Ethiopia is Africa’s oldest independent country and it’s second largest in terms of population. It has a unique cultural heritage, being the home of the Ethiopian orthodox church- one of the oldest Christian churches – and a monarchy that ended only in the coup of 1974. It has served as a symbol of African independence throughout the colonial period, and was a founder member of the United Nations and the African base for many organizations (BBC news, 8 June 2017)
The baseline information that one would consider when going into international investing is how risky the country is in terms of economic, political and business risks that are unique to the country which might result in unexpected investment losses. The two major factors to consider in international investing is economic and political risk (Investopedia, 2017)
Economically, Ethiopia has grown at an average rate of 10% since 2010. In 2012, Ethiopia was the 12th fastest growing economy in the world, managing to grow faster than other African countries such as Rwanda, Mozambique, Zambia, and Ghana, as well as china and India (World Bank, 2013).
Through a co-ordinated, prudent fiscal policy and a tight monetary policy, combined with a slowdown in global commodity prices, the government has brought down inflation to single digits.
Ethiopia is raked higher than its regional peers (Kenya, Rwanda and South Africa) for its conducive macroeconomic environment (world economic forum, global competitiveness report, 2016-2017)
Growth forecasts of more than 7% from the international monetary fund and the African development bank place Ethiopia among the world’s growth leaders over the medium term.
Political and social stability
Ethiopia is the oldest independent country in Africa, and is among the most stable countries in the region. The 2012 peaceful transition of power to a new prime minister has proven the stability of Ethiopia’s multi-party political system and parliamentarian form of government.
Ethiopia is most known for its social stability and least crime rate, as well as strong public institutions and reliable police service
There is no tolerance to corruption, ranked 34 under the global competitiveness report (2016-2017) for impartial public decision making, well above most of its regional peers such as Kenya (92nd) and South Africa (115th)
Excellent climate and fertile soils
Ethiopia is the 27th largest country in the world by land size and given its diverse topography and geographical location, it is suitable for the production of some of the world’s most coveted food crops – cereals, pulses, oil seeds, a wide range of fruits and vegetables, coffee, tobacco, sugar cane, tea and spices, among others.
Much of Ethiopia has a surprisingly temperate climate by African standards due to its elevation. Ethiopia has an elevated central plateau varying in height from 2,000 to 3,000 meters above sea level.
Thanks to its fertile soils, Ethiopia is among the world’s largest producers of coffee, and the 3rd largest producer of Arabica beans in the world (us department of agriculture). Ethiopia also is among the top non-eu exporter of cut-flower to the eu market and the 2nd largest flower exporter from Africa.
Ethiopian investment commission
Strong guarantees and protections
Private property is protected by the constitution and the investment law. A foreign investor has the right to make remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange.
Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank affiliate which issues guarantee against non-commercial risks in signatory countries, and of the World Intellectual Property Organization (WIPO).
Ethiopia has concluded over 30 bilateral investment promotions and protection agreements, of which 11 are with individual European Union member states. Significant other partners include china, India, South Africa, and Russia, and a number of regional economic partners (Israel, Egypt, and Sudan, among others).
Abundant and affordable labor
Ethiopia’s labor law, which regulates worker-employer relations, is in line with international conventions.
With over 50 million workers, Ethiopia has the second largest labor force in Africa (World Bank’s doing business report, 2014).
Ethiopia’s minimum wage is among the lowest in Africa, with only 5 countries – Burundi, Uganda, Egypt, Gambia and Malawi – having lower minimum wages (international labor organization, 2010/11).
Generally, private sector monthly salaries for university graduates range from USD 150 to USD 200, while construction sector monthly wages range from USD 60 for daily laborers to USD 300 for a foreman (source: Ethiopia’s ministry of urban development and construction).
Regional hub with access to a wide market
With a population of 93 million people and a rapidly growing middle class society, Ethiopia is the second largest market in Africa, and is also part of the Common Market for Eastern and Southern Africa (COMESA) comprising 19 member countries and over 400 million people.
Addis Ababa has emerged as a regional hub and is home to key international organizations such as the African union (AU) and the United Nations economic commission for Africa.
Addis Ababa is also the main air hub for Africa and the home of Ethiopian airlines, which has won repeated recognition as the best airline in Africa. Ethiopian airlines offers flights to 94 international passenger destinations (52 in Africa, 17 in Europe and America and 25 in the middle east and Asia), 19 domestic passenger destinations, and 35 cargo destinations (21 in Africa, 11 in the gulf, middle east and Asia, and 3 in Europe). It carries two thirds of Africa’s air freight.
Ethiopian products have duty-free, quota-free access to the U.S. And EU markets under the African growth and opportunities act (AGOA) and the Everything But Arms (EBA) initiative, respectively.
Ethiopia enjoys also preferential access to key markets like Australia, Canada, japan, New Zealand, Norway, Switzerland, china, India, Russia, the republic of Korea, and turkey.
Improved economic infrastructure
Power production has increased steadily over the last ten years, with 99% sourced from clean energy in the form of hydropower. Ethiopia has the second largest hydropower potential in Africa (deloitte, 2014), and the country’s installed electricity generating capacity is expected to reach 10,000 mw by mid-2015.the grand Ethiopian renaissance dam – the largest hydroelectric power dam in Africa being built on the Nile river – is expected to generate 6,000mw electricity. This coupled with giggle-gibe iii (1,870mw) and genale-dawa iii (254mw) and other wind power projects will make Ethiopia a regional power house.
Cheapest electricity rate in Africa and the whole world – us$0.04/kwh compared to us$ 0.15 in South Africa, us$0.17 in Kenya, us$0.18 in Rwanda, us$0.14 in china, us$0.16 in India and us$0.26 in Germany (World Bank doing business report, 2017).
Ethio telecom is currently engaged in a major transformation work of Next Generation Network (NGN) projects to create a world class telecom service provider.
Ethiopia has a huge run-off and ground water potential. With numerous projects underway, national access to portable water is fully enhanced.
A 5,000 km-long railway network is currently under construction. While the first priority is to join Addis Ababa to Djibouti’s main port, the network is expected to reach every corner of the country. As part of this big project, a 34 km Addis Ababa light rail is fully operational while a new 756 km Addis Ababa- Djibouti electrified railway route is well completed in 2016 – making access to port Djibouti much easier. Other standard gauge networks are in pipeline. As a significant portion of Ethiopia’s import/export trade passes through port Djibouti, the rail way construction is a huge efficiency enhancer for producers and traders.
Competitive incentive packages
Ethiopia offers a comprehensive set of incentives, particularly for priority sectors, such as:
Customs duty payment exemption on capital goods and construction materials, and on spare parts whose value is not greater than 15% of the imported capital goods’ total value; investors have the right to ask refund of customs duty paid on inputs (raw materials and components) when buying capital goods or construction materials from local manufacturing industries.
Income tax exemption up to 6 years for manufacturing and agro-processing: and of up to 9 years for agricultural investment. Additional 2-4 years income tax exemption for exporting investors located within industrial parks and 10-15 years exemption for
Industrial park developers;
Carry forward of losses for half of the tax holiday period;
Several export incentives, including the duty draw-back, voucher, bonded factory and manufacturing warehouse, and export credit guarantee schemes.
In addition, the government guarantees the remittance of profit, dividends, principals and interest payments on external loans, and the provision of land at competitive lease prices.
By Bismark Jester – GCBM Correspondent