Today I have some great Africa business insights for you: How to trade in Ethiopia. I have interviewed a trader who has been doing business with Ethiopia for several years now and who was happy to share his experiences with others.
Ethiopia is becoming an increasingly popular business and investment destination – in fact, according to Ernst & Young, Ethiopia and Mozambique were the only countries in 2014 who saw an increase in foreign direct investment (FDI), while the numbers went slightly down for the rest of Africa.
But doing business in Ethiopia is not for the faint-hearted. It is known as a pretty closed economy, which can make operating in Ethiopia difficult.
Ethiopia is one of the countries that heavily promotes export of local products to decrease the trade deficit, but today’s insights come from a trader who has been very successful importing into the country.
Let’s look at his advice and lessons:
You are running businesses in the education and pharmaceutical sectors in Ethiopia. Please tell us a little more about your work and why you chose Ethiopia.
My business model is based solely completely on import; we import goods from different parts of the world and wholesale them here in Ethiopia.
I chose the book business when I first got started. You see, 9 years when I came to Addis for the first time I was hired to work as a General Manager in a book store. I learnt a lot and invested my time in this book business. Eventually, I started my own venture importing books.
Business is doing well. Other reason for this is that the number of universities and colleges in Ethiopia is very high. As of today Ethiopia has 33 universities and 10 more are in pipeline. All universities have their independent budget every year. Some of that is centralised, some spent through public procurement and property disposal agencies. This budget every year can reach over USD 25 Million. Having said that there are only handfuls of players in the market who are in the radar as potential supplier to these universities.
This has made business very lucrative.
So much about book distribution. But when we think about the education sector there is another allied market and that is printing. The world bank is running a project called General Education quality Improvement Programme, which was started in 2008. In the context of this project, the World Bank made USD 418 Million available in phase-1 which is now phased out and it allocated another USD 555 Million in Phase 2 which is active right now. Under this project the Ministry of Education invites potential bidders for the printing of books for schools across Ethiopia, supply of infrastructure (electronics as well) and consultancy in education. We profit from that as well.
The second business I run is in the trade of pharmaceuticals. I started this business when I realised that there was a scarcity of quality skin drugs and cosmeceuticals in the Ethiopian market. I got in touch with one of the top dermatologist in Addis and asked him if he is willing to partner with me in supplying such products.
He immediately agreed and we opened a new company catering to these products. It has been three years now since I started this business and our brand is number one in Ethiopia right now, it’s called ”FIXDERMA”.
How would you describe the the business climate in Ethiopia, and which sectors have great potential for business start-ups or individual investors with a limited amount of capital?
It really depends on how much of capital you have to invest.
For decades, the Ethiopian economy was dependent on agriculture and a lot is now happening in this regard in an attempt to industrialize it. Of late, subsequent to the government’s vision in the Growth &Transformation Plan (GTP), the government tried to promote both the energy and manufacturing sectors. So these are great trending sectors to get into. I feel that there is tremendous scope for entrepreneurship in manufacturing. Another area that will be very interesting are technology start-ups in Ethiopia. This is especially driven by educated youth who want to build their own business from scratch. I believe that there is enough support from government for such ventures, although there are challenges to get access of finance which would need to be improved.
Some of the foreign companies have really done an astonishing job since the industry they choose was good – it was on a real upward trend locally or globally. For instance, cotton farming, rose production for export, construction and real estate, agriculture, and restaurantsare some of the ventures in which many people have become incredibly successful. Having said that, success stories are really hard to find in Ethiopia when it comes to foreign investment as the business environment and related policies remain to be challenging. Two companies I would like to mention here, Spentex Industries and Chadha Group came with USD 100 Million Investment plans but wrapped everything up within two years because of the lack of progress. You are taking a chance doing business in Ethiopia. I can go either way for you.
Having said that, there are similar challenges in most emerging economies which are in transition and Ethiopia is sitting in that same boat. Everything takes time.
What were your biggest challenges getting started in Ethiopia? And what are the typical mistakes local and foreign start-ups make in your view?
As I mentioned earlier all business ventures are import based. Every importer’s biggest challenge in Ethiopia is the availability of foreign currency at the National Bank of Ethiopia.
Understand it like this: Ethiopia is a tightly controlled country when it comes to business and industries etc. Whenever we want to import anything we need to get a prior permission for it from our banks. Our banks have to get a permission for the same from the National Bank of Ethiopia. This approval is done by a special committee at our bank as well as the National Bank. And frankly, being in their good books helps.
I actually believe that banks are right to some extent when they refuse to give foreign currency for imports since they themselves don’t have adequate amounts of foreign currency. When they do have enough currency, the give often preference to construction material and food items.
The biggest challenges in my opinion is getting finance for any ambitious project, getting it insured against the risk of failure and the lack of availability of new technologies.
For local start-ups, I think the biggest mistake they make is choosing the nature of business on the basis of what others are already doing. Ethiopia is a place where people follow hip trends. Many businesses have been started not because the founders know or love the business but because they have seen that others have done it in the past and they have become been successful. So people try to copy to some extent and that can be a risky approach to getting started. I would encourage them to be more resourceful and to look for gaps they know how to fill.