Ethiopia sits at 10th place in the 2014 African Retail Development Index, prepared by A.T. Kearney – a global consultancy firm.
A.T. Kearney were recently hired by the Ethiopian government to consult on the recruitment and establishment processes, as well as to develop a business plan, for the Ethiopian Trade Enterprise (ETE).
Ethiopia, according to the Index, stood 10th next to Rwanda, Nigeria, Namibia, Tanzania, Gabon, Ghana, South Africa, Botswana and Mozambique.
The global firm’s first African Retail Development Index (ARDI) for market opportunity was announced on March 17, 2014, in Johannesburg, South Africa.
A.T. Kearney focuses on strategic and operational CEO-agenda issues facing businesses, governments and institutions across the globe. As of March 2014, 58 A.T. Kearney offices exist in 40 different countries.
The global firm’s involvement in the establishment and recruitment of the ETE, a one billion-Birr project that was initiated by the government over concerns that the lack of competition in the wholesale market of the country was causing inflation, comes after its German office recently designed the ETE’s Enterprise Resource Planning (ERP). The ERP is a business management software, which the Company will use to manage business processes.
The ARDI ranks the countries based on four factors, namely market size, which measures the size of the potential market; market saturation, which shows the level of maturity of the market; country risk, which analyses the macroeconomic stability of a country, and time pressure, which measures whether there is a long-term opportunity in the market.
“Retailers must understand where African countries are in the evolution of the retail landscape and the stages of their market development, in order to craft their expansion strategies for Africa,” Mirko Warschun, A.T. Kearney partner and ARDI co-author commented via A.T. Kearney’s official website.
Ethiopia scored a total average of 53.7 in the A.T. Kearney Index, with its market size valued at 29 and the level of risk scoring 48. The country’s market saturation was deemed to be 100 and the time pressure 38.
A.T. Kearney’s index said Ethiopia has one of Africa’s fastest-growing economies, at eight percent gross domestic product (GDP) growth a year, and the second largest population next to Nigeria. Up to 85pc of Ethiopian consumers live in rural areas and are difficult for retailers to access, according to the Index. Cereal shops play a crucial role in distributing cereals and local ingredients, such as teff.
Addis Abeba now has more than 40 supermarkets, 100 minimarkets and 18,000 kiosks (most family-owned), says the Index. Moreover, global consumer goods producing companies have started investing in Ethiopia: Heineken has invested 160 million dollars in brewery investments and regional private equity firms, such as Schulze Gl, are actively investing and seeking investments in local companies.
The Index cited what it termed “Gray” imports as the main challenge for Ethiopia’s retail environment. “Gray” refers to imports through legal yet unofficial or unapproved distribution channels coming through Somalia. These channels, says the Index, have a detrimental impact on the country’s competitive retail environment.
The lack of a reliable supply chain and logistics companies, government control over items such as sugar and palm oil and poor road infrastructure aggravates supply chain challenges, according to the report.
The top 10 markets in the Index are segmented into three high level approaches: These are – Start with the Basics, Move Quickly and Differentiate.
Ethiopia is included in the Start with the Basics in the firm’s index, because its main retail markets, as well as others included in this category, remain small, scattered and informal, while promising due to favourable demographics and recent growth trends. Countries included in this level of approach are Rwanda, Tanzania, Ghana and Mozambique.
Malls, shopping centres and other defined retail spaces are referred to as formal retails. Ninety percent of commerce in Africa occurs at the informal retailers, the Index says, including small independent stores, kiosks and unorganized open air markets.
The index says low rates of formal retail, coupled with increasing urbanization and the relative stability of many African economies represents massive room for retail growth.
In the Move Quickly level of approach, only two countries, Nigeria and Gabon, are included. These two countries are characterized by rapidly evolving retail dynamics and demographics, with some established retail players and many other global retailers set to enter the market.
Botswana, Namibia and South Africa have been included in the Differentiate level of approach, based on their advanced retail sectors, as well as the current presence of international retailers.
The East African region has been identified as being attractive because of its fast-evolving retail dynamics. Rapid population growth, increasing urbanisation, macroeconomic stability and growth potential and increasing foreign and regional investment in retail have been identified as factors increasing the attractiveness of the region.
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