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Market Analysis

How Ethiopian Flux Could Benefit Investors

Kathryn Cave speaks to Getachew Teklemariam about a typical business day in Addis Ababa and the challenges and opportunities available for foreign companies

Ethiopia is in a state of flux.  “There is a lot of expansion,” Getachew Teklemariam tells me on the phone from Addis Ababa: “The city is being overhauled. For a long time there were no real plans and there are shanty slums everywhere. Now the city is being redeveloped. You see a lot of construction on the ground.”

This is the tension that exists in Ethiopia at the moment. On the one hand, things aren’t fully finished or working properly. Yet on the other, there is a lot of potential for people prepared to get involved in the upheaval. Teklemariam is enthusiastic about the emerging consumer class and levels of highly skilled labour the country is churning out. Ethiopia has the second largest population on the African continent and following 2008 government initiatives, 70% of students study engineering or technology. This results in an estimated pool of 500,000 technical graduates per annum. However, on the ground, things are far from perfect…

Most employees work from 8am till 5pm and like any capital, the roads are crowded with commuters.  “I usually take a mini-bus to work,” Teklemariam says explaining a typical business day, “it takes around 15 - 30 minutes to travel 5 - 8km.” And the situation is worsened by “major construction of many of the major roads of the city.” This sounds fairly familiar, but the differences begin once you reach your office destination.

“The internet connectivity is still sub-standard. This can be a serious problem in terms of getting in touch with clients and financiers. If you worked in Addis you wouldn’t expect smooth conditions for exchanging large amounts of data between your head office in London or New York. The broadband coverage especially is sluggish. The government needs to do a lot to improve broadband coverage, although mobile connectivity is better.”

By Western standards the mobile connection is not very good. The line is less than perfect and after six minutes, without warning, a persistent Chinese voice pops up with the repeated message: “Sorry the network is busy now please try later.” “Does this happen often?” I ask when I dial back in, “Yes it is in major problem,” Teklemariam replies.

“The second daily issue,” says Teklemariam “is the working culture. Things are not as efficient or effective as you might expect them to be. There is a very traditional working culture and people are not governed by efficiency. The amount of time spent on a task is determined by the amount of money they will make from it.”

Getachew Teklemariam is an independent business development consultant providing advice for those looking to invest in Ethiopia. These are predominantly international companies and most are investing in the resources sector where they can see “concrete and immediate benefits.” However, companies are also interested in the consumer service and some are getting involved in government projects, as these deliver high ROI.

The biggest problem that Teklemariam sees relates to attitudes to risk. “Most of these companies are just entering Africa. They don’t really understand the risks involved in doing business here and tend to have a negative attitude. I repeatedly see that as a major problem for international companies. Of course, at the end of the day the whole issue boils down to the business environment. It is not as flexible as international companies want it to be. The legal system remains more inflexible than international companies would expect or would look for. And the bureaucracy needs restructuring.”  It still takes a long time to get licences, and at least 7– 10 days to complete the whole process of starting a business, which is far longer than other sub-Saharan Africa countries. On top of which, “the infrastructure provision is still very low.”

The problematic business culture largely boils down to the fact that a “high portion of the businesses are owned by a traditional elite.” These are typically involved in import and export and “control a large part of the economy. There is a huge barrier to entering the import and export business. [But] the traditional elite have [also] saturated the whole business culture. This makes it hard for businessmen starting out to join. The country is also defined by passivity. Most people would rather live under the protection of the state than compete on a level playing field with international companies. This is a very traditional expectation from business people in this company,” and is hard for international organisations to understand.

Teklemariam believes the two biggest potential areas for investors lie in the tech sector and the consumer sector. “Ethiopia is the political capital of Africa. When Africa moves, Ethiopia moves even faster. This is a country of over 80 million people… there is an emerging middle class which international companies can cater for.”

“If you are involved in innovations and research for governments as well as private companies this is a good place for investment because the skilled manpower is very cheap in this country as compared to any other African country,” Teklemariam continues. “Establishing R&D centres is very cheap compared to other countries due to government initiatives for companies involved in that sector. There is also real potential for development of the telecoms infrastructure sector [as the mobile phone situation reveals]. And there are clear advantages to be taken from the proximity to the Middle East.”

The constant flux in the city means despite the internet and business problems, the capital is an attractive place too. There are a lot of services springing up to cater for tourists and locals’ free times including restaurants, hotels, gyms, movie theatres… and it has even been labelled the spa capital of Africa. “The service sector is really growing. You can be certain to find your favourite dish in the city. Whether it is Canadian, Chinese or Japanese… you can easily access it in Addis.”

“There is a lot of momentum in the country,” Teklemariam concludes: “It is an opportune time for investors. Of course, those people who come here need to have a very good understanding of the local environment.  [But] if investors have the local knowledge and put in place local strategies to make use of local opportunities, this could benefit them lot. This is a great time for the whole of Africa… I believe this is the last frontier in terms of opportunities.”

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