East Africa the Engine for Growth for the Continent

Peter Hurst - East Africa
Peter Hurst – East Africa specialist

EAST AFRICA – THE ENGINE OF GROWTH FOR THE CONTINENT!

With South Africa’s economy in the doldrums and the largest economy on the continent, Nigeria, (population 190 million), struggling to reach 2% growth, the focus for international trade and investment should justifiably move to East Africa.

Combining the countries of Ethiopia, with a population of 105 million, and adding the populations of Kenya, Tanzania and Rwanda, these easy access markets have a combined population of 220 million and an average GDP growth rate of over 6%.

Doing Business
Each country in East Africa has its own challenges when it comes to doing business and this information is well publicised by the World Bank along with other useful statistics. (https://www.doingbusiness.org). One amazing fact is that Rwanda, population 12 million, is ranked 29 on ease of doing business out of 190 countries ahead of the likes of Spain, France, the Netherlands and Japan and is modelling the country as ‘Singapore’ on the African continent including a ban on single use plastics and that once every month the whole population cleans the streets and other public places! Beautiful country!

East Africa – Getting Around & Logistics
Regional air travel is inexpensive and reliable and dominated by the global hub of Ethiopian Airlines, voted Africa’s leading airline. Ethiopian Airlines is extremely profitable compared to other airlines in Africa – and in particular the continually subsidised SAA. Ethiopia’s modern fleet of 108 planes (25 more on order) has an average age of 5.7 years compared to SAAs fleet of only 45 planes with an average age of 11 years and Nigeria with the oldest aircraft on the continent and to be avoided! Of importance is that for most countries in East Africa, visa on entry is a simple process and mostly a welcoming experience.

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The regional ports are all under significant development and freight links by road and rail are being rapidly streamlined.

Based on all the above and the doing business guidelines, Peter, with his experience and network of Ethiopian associates, can provide a programme of work which can include the following considerations and the detailed development of a market entry plan:

Focus on Ethiopia – Positive Change in Ethiopia’s Leadership – The Timing is Right!
There have been hugely positive changes in the country following the recently installed leadership of Prime Minister, Abiy Ahmed. He is drawing admiration from all corners of the world for his transformation programme.

Since coming to power, he has released political prisoners, widened the democratic space, liberated much of the media and social networking for common citizens, ended the military stalemate with Eritrea, and averted a looming financial crisis. In short, his dynamic leadership, energy, and enthusiasm have pulled-off what a Washington Post editorial described as an astonishing turnaround for the country.

Prime Minister Ahmed’s decision to fill 50 percent of his cabinet with female ministers is an integral part of the transformative agenda he set out during his inaugural speech on 2nd April 2018. In the highly Ethiopian patriarchal society, where public discourse about gender equality is virtually non-existent, the mere existence of a gender-balanced cabinet can have a highly significant transformative effect.

Ethiopia is fondly known as Planet Ethiopia. It is a very alien experience compared to other Sub- Sahara countries in that it has never been formally colonised, it has a very ancient, respected well- documented history and religious doctrine, it has a language and culture incomparable to any other and, it has for many years, been isolated from the outside world due to the overbearing nature of the previous oppressive regime.

If it was easy to do business with Ethiopia then it would not be where it is today in terms of development! The fact that now it has been liberated. to open the doors to trade and investment, it can accelerate to lead the east Africa region and become a hub of opportunity overtaking Kenya. Of course the Chinese have taken the lead in Africa but not taken the ‘high ground! Any two individuals can set up a private limited company in Ethiopia, but a minimum of five founders are required to establish a share company, which is a public company. A company should seek legal advice as the tax and legal obligations of each business structure can differ. Approximately 40% of Ethiopian imports are by government tenders. The tender announcements are made public to all interested potential bidders, regardless of nationality of supplier or origin of the products/services. Government procurement is by competitive bidding. There are incentives for foreign investors, particularly in the export sector. They give unlimited fertile land at almost no cost, plus five years tax-free privileges, reduced-cost local financing and no restriction on repatriation of profits and capital. In addition there is a fast track one-stop-shop facilitation and support service at the investment agency. The Ethiopian Investment Agency (EIA) can provide more information on setting up a business in Ethiopia.

Using an Agent or Distributor
To conduct business effectively and participate in local tenders, it is advisable to appoint local agents to represent t a company in Ethiopia. Limitations on foreign exchange and import and export services make direct marketing difficult.

Joint Ventures/Licensing
Foreign investment inflows through joint ventures are promoted and encouraged in Ethiopia. The following are the major criteria for the approval of joint venture proposals:

– Transfer, absorption, know-how, and adaptation of needed technology into the country.
Improvement of the country’s foreign exchange position.
– Utilisation and development of the country’s resources, including the creation of local employment.
– Development of forward and backward linkages, and increased added value in various economic sectors.

Distribution and Sales Channels
Ethiopia requires that all imports be channelled through Ethiopian nationals registered with the government as official import or distribution agents. The agent is required to apply for an import licence and register with the Ministry of Trade and Industry. Much distribution in Ethiopia, particularly to regional towns, is done through informal business arrangements. For example, many goods after being cleared through customs will be sold to wholesalers in Addis Ababa’s largest market (Merkato) who then distribute it to retailers and small vendors.

Selling Factors/Techniques
Methods used by successful competitors in the Ethiopian market-space include active contact with key officials responsible for various major programs and projects, personal visits by representatives for initial market surveys, and contact with local representatives knowledgeable about future plans and market potentials. Sales materials in the official local language, Amharic, in addition to English, is an effective way to reach a broader customer base.

Marketing, Trade Promotion, Commercial Advertising
Advertising and trade promotions are important. Government-owned mass media outlets (radio, television, and newspapers), and privately-owned magazines and newspapers are the best means of advertising.

Industrial Parks
Ethiopia has developed, and continues to develop, a number of attractive industrial parks to encourage investors. These developments come with a significant package of incentives for the investor. When these developments commenced, the old political regime ‘stole’ a percentage of the investing company to benefit from the deal. During the political upheaval leading to the changes in 2018, many of these foreign investments were attacked and often destroyed as a protest against the corrupt leadership. A company should take benefit from the incentives but avoid any government ownership and manipulation. The Industrial Parks Development Corporation has been tasked with building 11 industrial parks of which five have been completed and started operations. The parks will commence operations after construction is completed in Dire Dawa, Jimma, Bole Lemi in Addis Ababa, Debre Berhan, Bahir Dar and Arerti. Attention will be paid toward creating employment opportunities for the local communities and ensuring investors benefit, according to Lelise Neme, director general of the Corporation. Ethiopia
plans to build 30 industrial parks by 2025. For entering the Ethiopian market and other East African markets, services can be provided to cover the following:

  • Preparation with Company Intending to Trade or Invest
  • Initial meetings in order to establish an understanding the existing business model and the vision and mission for new market development
  • Defining the immediate goals and long-term market entry strategy for Ethiopia / East Africa
  • Establishing initial resources available and needed in/for the markets including timelines and expectations
  • Formalising the project plan and approach

In Market Activities

Following from the above :

  • Confirming and testing the market entry strategy and feasibility with local input for
    adjustment and amendment
  • Selection of potential partners (Distributors from already known sources)
  • Possible JV interests
  • Provision of legal guidance and facilitation
  • Accounting and tax regime (tax breaks, tax holidays)
  • Government support and incentives for job creation and new investors
  • Banking and forex subtleties
  • Due diligence on potential partners. Picking winners
  • Logistical guidance and routes to market/s. Supply-chain considerations
  • VIP and other government and NGO introductions
  • Branding for the target markets and promotional requirements with cultural and language sensitivity. (Local branding expertise is well known)

Over the 4 years of activity in Ethiopia and 15 years of conducting business with East Africa, Peter Hurst of Added-Asset Associates is well connected with extremely powerful networks. Peter can be reached by email: peter@addedasset.com