If foreign investors want to come in and invest in projects which are export oriented, anything is open,” he says. “It would be very hard to compete otherwise.”
Diverse opportunities

Despite annual high inflation, some investors think the potential in Africa’s second most populous nation has not been recognised.

Earlier this year, Shultze Global Investments launched a $100m equity fund aiming to invest in Ethiopian businesses.

In a nondescript building on a hillside overlooking Addis Ababa, Berhane Demissie decides where to put that money.

“Ethiopia offers significant opportunities for investors,” she says, pointing out that agriculture is a strong growth sector.

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“Anything grows in Ethiopia with the various climate and soil diversities that we have. That also follows through to the agricultural value-added chain with processing and exports,” Ms Demissie says.

With 85% of the population dependent on the agricultural sector, she says the government is trying to ensure those farmers have access to finance and fertilisers that will allow them to grow more.

Ms Demissie says this will lift people out of poverty.

“If the programme was just about big farms I would have said no, but the smallholder farmers are being included in the overall growth of the economy,” she says.

She also says there is a lot more demand for consumer goods and services within the country, but too few manufacturing companies.

Business concerns

In 2010, Transparency International, which rates countries according to perceived corruption, listed Ethiopia at 120th out of 183 countries and the Washington-based Global Financial Integrity research organisation concluded that illicit financial outflows between 2000 and 2009 totalled $11.7bn (£7.4bn) in 2009 – which was more than Ethiopia had earned through exports. >> READ MORE on BBC

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