“The China of Africa” is the nickname of Ethiopia.
Why such a strange nickname? For 2 reasons:
- It is very populated. With more than 100 million inhabitants, Ethiopia is the second-most populous state in Africa (after Nigeria)
- the country’s economy has grown a lot in recent years. The GDP annual growth was more than 10% on average in the last 10 years.
But before speaking about the economy, a small introduction to the country.
Ethiopia is located in the eastern part of Africa in what is called the Horn of Africa. The country has no access to the sea, most of the goods arriving by sea in Ethiopia pass through the port of Djibouti, the small neighboring state.
As you can see on the map, Ethiopia is a very large country (1,104 million km2); to give you an idea, the extension is twice the size of France.
The morphology is particular. In the middle, mountains divide the country into 2 parts: the western-central part is humid (and green) and the eastern-southern one is dry. However, a large part of Ethiopia is covered by hills and mountains and the mean elevation is around 1,300 meters!
Most of the huge population of Ethiopia is concentrated in the central part of the country in a fairly small area.
The history of Ethiopia is very long and interesting, just a couple of interesting facts.
First: Ethiopia was occupied by Italy only for 5 years, so it is one of the few countries in Africa that was not colonized strongly by Europeans.
Second fact: 30 years ago, Ethiopia was a bigger country than now, in fact, Eritrea was part of Ethiopia. In 1993, the region declared itself independent and unfortunately started a civil war. Eritrea is now an independent state and the formal peace was signed only in 2018 (while the armed conflict ceased in 2000).
5 BUSINESS OPPORTUNITIES
First opportunity: a booming population
Ethiopia has 110 million inhabitants and the population is growing fast.
The fertility rate is close to 5, so every woman has on average 5 children.
It is forecasted that in 2050, the population will be close to 200 million people.
Second opportunity: strong GDP growth
In the graphic below, you can see the annual GDP growth of Ethiopia compared to other countries in the world. It is impressive.
However, we have to consider that Ethiopia is still a very poor country. The GDP per capita is only $ 2,200.
The tab below illustrates the 6 largest African economies. Ethiopia is included in the list, however large GDP size is given by a large number of inhabitants because the GDP per capita is the lowest.
Third opportunity: investments
The government of Ethiopia is pushing to transform the country from an almost exclusively agricultural economy to a more diversified and modern one. In particular, they are pushing to create the secondary sector.
It is a common idea that in the future some companies could move the production from Asia to Africa because Asian salaries won’t be competitive enough to justify the production of some low-cost goods (textile in particular). Ethiopia is promoting the delocalization in its territory and could be a beneficiary of it. The number of manufacturing companies in Ethiopia could increase in the next decades.
At the moment Ethiopia is the African country that receives more investment from foreign investors (mainly from China). A large part of investments is allocated to the creation of infrastructures. Some famous examples are the new hydroelectric plant with a large dam on the Nile river (contested by Egypt) and the electric railway from Djibouti to Addis Abeba.
Fourth opportunity: trade deals
Ethiopia has good relations with a large number of countries. They signed trade deals with important world economies.
Ethiopia is included in the “Everything But Arms” program of the European Union, so Ethiopia can export into the European Union without duties and quotas. A similar agreement has been made with the United States of America (African Growth and Opportunity Act).
Ethiopia is part of the common market of the Eastern and Southern Africa (COMESA), it is a free trade area that involves more than 20 African countries.
Considering that Ethiopia plans to attract foreign manufacturers, it is crucial to have such trade deals with the largest number of countries as possible. In this way, manufactured goods from Ethiopia can reach a wide number of the foreign market with no customs duties (or the lowest as possible).
Fifth opportunity: homogeneous distribution of income
Ethiopia is a very poor country, however, the level of distribution of the resources is homogeneous.
There are not strong and widespread inequalities like in many other African countries.
5 BUSINESS RISKS
First risk: a poor country
Despite the huge growth in recent years, the GDP per capita (PPP) is still very low: $ 2,200.
How low is it? You can see it in the tab below.
We can give you a lot of examples to explain the living conditions of a huge amount of inhabitants. We just give you some.
Most of the people in the countryside, do not have direct access to electricity in their houses. Ethiopia is one of the countries with the lowest number of internet users.
Nowadays, Ethiopia is still an agricultural country, unfortunately, agriculture is conducted mainly without the help of modern technologies. Just think that about 70% of the population is employed in agriculture, which generates only 30% of the GDP.
By the way, the main export of Ethiopia is coffee.
Second risk: low literacy rate
Around 50% of Ethiopia’s population above 15 years old is not able to read and write.
We think that it is a huge deficit and Ethiopia must increase investment in education if it wants to transform its economy. People that work in a production site must have at least a basic education. Think about if you cannot give written instructions inside a factory…
Instruction is crucial to attract foreign companies in Ethiopia, but also to create new local businesses.
Third risk: corruption
According to Transparency International, corruption in Ethiopia is very high.
However, in the African panorama, the corruption level of Ethiopia is not such impressive. From this point of view, we can say that it is among the African country with the lowest level of corruption.
Fourth risk: not uniform population
The population of Ethiopia is large, but it not homogeneous.
It is composed of different ethnic groups with different languages.
This is a problem from a marketing perspective because if you sell b2c products you cannot consider Ethiopia as a single large market, but you should study and implement different marketing strategies to be more effective in selling some kind of products. This can drive up marketing costs.
Fifth risk: long time to recover insolvency
According to the Doing Business study (World Bank), it is time-consuming to recover insolvency in Ethiopia. More than the Sub-Saharan African average.
CONCLUSION
It is difficult to forecast the future of an economy in the long term. It is hard to do it even for developed and stable economies. In the case of Ethiopia, it is even more difficult.
Ethiopia is among the African countries that could attract multinational companies to delocalize the production of cheap products from Asia to Africa. However, it is impossible to forecast if this process will happen strongly.
Another question mark is the growth of the GDP. Will Ethiopia be able to maintain these sky-high growth levels (around 10%) for many more years? A key aspect is the ability to continue to attract foreign capital.
However, in a positive scenario, Ethiopia could be in 20 years an attractive market also for b2c products. From these perspective companies that start to invest in advance could have an advantage in the future, since a wide number of companies/brands are still not present in Ethiopia.
Another curiosity about Ethiopia is that the “Ethiopian Airlines”, Ethiopia’s flag carriers owned by the government, is the largest of Africa. The hub is Addis Ababa, and due to that is pretty easy to reach Ethiopia for business purpose compared to other African countries.
Other info about Ethiopia in Country Data page: Ethiopia Business Report
Link to data source: The World Factbook (CIA)
Globartis Research
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