Monday, 06 December 2021

In Business

Business Opportunities in Ethiopia

Ethiopia has vast business opportunities as a growing economy in the north east of Africa, with a five-year GDP growth from US$74 Billion in 2016 to US$95 Billion in 2019. According to UNCTAD's World Investment Report 2020, FDI inflows to Ethiopia decreased to USD 2,5 billion in 2019, compared to USD 3,3 billion in 2018 (-24%).

In total, FDI stocks were estimated at USD 25 billion in 2019. FDI has been negatively impacted by instability in some parts of the country, including regions with industrial parks. 

Yet Ethiopia remained the largest recipient of FDI in East Africa, with investments in petroleum refining, mineral extraction, real estate, manufacturing and renewable energy. China was the largest investor in 2019, accounting for 60% of newly approved FDI projects, with significant investment in manufacturing and services. The other main investor countries are Saudi Arabia, the United States, India and Turkey. 

Agriculture (particularly horticulture), renting of agricultural land and leather goods are the sectors that traditionally attracted the most FDI. The country also took advantage of the crisis of the Bangladeshi textile sector to attract foreign companies to the textile industry. In 2020, due to the COVID-19 pandemic, inflows to Ethiopia declined by 17%. Nonetheless, they reached USD 2.1 billion, as significant investments took place in the manufacturing, agriculture and hospitality sectors (UNCTAD, Global Investment Trend Monitor).

The opportunities in Ethiopia are for both large- and small-scale enterprises. The most promising commercial opportunities in Ethiopia, are in agriculture and Agro processing, infrastructure, energy, aviation, healthcare, and tourism. The Government of Ethiopia (GOE) and its public institutions are the leading buyer and market for U.S. products.

Among the reasons to invest in the country there are: one of the fastest growing economies in the world, with GDP growth averaging 10% in the last decade according to the IMF. Ethiopia is the second largest market in Africa, with a population of around 102 million people and a rapidly growing middle class.

From small to large scale, the most popular business start-ups in Ethiopia include Bakery, Day-care and Nursery, Recreational Centre (Hubs), Salt and Soap Making, Computer Maintenance, Music, Driving School, Construction and Real Estate.

Other micro-scale business opportunities that are seeing start-ups include Personal Wellness, Courses in Other Hobbies, Bookkeeping and Accounting, Consulting, Graphic Design, Social Media Management, Marketing Copywriter, and Virtual Assistant Services.

To start a Private Limited Company (most popular option) you need to Collect application form here Investment Permit Application Form or from EIC Information Desk; Collect sample memorandum and article of association, and information about requirements, incentives and etc. from Investment Promotion Directorate; and Submit filled and signed application form (by the investor or general manager or legally authorized person) along with previous business background (company profile), memorandum and article of association, copy of valid passport, and investment or business visa of each shareholder to Licensing and Registration Department.

The minimum capital requirement to establish a Private limited company is ETB 15,000. The Liability of a Private Limited Company is limited to the company's assets. The cost of incorporation for private limited company is not less than SOUSD.

In order to do a start-up, your company must be registered at the Chamber of Commerce and Industry. In the case of companies with capital exceeding SOUMSD 7500 and more, you need to also register with the Ministry of Industry and Trade. There are also other agencies that must formally register applications: Investment Promotion Directorate (IPD), Tax Authority (TA), Food and Drug Administration (FDA).

For chain model, the minimum capital is ETB 5000. The tax for this type is paid automatically by the investor or by an authorized person for real estate lease agreements. The paying agent decides whether it is a new company or an existing company with a franchise or an agent contract.

In Ethiopia, like many other countries, the most profitable companies span different industries, time investment, and start-up costs. That being said, no matter which of the most profitable business ideas you prefer, you need to do something to start your business.

The business starts with a good idea. But to make this idea a reality, you need to conduct research to ensure that the concept is successful. Before you go too far, complete an idea verification process, including market and competitor research, and financial feasibility analysis. Checking out this list of the most profitable companies will be your first step in this process. When you are sure you have a good idea to use, it's time to use a well-crafted business plan to plan your business logistics. 

When you are sure that everything has been written, you will need to take steps to formalize it. That is why we recommend that you start using business credit cards to finance initial growth. Compared to traditional business loans, not only can you qualify for credit cards more easily, but you can also activate your business credit history, earn allowances and rewards when you spend, and take advantage of the 0% interest-free introductory APR period.

If you have a strong idea for a business, then you are ready to do your research. First, we recommend visiting the Chamber of Commerce and Industry's website. This is where you will be able to find Accreditation Requirement (AR) Lists which are important documents that validate your credentials and experience. Then, it is time for another important step in the process; writing an article of association. This article is crucial because it formalizes all of the articles within your company - including how many shareholders there are, their powers and responsibilities, as well as how the company will be managed. 

At a national level, the potential of Ethiopia for exports is great. 

Ethiopia is endowed with abundant agricultural resources and has diverse ecological zones for agricultural production. Investment licenses can be obtained from the Ethiopian Investment Commission and land can be leased for up to 99 years from regional and city administration bureaus. Recently, land allocation, compensation, and relocation have posed significant issues for the GOE in terms of equity and transparency.

Energy is one of the most significant sectors for Ethiopia’s economic growth and development. GTP II targets an increase in power generation capacity from its current near 4000 MW to over 17,000 MW by 2020. 

While this goal is ambitious, we expect power generation to increase significantly in the medium run Ethiopia possesses significant renewable energy potential (renewable sources already account for over 90% of Ethiopia’s energy production), especially hydroelectric, and seeks to exploit these resources by increasing the installed capacity of renewable energy sources.

Aviation is a high-growth sector with increasing demand for air transportation, both passenger and cargo, expanding at an average 20% growth rate.

The Africa Continental Free Trade Agreement (AfCFTA), which entered into force May 2019, unites the 52 African countries that have signed the agreement into one common trade area. Ethiopia has ratified the AfCFTA, facilitating trade across the continent between Ethiopia and the 52 countries that have signed the agreement. The AfCFTA creates an opportunity for U.S. companies to use Ethiopia as a regional trade hub to reach neighbouring markets.

The African Union (AU), headquartered in Addis Ababa, Ethiopia, replaced the Organization of African Unity in 2002 and serves as the region’s preeminent intergovernmental organization, grouping Africa’s 55 member states. In pursuit of this goal, the AU coordinated negotiations on an African Continental Free Trade Area (AfCFTA), intended to reduce tariffs and other barriers to trade among African countries. As of mid-2019, 49 AU member states have signed the AfCFTA Agreement, and the ratification process is ongoing. 

With an annual budget of $450 million, the AU offers a variety of business opportunities. For example, the AU employs over 2,000 people and is “one of the largest employers of expatriate personnel in Africa.” Moreover, the AU’s Peace and Security Council maintains a peace and security mission in Somalia (AMISOM) with an annual budget of $1.1 billion.

In addition to its direct influence on trade policy via the AfCFTA, Ethiopia has signed bilateral trade agreements with South Africa (2015), Saudi Arabia (2014), Qatar (2008), Egypt (2008), Sudan (2004) and Djibouti (2006). The AfCFTA and the bilateral agreements provide Ethiopia with the opportunity to expand its commercial interests through engagement with other countries within and outside of the region. Ethiopia’s economy will benefit from this comprehensive approach to trade policy.

Commercial opportunities also exist in other sectors including transportation, communications, financial services, tourism, and utilities. The Technology and logistics sector is also an attractive market for U.S.-based companies interested in establishing production facilities in Ethiopia. 

The Ethiopian government has established an overall framework for franchising in Ethiopia that has resulted in a positive environment for foreign investment, including favourable regulations that have promoted investment by both domestic and international entrepreneurs.

Sources: World Bank, Sheqer, Invest Ethiopia, GOE

Cabanga Media Group is a media and business services company with interests in Botswana, Nigeria, Kenya, South Africa, Zambia and Zimbabwe.