"Within one month our revenues had jumped over 50%."

Doing Business in Ethiopia

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It is the second-most populous nation in Africa, with over 82 million inhabitants,  it is also the most populous landlocked nation in the world. Currently, Ethiopia is the top coffee and honey-producing country in Africa, which helps fuel business in Ethiopia. It’s also home to the largest livestock population in Africa. Ethiopia, which has Africa’s second biggest hydropower potential, according to Bloomberg,  is the source of over 85% of the total Nile water flow and contains rich soils, but it nevertheless underwent a series of famines in the 1980s, exacerbated by adverse geopolitics and civil wars. Slowly, however, the country has begun to recover, and today Ethiopia has the biggest economy by GDP in East Africa and Central Africa, according to Nazret.com.

The Economy and Business in Ethiopia

It is a regional powerhouse in the Horn and east Africa, and in 2010 the Economist said that Ethiopia has the fastest growing non-oil based economy in Africa. With the IMF estimating that Ethiopia grew by about 7.5% in 2011, and had a nominal GDP of $94.76 billion with a GDP per capita of $1100. The current government has embarked on a program of economic reform, including privatization of state enterprises and rationalization of government regulation. While the process is still ongoing, the reforms have begun to attract much-needed foreign investment. The economy of Ethiopia is based on agriculture, which accounts for 46.3% of  GDP, 60% of exports, and 80% of total employment. Aside from wholesale and retail trade, transportation, and communications, the services sector consists almost entirely of tourism. The manufacturing sector constitutes about 4 percent of the overall economy, although it has shown some growth and diversification in recent years. Much of it is concentrated in Addis Ababa. Food and beverages constitute some 40 percent of the sector, but textiles and leather are also important, the latter especially for the export market.

Energy Resources Affect Business In Ethiopia

Aside from waterpower and forests, Ethiopia is not well endowed with energy sources. The country derives about 90 percent of its electricity needs from hydropower, which means that electricity generation, as with agriculture, is dependent on abundant rainfall. Present installed capacity is rated at about 2000 megawatts, with planned expansion to 10,000 megawatts. The major agricultural export crop is coffee, providing about 26.4% of Ethiopia’s foreign exchange earnings. Coffee is critical to the Ethiopian economy. More than 15 million people (25% of the population) derive their livelihood from the coffee sector, as reported by African Business. Other exports include live animals, leather and leather products, chemicals, gold, pulses, oilseeds, flowers, fruits and vegetables and khat. Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange. The financially conservative government has taken measures to solve this problem, including stringent import controls and sharply reduced subsidies on retail gasoline prices. Nevertheless, the largely subsistence economy is incapable of supporting high military expenditures, drought relief, an ambitious development plan, and indispensable imports such as oil and, therefore, must depend on foreign assistance.

Overall, doing business in Ethiopia is difficult. Due to being landlocked, goods have to be shipped out of the country by plane or overland routers to nearby harbors. Ethiopia was also ranked at 111th in Ease of Doing Business by the World Bank for 2012. In the same ranking, Ethiopia was ranked at 122nd for Protecting Investors, 157th for Trading Across Borders, and 57th for Enforcing Contracts. So clearly this is not the easiest environment to do business in, however it is one of the fastest growing economies in Africa, let alone the world. To find out more about vairous countries or latest business trends, please join us on Globial.com

 

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.

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2 Responses to “Doing Business in Ethiopia”

  1. Guest
    March 26, 2012 at 9:24 am #

    The climate in Ethiopia is very suitable for solar applications. This would be a great area of investment both for Ethiopians and investors.

    • Faiza Zeshan
      April 5, 2012 at 1:19 am #

      The market of solar application is increasing day by day so it would be a great investment.

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