INVESTMENT PROFILE:

Agro-Processing and Light Manufacturing

ETHIOPIA

AN OVERVIEW

The Federal Democratic Republic of Ethiopia is Africa’s oldest independent country, and is among the most stable countries in the region. For 11 years (2004 to 2014), Ethiopia has registered an average economic growth of 10.9% per year. The per capita GDP in current prices has grown from US$ 341.9 in 2010 to US$ 573.6 in 2014 (with a population size of 96.96 million). Ethiopia (with nominal GDP of US$ 55.61 billion) is the third largest economy in East Africa next to the Republic of Kenya and the Republic of the Sudan, and is the sixth largest Sub-Saharan economy.

Ethiopia, with an estimated population of 96.96 million (2014), is Sub-Saharan Africa’s second most populated country after Nigeria. It is also predicted to reach 117.6 million by the year 2025.

The financial sector, mainly banking and insurance services, has been broadly stable and is growing in terms of expanding its services. The sector continues to tap into new opportunities for mobilizing savings through establishment of new banks and expanding their branch networks, as well as introducing new financial instruments. As of 2013/14, Ethiopia has 19 commercial banks, three of which are government owned.

Key facts

Capital: Addis Ababa

Area: 1.14 km2

Population: 96.96 mm (2014)

Labour force (15 years and above):

49.27 mm

Male: 47.5%

Female: 52.5%

Youth literacy rate (15–24 years):

Male: 63% (2008–2012)

Female: 47% (2008–2012)

GDP (nominal): US$ 55.61 bn (2014)

GDP (growth): 10.3% (2014)

FDI inflow: US$ 1.2 bn (2014)

Exports: 11.6% of GDP (2014)

Imports: 29.1% of GDP (2014)

Govt. expenditure: US$ 11 bn (2015 est.)

Govt. revenue: US$ 9.11 bn (2015 est.)

Currency: Ethiopian birr (ETB)

Language: Amharic, Oromiffa, Tigrigna, English (major)

*Source: EIC, 2015; World Bank, 2015; UN, 2013; CIA, 2016

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Ethiopia is the 3rd largest East African and 6th largest Sub-Saharan economy.

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INVESTMENT OPPORTUNITIES

Ethiopia’s investment potential in the agro-processing and light manufacturing sectors is clear.

INDUSTRIAL PARKS

� Ethiopia is building four industrial parks at a total cost of US$ 2 billion, covering various industries such as textile and apparel, packaging, machinery and anything else that can be manufactured.

� Ethiopia is targeting US$ 1 billion of annual investment in industrial parks over the next decade to make it Africa’s top manufacturer.

� The parks are located in the eastern towns of Dire Dawa, Kombolcha and Mekelle in the country’s north, and Adama in the capital’s south. A textile park has already opened in Hawassa in April 2016.

COTTON

� The total potential area agroecologically sustainable for cotton production in Ethiopia is 2.57 million hectares, but only 125,000 ha is currently under cotton production.

� Textile and apparel manufacturing is uniquely seen as Ethiopia’s step forward towards industrialization. Moreover, the country has a rich and vast cotton sector.

� Ethiopia also has one of the lowest costs of energy in the world at US$ 0.06/kWh.

� One industrial city, Hawassa, is chiefly designed and established for the textile industry.

CONSTRUCTION

� Construction has been Ethiopia’s fastest-growing sector. In 2015, there were an estimated US$ 20 billion worth of construction projects in the pipeline, with an output of US$ 3.2 billion.

� While most projects are financed by the public sector, the US$ 2.2 billion project in Huajian Group Industrial Park was led by the private sector for textile factories and real estate and apartment projects.

PHARMACEUTICALS

� The annual pharmaceutical market in Ethiopia is estimated at US$ 400–500 million, and is growing at an impressive rate of 25% per year.

� Ethiopia is aggressively investing in and expanding its health sector. Health coverage increased from 30% in 2010 to 89% in 2015. The number of health posts and centres increased from 4,811 in 2005 to 17,415 in 2012.

KEY CONTACTS:

Ethiopian Investment Commission

Tel.: +251 115 510 033E-mail: ethioinvest@eia.gov.et

HORTICULTURE AND FLORICULTURE

� Only a decade old, Ethiopia’s cut flower business is already the second largest in Africa, with 120 high-tech flower growers generating US$ 265 million in revenues in 2014 from US$ 28.5 in 2005.

� Ethiopia’s climate is its best comparative advantage, coupled with excellent export-oriented agricultural policies, comprehensive incentives, cheap electricity and affordable labour.

PULSES

� Pulses make up a substantial share of Ethiopians’ diet, especially for peri-urban and rural consumers.

� Relatively high productivity pulses gain. National pulses productivity on average was 15.6 quintals per hectare in 2014/15, which is above Sub-Saharan average.

� Good climate, endowed with abundant and diversified natural resources and diverse agroecology suitable for a variety of cereal production, including pulses.

� Out of 11.55 million hectares of land available for farming, 3,274,469 hectares of land are identified as potential areas for pulses farming in SNNP, Tigray, Amhara, Oromiya, Gambella, Benshangul Gumuz, Somali and Afar. Cultivated land for pulses in Ethiopia has been an estimated 1,742,600 hectares (2014/15). Rural land rental prices are usually low.

� Several factories in Ethiopia process pulses.

Produced under Partnership for Investment and Growth in Africa (PIGA). A project funded by the Department for International Development, Government of the United Kingdom and implemented by the International Trade Centre.

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ECONOMY OVERVIEW

AGRO-PROCESSING AND LIGHT MANUFACTURINGEthiopia has one of the fastest-growing economies in the world. The economy is still largely based on agriculture, which accounts for an estimated 45% of its GDP and employs 85% of its active population.

With its population of 96.96 million, it constitutes Africa’s second biggest market. The fact that 40% of the population is under the age of 15 and 70% is under the age of 30 suggests significant place for growth in all sectors.

One of the government’s objectives is to make Ethiopia Africa’s number one manufacturer, in particular through the construction of industrial parks.

Opportunities in agro-processing include cereal crops (wheat, barley, corn, rice and teff), pulses (soy beans, haricot beans, chickpeas, beans and lentils), horticulture and floriculture, oilseeds (sesame, Niger seeds, canola, linseed, groundnuts and sunflower), cotton and textiles, livestock, dairy and poultry.

Opportunities in light manufacturing include leather and leather products, pharmaceuticals, industrial and construction materials, agrochemicals and fertilizer industries, agricultural machinery and packaging.

WHY ETHIOPIA?

ETHIOPIA’S GLOBAL AND REGIONAL MARKET ACCESSDue to its large population, Ethiopia has the potential to be among Africa’s biggest domestic markets. The country’s proximity to the Middle East presents further prospective market opportunities. Thanks to its location in the Horn of Africa, Ethiopia also enjoys a strategic location to connect Africa, Europe, the Middle East and Asia.

ETHIOPIA’S TRADE SCENARIO

� Ethiopia’s exports have grown by 37%, 14% and 3% in 2011, 2012 and 2013 respectively. In 2014, the country received US$ 3.25 billion and its import value was US$ 13.7 billion (2013/14).

BUSINESS ENVIRONMENT

LEGAL AND REGULATORY FRAMEWORK

� The constitution is the highest law that prevails over all other legislation in Ethiopia. The Investment Proclamation (2002) permits foreign investors to purchase a residence and other immovable land needed for their investment.

� Investment treaties and the domestic investment laws provide protection for foreign investments.

LOGISTICS AND CONNECTIVITY

� In Ethiopia, total road length has reached more than 100,000 kilometres that connects 70% of the rural kebeles, which are all-weather roads. This reduces the time taken to reach the main road to 1.8 hours.

� The Government of Ethiopia has devised a strategic plan to build a 5,000-kilometre-long national railway network, which is anticipated to increase Ethiopia’s export and import trade.

� Ethiopia has two dry ports, at Semera and Modjo, 588 km and 73 km from Addis Ababa respectively. It also operates another four sub-terminals, which are located at Dire-Dawa, Mekele, Kombolcha and Gelan, 515 km, 783 km, 376 km and 34 km respectively from Addis Ababa. Addis Ababa is linked to the Port of Djibouti (910 km) by road at the Gulf of Aden.

� Air transport is a key part of Ethiopia’s transport network. Ethiopian Airlines offers both cargo and passenger transport in its domestic and international flights. Domestic flights are offered to 17 destinations countrywide. Ethiopian Airlines connects the country to more than 63 destinations across the world, with more than 40 cargo destinations throughout Africa, Asia, the Middle East and Europe.

MANPOWER SCENARIO

� There is abundant availability of a relatively well-trainable population.

� The monthly average wage (labour, agriculture, forestry and fishing) is 1277.50 birr (2014).

POWER SCENARIO

� Ethiopia has huge potential for geothermal and hydropower energy generation. The country’s installed power-generating capacity is an estimated 2000 MW, out of which hydropower plants generate 1,980 MW (99%). The balance of 8 MW (0.4%) and 12 MW (0.6%) is generated by geothermal and thermal sources respectively.

ADVANTAGE ETHIOPIA

Agro-processing and light manufacturing investors in Ethiopia can benefit from the following:

� Political and social stability

� Preferential market access (Africa, Europe, Asia)

� Young, competitive and trainable labour force

� Excellent climate and fertile soils; abundant irrigable land

� Improved infrastructure

� Competitive incentive packages

� Stable business operating environment

� Conducive investment policy

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SUCCESS STORIES

� Castel Winery: The third largest wine producer in the world, in 2007 it signed an agreement to establish a winery in the town of Ziway, 163 km from Addis Ababa. After importing grapes from the Bordeaux region in France, investing US$ 25 million and creating 800 jobs, the first bottle of wine was produced in 2014.

� Herburg Roses: In 2006, Herburg Roses started cultivating flowers on 18 hectares and later increased its production to 40 hectares. It now sells 22 types of flowers to the European market.

� Huajian: In 2011, Huajian, a large Chinese shoe exporter, established a factory in Ethiopia to produce shoes for brands such as Guess and Calvin Klein. Huajian plans to invest US$ 2 billion over 10 years and hopes to see its exports from Ethiopia reach US$ 4 billion within 10 years.

� New Wing Group: A Hong Kong company producing women’s shoes for the American and European markets, New Wing buys most of its leather from Ethiopia and plans to establish a tannery in the country.

� From 2015/16 to 2020, the government has plans to construct power-generating projects in hydropower (11,237 MW to 51,706 GWh), solar energy (300 MW to 525 GWh), geothermal energy (1,200 MW to 9,461 GWh) and gas turbine stations (420 MW to 2,940 GWh) (National Planning Commission, 2015).

GOVERNMENT SUPPORT FOR AGRO-PROCESSING AND LIGHT MANUFACTURING

� Incentives are available upon the following minimum investment: US$ 200,000 for a single investment project; US$ 150,000 for a joint project with a domestic investor; US$ 100,000 for technical consultancy if wholly owned or US$ 50,000 jointly with a domestic investor.

� Fiscal incentives for investments in approved sectors include:

� Exemption of customs duty for imported capital goods, construction materials and spare parts up to 15% of the value of the goods;

� Income tax exemption of 1–9 years for investments in manufacturing and agriculture and of 10 or 15 years for investments in industrial parks;

� Export incentives such as duty drawback, bonded warehouse and manufacturing.

� The constitution, investment law and investment treaties provide guarantees of protection.

� Support is being provided to smallholder farmers in the form of provision of planting seeds, technical support, advisory service through extension service and research, marketing research, information and finance services, etc.

� The Ethiopian Investment Commission (EIC) is working to establish an expedited “one-stop shop” service that will significantly cut the time and cost of acquiring investment and business licenses. It is working to provide a business license in one day provided all conditions are met.

� There are also additional supporting institutions for investment and export facilitation, such as Ethiopian Industrial Parks Development Corporation (IPDC), Ethiopian Pulses, Oilseeds & Spices Processors – Exporters Association (EPOSPEA), and Ethiopian Commodity Exchange (ECX).

Market access under Markets

African Growth and Opportunity Act (AGOA)

Duty-free and quota-free (DFQF) privilege extended by the United States of America

Everything But Arms (EBA)

The European Union

Other preferential duty treatment

The People’s Republic of China, the Republic of India, the Republic of Austria, the Republic of Finland, Japan, the Kingdom of Norway, the Swiss Confederation and the Kingdom of Sweden

East African Community (EAC)

The Republic of Burundi, the Republic of Rwanda, the United Republic of Tanzania and the Republic of Uganda

Common Market for Eastern and Southern Africa (COMESA)

Burundi, the Union of the Comoros, the Democratic Republic of the Congo, the Arab Republic of Egypt, the Republic of Djibouti, the State of Eritrea, Libya, the Sudan, the Republic of Madagascar, the Republic of Malawi, the Republic of Mauritius, Rwanda, the Kingdom of Swaziland, Uganda, the Republic of Zambia, the Republic of Seychelles and the Republic of Zimbabwe

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