Ethiopia a Good Bet for Investors

After the smooth transfer of power in the last general election, Ethiopia can be  termed politically stable. It has better law and order, compared to any other African country. I visited the country last year on the invitation of the International Trade Centre (ITC), which is doing a great job of strengthening bilateral trade and investment relations between India and East African countries and guiding local authorities in making Ethiopia the hottest investment destination in Africa.

There is no shortage of labour in Ethiopia. Labour is very cheap, and comfortable with the English language. Wages are as low as 30 dollars a month, and there is no minimum wage for sectors like textiles and apparel. Power is also very cheap as compared to what it costs in India. That may explain why so many apparel manufacturers and retailers are in process of making Ethiopia their manufacturing base. Many Indian businesses such as Arvind Mills and Kanoria Textiles are already operating their manufacturing units in Ethiopia.

The biggest advantage of investing in Ethiopia or any other least developed African country is that they have duty free market access in almost all top consuming markets. Thus, a garment manufacturing unit in Ethiopia can export products to virtually any top consuming destination without paying any duties.

Another big advantage is that a manufacturer based in Ethiopia will have duty free market access in 19 African countries with over 400 million people because of the Common Market for Eastern & Southern Africa (COMESA) membership that it enjoys. No doubt that duties are an important differentiator in manufacturing.

Cultivation of all kinds of tropical fruits and vegetables, and food processing has immense potential in the country so does textile and clothing. Though Ethiopian wages are very low, workers need training in basic skills. This can mean opportunities for vocational training providers.

The country is also beautiful, with a pleasant climate throughout the year. Safety being a non-issue, Ethiopia can become a hot tourist destination like Mauritius, Zanzibar, or Tanzania.

Ethiopia imposes no restrictions on repatriation of profits and dividends. Its tax rates are comparable to India. And the top ministers and officials are highly approachable to prospective investors. People in general are courteous and friendly. Visiting the country was a nice experience for me and it helped remove many of my usual prejudices.

With the effort to make Africa one common market by 2017-18, Ethiopia has the potential to become a gateway to the fast growing African continent. If that happens, investing in Ethiopia will make even more commercial sense because of the duty free market access it will enjoy in virtually the whole of Asia, Africa, Europe and North America.

Ethiopian WTO membership, which is currently under negotiation, will make its trade policy more predictable and increase its attractiveness as an investment destination. The country is also concluding investment protection treaties and double taxation avoidance treaties with many countries that will make investors more confident about its regulatory regime.

It is not that there are no challenges in doing business in Ethiopia. There are many, with Ethiopia being a land locked country. Thus, despite arrangements for smooth shipment of import and export cargo through Djibouti, its port and Customs infrastructure cannot be termed efficient and cost effective. Being a least developed country, there are other infrastructural bottlenecks related to transport. To address that, Ethiopia is developing a dedicated electrified rail link between Addis Abeba and the Port of Djioubti.

Also to be addressed is the fact that banking and telecoms penetration is very low, even by African standards. Those areas need improvement. Besides, investors face difficulties in securing finance and foreign currency. That calls for the urgent attention of Ethiopian authorities.

Even then, Ethiopia is a good bet for investors. It can give them the right returns.


Published on Mar 21,2016 [ Vol 16 ,No 829]



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