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Investment Trends in Ethiopia: Learning from some Wise Fellow Ethiopians

From such a rich and informative evening, writing a summary would not do justice to what Zemedeneh Negatu and Khalid Bomba shared.

This recap shares conversations had the evening of 1st November, 2012, held at the Hilton Hotel, attended by more than 150 people

What’s Happening in the Business Sector?

What’s happening in the business sector in Ethiopia? What are the trends and opportunities? How to tap into them? And what opportunities are there for female entrepreneurs, especially in an agricultural sector transforming?

The following quotable quotes from our guests provide a glimpse of the essence of the evening:

Zemedeneh Negatu:

–        ‘If the Chinese can smell opportunities for investment in Ethiopia, how about us? What is holding us back?’

–        ‘‘In terms of statistics, the Ernst & Young Africa Attractiveness Survey has revealed Ethiopia as being a politically stable country, and very attractive for investment. In 2003, its GDP made it tenth in Sub-Saharan Africa. Last year, Ethiopia was fourth.’

–        ‘For Ethiopians today, there are enormous opportunities. People coming out of college should not just think of getting a job: why would you want to work for anybody else?’

Khalid Bomba:

–        ‘Look at the development of any country: the private sector plays a role. As entrepreneurs, we encourage you to continue the path you have started’.

–        ‘Focusing on the smallholder over the past ten years has enabled growth and changes in this sector, making Ethiopian agriculture grow at a fast rate, and there are advances at a structural level.’

–        ‘In our minds, the farmer is often a male, but it’s the female that is the farmer. Most of the technologies are developed for the male farmer, and females are affected because they are not accounted for.’

–        ‘Every industry has immediate opportunities to make money. Think of making gain in the long term, not just the short term. Invest time and energy to build a brand that can help you make money over a longer period of time.’

Here is a recount of what was learnt from our guests’ extensive knowledge and experience, Khalid Bomba, CEO of the Agricultural Transformation Agency (ATA), and Zemedeneh Negatu, Managing Partner for Ernst & Young Ethiopia.

Sharing their Rich Experience and Knowledge

Zemedeneh Nigatu started by warmly engaging the audience and walking up to where participants were sitting, instantly creating rapport.

Zemedeneh shared a brief overview of the investment sector in Ethiopia: where is Ethiopia going in the economic front? He reflected on the events shaping Ethiopia as a nation these last 3 months, after the loss of Prime Minister P.M. Meles Zenawi: the transition to the new Prime Minister’s taking office was a smooth one, not marred by unrest and riots. In his view, this indicated how this country is becoming more mature and stable, without regressing to revolutions of the olden days. Zemedeneh invited us to consider this a psychological milestone, and a sign that this country is favorable for international investors, who can take advantage of investment opportunities in a stable country.

Zemedeneh reminded us how in the past, there seemed to be little clarity of the role of the private sector, and whether Ethiopia was showing a socialist or free market economy orientation. The resent transformation we are witnessing, he highlighted, is that this economy is becoming structured, with the creation of tax systems, creating more stability in the system.

Statistics were provided to validate the above advances: the Ernst & Young Africa Attractiveness Survey has revealed Ethiopia as being a politically stable country, and very attractive for investment. In 2003, its GDP made the tenth fastest growing economy in Sub-Saharan Africa. Last year, Ethiopia in Sub-Saharan Africa is fourth.

What are the Opportunities for an Entrepreneur?

Zemedeneh’s argument is that setting up a business in a structured economy, one will not be disadvantaged. Five sectors in which opportunities can be seized were highlighted:

1. The agriculture and agro industries, including the entire value chain (including food processing and entire value chain).

2. The hotel sector, which has some untapped sites.

3. The manufacturing sector: examples of foreign market entrants were raised, such as the Turks, Indians and the Chinese investing in garments, textiles and shoes, setting up their factors very swiftly. Such investors have become increasingly interested in Ethiopia in the past three years, since leather is readily available, and land and electricity are relatively cheap. As an exemplary Ethiopian entrepreneur, Bethlehem Girma of Sole Rebels was cited as an example.

On this point, Zemedeneh’s provocative invitation was: ‘If the Chinese can smell opportunities for investment in Ethiopia, how about us? What is holding us back?’

4. The mining sector of oil and gas: to develop this sector, the stronger recommendation was for diverse investors and entrepreneurs to work collaboratively. In a sector where individual investors may not have enough capital, pooling resources together is essential, thus increasing the chances to succeed.

The final conclusion here was that Ethiopia is fundamentally changing. There may be challenges along away, such as facing a bureaucratic system, but, in Zemedeneh’s words: ‘If the pay-off is much higher than the impediment, isn’t it about sticking it up? Hang in there – it’s time for Ethiopia!’

Opportunities in the Agricultural Sector

In a friendly manner, Khalid Bomba then started sharing the changes and transformations he has been noticing, through his work, in the agricultural sector:

  1. In smallholder farming: this constituting 95% of total production, the Agricultural Transformation Agency (ATA) is supporting this sector to transition from subsistence farming, to a market oriented one that can become part of the global economy.
  2. Commercial agriculture for international investors

To elaborate on the above, Khalid explained how focusing on the smallholder over the past ten years has enabled growth and change in this sector, making Ethiopian agriculture grow at a fast rate, and there are advances at a structural level.

Khalid has been witnessing increasing investment on the above from the government and private sectors. Research has been carried, and mechanization and new varieties of seeds nurtured. He also recommends a strengthening of the cooperative system to strengthen the market.

The Smallholder Farmer Herself Forgotten

Khalid brought to our attention that the smallholder farmer herself could often be forgotten. ATA’s commitment is to grow her skills as an entrepreneur, so that she can make it on her own. ATA is also focusing on enabling other sectors to support such farmers. He also added: ‘A total of 42% the country’s GDP comes from agriculture, 80% of the country’s reliance is from agriculture. In our minds, the farmer is often a male, but it’s the female that is the farmer. Most of the technologies are developed for the male farmer, and females are affected because they are not accounted for. How does a woman accept that technology?’

He then explained how in light of the above, ATA enables women to have access to credit, and ensuring those women’s voices are heard.

To support women entrepreneurs, ATA is to network with, and advocate to possible partners, such as the Ministry of Agriculture and other agencies, the importance of looking at the concept of women farmers.

Finally, ATA strives to identify opportunities for women in the rural economy. In the food processing area, for example, women are encouraged to purchase ‘teff’, pay attention to processing, packaging and branding that ensures branding and differentiates their products in sales, thus ensuring sale at scale.

Opportunities in Addis

For Khalid, opportunities exist across the range of the agricultural sector. He cited the seed market as being one of them (to which entrepreneurs such as Hadia Gonji substantially contributed to), and opportunities of developing commercial agriculture to develop smallholder farmers and create markets (as it happens in Morocco and Zambia).

Other opportunities include:

  1. In post-harvesting: here the greatest opportunity may arise. In Ethiopia, cleaning and packaging of any commodity holds opportunities.
  2. For higher investment:
    1. Sale of Chickpeas: as a major protein source, they are in high demand in the Middle East and Asia (India). For investors, having chickpeas processed and then exported would also promise job creation and value addition.
    2. Malt for the Brewery Industry: investors such as Heineken and Diagio are entering the market, as well as others. Surprisingly, 70% of the barley that is used to make beer comes from Europe. Khalid commented on the unreasonableness of it, and encouraged investors to consider the production side of malt for domestic use and export.
    3. Production of Sesame: Ethiopia, Khalid highlights, has one of the best sesames in the world. Raw sesame is exported for the production of ‘tahini’. A great deal of it is cleaned in Greece and Turkey and Japan, with the latter re-exporting it to China and Korea. Investors in Ethiopia could capitalize simply by introducing the technology of cleaning sesame.

Sound Advice

What advice did Khalid have, within this context? Here is what was said, in his words:

  1. ‘Every industry has immediate opportunities to make money. Think of making gain in the long term, not just the short term. Invest time and energy to build a brand that can help you make money over a longer period of time. Because of our uncertain situation in the past, we have developed a ‘short-term’ mentality. We now have more certainty, and can change things.’
  2. ‘Build an industry, rather than a company. Have a 10 – 15 years perspective when doing so, the way Samsung and Toyota did’.
  3. ‘Aim for the double or triple bottom-line. Consider profitability, and from the development perspective, consider social capital of the smallholder farmer making money too. From the social aspect, consider how the industry you build helps you build your own company. The triple bottom-line includes not just you, but the farmer and the country.’

A Lively Conversation

The conversation that followed in the room was vibrant and animated, coupled with a large number of questions posed from the audience. Questions and Zemedeneh’s and Khalid’s answers follow:

  1. ‘What possibilities are there for access for new entrants into the market?’

According to Zemedeneh, one should not forget that, 20 years ago, Ethiopia was a Communist country, only recently having communities building capital. This will take time, he asserts, ‘even if this happens full steam.’ In his view, the private sector is still struggling to invest in its own country.

Within this context, Ethiopians are already competing with the Chinese and Indians, who have managed to pool their resources together. In recognition that there is a need to build an Ethiopian private sector, the State is required to assist.

Zemedeneh also believes that it’s time for a stock market to be set up in Ethiopia (Ethiopia is one of the 5 countries in Africa that doesn’t have a stock market).

Interestingly, Khalid had a different perspective, arguing that collaterals are needed. He cautioned for prudence in the amount of debt-taking the private sector asks.

2. Do you think there is a competitive business market in Ethiopia? Does everyone have the same chance to compete in the sectors mentioned?

Zemedeneh asserts that there is a fairer chance to compete in such sectors than ten years ago. He repeated that he sees Ethiopia is starting to become a structured economy, with laws being enforced, thus making it easier to understand how to do business. Amongst 180 studies for their degree of ease of doing business, Ethiopia appears to come in the middle. Zemedeneh sees progress in the work carried out, but with a need for improvement.

Another example was cited from the above-mentioned study: in terms of contract enforceability, Ethiopia fares better at 57th out of 156.

Again, Zemedeneh shared the opinion that bureaucracy in Ethiopia is alarming.

3. How important are leadership and management capabilities for the competitiveness of businesses in Ethiopia?

In Khalid’s opinion, in Ethiopia we are experiencing a lack of management and business capacities, especially compared to the United States or the United Kingdom. However, the capacity is appropriate for the local context, and relevant for the bureaucracies we are dealing with.

Khalid adds: ‘For the global context we are living in, such skills need to be developed, as we need to speak the language of international markets. There is an evolution that needs to take place to engage in a global economy.’

In Zemedeneh’s perspective too is that in Ethiopia human capital is a greater challenge. On the other hand, he says: ‘Ethiopians are talented. They may not have the exposure needed, but they are talented.’ He cited the example of his own organization, Ernst & Young, which, in a short time has become a regional officer with Ethiopian Transaction Advisors, talent build in Ethiopia.

In Zemedeneh’s view, therefore, Ethiopia has human capital that can be nurtured. He adds: ‘The private sector is new and has come a long way. We need to train its human resources.

4. Would it be an advantage of having foreign banks operating in Ethiopia?

In Zemedeneh’s opinion, now is advantageous to have foreign banks in Ethiopia.

5. What are the prospects of small-scale agro-processing?

In Khalid’s view, there are huge opportunities in the activities of cleaning and packaging for the domestic market. From the consumers’ point of view, this would be a huge value addition they would be willing to pay for. Khalid cited the many instances in which food is exported and processed abroad, and then reimported in the country for sale. He also asserted that small-scale agro-processing businesses could be very suitable for female entrepreneurs who wish to run their businesses from their home.

Zemedeneh chimed in, coining this industry a ‘low-hanging fruit’, with many opportunities.

6. What trends do you see of the government’s involvement in big projects?

In Zemedeneh’s opinion, this practice holds the risk of crowding out the private sector. In the future, he sees the ‘government getting out of the business of doing business’. He cited the example of South Korea in the 1970s, where the state and the private sector were ‘hand and glove’ (Samsung was the largest and most profitable company created by the government).

Similarly, Zemdeneh believes, in Ethiopia the State intervenes (in sectors such as industry and hydroelectric power) for the good of the country’s long term (‘We have one of the lowest electricity costs in the world,’ he reminded us).

7. With regards to Information Communication Technologies (ICTs), how does Ethiopia compare with other African countries?

Khalid sees opportunities in this industry once the infrastructure is fully built. He cited the example of neighboring Kenya, where mobile banking is well used, to process electronic payments, and to collect credit. He also invited those present to think of the opportunities available before the sector allows privatization. What services could be provided here, so that businesses can put a foot in the sector and build a name?

Here, Zemedeneh reminded us that as a country we have an agenda: the ICT sector is one of the most important wealth-creating businesses on earth, and therefore ‘not easy to let go of.’

8. Given that the Ethiopian Telecommunication Communication (ETC) is a monopoly, are there chances that this will change?

Zemedeneh acknowledges that monopolies create inefficiency and lethargy: introducing competition helps. However, in the case of Ethiopia, he argues, may be too early. He also cites the example of banks, where individuals may invest in shares all their savings; risking losing everything if the investment doesn’t work.

Khalid’s perspective was that, from a business point of view, there would be little benefit for more competition coming in. Like in the case of the hydropower sector, the ICT one requires sound infrastructure laid out, thus a great amount of capital.

Khalid proposes that entrepreneurs seek opportunities in the services side of such industries, rather than the capital intensive infrastructure side. In other words, the question could be: ‘What kind of service should I provide over that infrastructure?’

9. Is access to capital in Ethiopia only through banks?

Zemedeneh clarified that Ethiopian Law prohibits non-license institutions to lend to third parties. Only banks can do so, and one needs to be a shareholder, or buy equity, or borrow from licensed banks.

Final Words of Wisdom

After rich deliberations, with an audience that was ready to ask more interesting questions, our guests were asked to share their final words of wisdom.

Khalid Bomba shared:

‘Look at the development of any country: the private sector plays a role. As entrepreneurs, we encourage you to continue the path you have started.

Women entrepreneurs have an additional challenge: let’s not hide that fact. Let’s also acknowledge the fact that access to credit for smaller farmers is more difficult for more.

I applaud AWiB for giving space to raise these issues.’

Zemedeneh Nigatu’s concluding remarks were:

‘For Ethiopians today, there are enormous opportunities. People coming out of college should not just think of getting a job: why would you want to work for anybody else?

Here’s a story: the baby-sitter who used to work at our home opened a Kiosk, she then opened a second one which she runs with her sister, and now has a flat in a condominium complex, which she rents out. She’s illiterate, and yet, she’s an entrepreneur. To do this, she didn’t need a degree from Addis Ababa University.

You can do extremely well in the structured Ethiopia of tomorrow. The Ethiopian economy is growing and needs your investment.’

Members and friends of AWiB that were present that evening shared enthusiasm for how it went, recommending that similar ones be held in the future. In the feedback given, two contributors described the evening as:

‘Very informative session from the key note speakers…keep up the good work!’

‘Both presenters have in-depth knowledge of the subject matter.’

AWiB looks forward to organizing similar events in the future, and updating you through the different social media:

Facebook: Association of Women in Business – Ethiopia

Twitter: @AWiBEthiopia

LinkedIn: AWiB Ethiopia

Finally, AWiB proudly announces a new media partnership: Addis All Around (www.addisallaround.com)

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