This section offers a general description of the main areas in which opportunities exist. For a listing of specific opportunities, the reader should consult the companion volume to this guide, prepared by the Ethiopian Investment Authority.
Ethiopia’s comparative advantage lies primarily in its abundant, low-cost, disciplined and trainable labour force, the size of its domestic market, and the numerous river basins affording great potential for irrigation and hydropower generation.
Key opportunities for potential investors exist in the following areas:
The Government initiated a privatisation programme in 1995/96. So far over 170 enterprises and units have been privatised. Most of the smaller enterprises and units were sold to domestic investors, whilst a number of the larger enterprises have been acquired by foreign investors. These include a gold mine, Coca-Cola and Pepsi Cola bottling companies, a brewery, meat processing and canning plants, and a tannery. Over the coming three years the Government plans to privatise a further 120 enterprises. Most of these enterprises are large and the government is keen to encourage further participation by foreign investors in the privatisation programme.
Ethiopia is endowed with abundant agricultural resources. It is characterised by diverse physical features that allow the country to be divided into 18 major agro-ecological zones and 62 sub-zones each with its own physical and biological potential.
Given this diversity, there are major agricultural investment opportunities in the cultivation of cash crops and horticultural products.
Coffee, cotton, tea, sugar, spices, oil seeds and tobacco are among the major commercial crops grown in Ethiopia and provide significant opportunities for investment. Ethiopia produces some of the best coffee in the world: the sector involves almost a quarter of the population and is the single most important foreign-exchange earner for the economy.
Ethiopia also grows cotton in large-scale irrigated farms and in small-scale operations. Cotton production is well integrated into the rest of the economy with a large number of textile and garment factories relying on domestically produced cotton. Cotton is also currently exported in small quantities.
Tea is another product with significant investment potential. Ethiopia produces good-quality tea but not currently in large quantities. Interest in and demand for Ethiopian tea is growing rapidly in North America.
Ethiopia’s climate and proximity to Saudi Arabia and to Europe and other markets provide opportunities for investment in cut flowers and high-value fruit and vegetable production. A number of cut flower and horticultural enterprises have started exporting successfully over the past few years.
Irrigated agriculture is an area of investment potential as the country has abundant water resources. There are nine major river basins and a significant number of large lakes in the Rift Valley. Based on present information, the total potentially irrigable land in Ethiopia is about 3.5 million hectares. To date, only about 160,000 hectares (some 4% of the potentially irrigable land) have been developed (Source: Ministry of Planning and Economic Development, Government of Ethiopia, 1993).
Ethiopia has a long tradition in processing and exporting leather and leather products. It has the largest cattle population in Africa and the tenth largest in the world. It has a proven export potential for live animals and livestock products. Private investors are encouraged to participate in commercial breeding as well as the production of meat, milk, eggs and animal feed, and the manufacture of leather products.
Ethiopia’s extensive inland rivers and lakes contain substantial proven reserves of fish and other aquatic resources. The potential annual fresh-water fish production is estimated at about 45,000 tons, of which only 20% are exploited at present. Foreign investment is required to participate in the development of the sector by installing fishing equipment, cold storage and transport facilities, and processing capacities.
Ethiopia is the largest honey-producing country in Africa and the fourth-largest beeswax-producing country in the world. There are around 10 million bee colonies and over 800 honey source plants in the country. The annual honey and beeswax production is estimated at 25,000 tons and 3,200 tons respectively. This area of agricultural activity is currently underdeveloped and has the potential for commercial exploitation, including exports in the region, especially to the Middle Eastern market.
Undertaking a sound forest development programme, with the participation of private investors, has become imperative to reverse previous deforestation. Potential activities for private investors in commercial forestry include the production and marketing of gum and incense, large-scale plantations for timber, the establishment of integrated forest-based industries such as pulp and paper and chipboard, and the establishment of rubber plantations.
Agricultural development is the top priority of the Government and the country has witnessed sizeable growth in agricultural productivity over the last two to three years.
With increasing commercialisation of the sector, there are growing demands for inputs of agricultural products by manufacturing industries and for the provision of all-round support services such as the maintenance of tractors, harvesters and other agricultural equipment such as grain silos, cold storage and transport. The Agricultural-Development-Led Industrialization (ADLI) strategy adopted by the government facilitates the incentive structure needed to promote foreign investment in agri-business.
Given the primary focus of the Ethiopian economy on agriculture, the diversity of crops and agricultural products, increasing agricultural productivity and a domestic market of about 60 million people, processing offers large-scale investment opportunities.
Geological studies have identified a favourable geological environment hosting a wide variety of mineral resources. Initial explorations have confirmed the existence of deposits of gold, platinum, tantalite, soda ash and phosphate rock. Petroleum and other metallic, industrial and chemical minerals have also been identified.
Despite these discoveries, mineral development remains limited, contributing only 1% to the national economy. Steps have been taken to improve the situation, including the creation of an environment conducive to private, local and foreign investment.
While there is no restriction on private investors in developing any type of mineral resource, the greatest potential is in gold and rare metals, petroleum, precious and base metals, industrial minerals and dimension stones (marble and granite).
Prospecting, exploration and mining licenses have been issued to foreign mining companies from the United States, Canada, Italy and Saudi Arabia. A Saudi company has acquired, through the privatisation programme, the only primary gold mine in the country.
The potential of Ethiopia’s renewable and non-renewable energy resources is vast. Currently, less than 4% of the population is supplied with electricity. From this low base, domestic demand for electricity is growing on average at 10% per year.
With a view to expanding energy supply, the government has recently revised the legal and regulatory framework for power generation, transmission and distribution, and foreign investors are now particularly sought to set up hydroelectric power plants. Arrangements may be made with the Ethiopian Electric Power Corporation (EEPCO) for bulk sales of electric power for transmission and distribution.
EEPCO currently operates two large-scale (100 MW and over) and a number of small-scale hydroelectric power plants and supplies power mainly through an interconnected system of transmission lines (230 kV, 132 kV, and 66 kV) and distribution networks (15 kV, 380 V and 220 V).
The telephone density in Ethiopia per head of population is among the lowest in the world, with less than 1% of the population having access to a telephone.
Recognising that the development of an extensive network of telecommunication services is imperative, the government has now liberalised the sector, allowing foreign investors to participate in telecom activities jointly with the government. The Ethiopian Telecommunications Agency is entrusted with the task of regulating the sector.
Opportunities exist in expanding and upgrading central exchanges (mostly digital) and transmission networks (currently relying on microwave and satellite links) as well as in providing wired and wireless access to the highly scattered Ethiopian towns and communities. A mobile system has recently been introduced in Addis Ababa.
Health and Education
Health and education offer good potential for foreign investment. Foreign investors from the Middle East and the United States are setting up a university, following American curricula, jointly with Ethiopian investors. A Saudi investor is providing a modern hospital and clinic in Addis Ababa. The government has committed itself to addressing the prevailing health problems in the country by formulating a 20-year health development strategy which will be implemented through a series of five-year programmes.
The manufacturing sector currently constitutes only a small portion of the economy, contributing about 6.5% of GDP (Source: Ministry of Economic Development & Planning, Government of Ethiopia). Light manufacturing and agro-processing dominate with food, beverage and tobacco processing industries being the most prominent groups in terms of gross value of production.
Between 1992 and 1998, a total of 66 new (foreign) industrial projects were approved and supported by the EIA. At least 10 of these projects, including a tannery, a soap manufacturing factory, a brewery, a bottling factory, a plastic packaging plant and an incandescent lamp factory, have already started production.
High labour content activities such as electronic assembly and low-cost, low-value consumer goods (toys, basic appliances, garments, footwear, etc.) have long been the staple of low-wage developing countries. The macroeconomic environment, including the exchange rate regime, adds to Ethiopia’s competitiveness in these products.
The unique mix of natural, historical, cultural, archaeological and anthropological attractions marks out Ethiopia as potentially a key tourist destination in Africa.
With the liberalisation of the economy, tourism is now growing steadily. Tourist arrivals in 1997 numbered 115,000. Although the stock of hotel rooms in the country and the number of travel agencies and tour operators have also increased over the last few years, there is still a general lack of tourist infrastructure.
Foreign investors are thus required for the expansion of the tourist infrastructure in the most important tourist destinations, which include the northern historic route, the Rift Valley, Omo National Park, Harar and the northern mountains.
The EIA maintains a
schedule of specific business investment opportunities in Ethiopia for foreign
investors. Potential inward investors are invited to contact the EIA to obtain
further information (see Annex 3).