Big difference between perception and reality of Ethiopian market

“Ethiopia struggles with a significant gap between perception and reality.”

Gabriel Schulze

So said Gabriel Schulze, CEO of private equity firm Schulze Global Investments (SGI), at this week’s Ethiopia Investment Summit in Addis Ababa. SGI is a family business and mostly invests its own money. The firm opened its Ethiopian office four years ago.

Schulze told the story of how relatively recently one of the company’s guests from the US brought his own food to Ethiopia because he thought there was starvation in the country. Another visitor apparently left his watch at home because he was afraid that it was going to get stolen in Ethiopia.

Over the past years Ethiopia has been one of the world’s fastest growing economies. With a population of around 84 million, it is Africa’s second most populous country.

“We saw the market, and we said, ‘You know what? The reality is actually quite interesting’. And we put money where our mouth is. So we set up an office four years ago, we built a professional team of investment gurus … and we actually started looking for Ethiopian companies that we could invest in. Not foreign companies, [but] Ethiopian companies run by Ethiopian entrepreneurs,” Schulze noted.

SGI takes minority stakes in companies, with a maximum shareholding of 40%. It has so far invested in four Ethiopian businesses.

Challenges remain

China-based SGI has investments in numerous emerging markets, but according to Schulze, Ethiopia is “the most dynamic and exciting place where we have a team on the ground today … There is more energy and more life here.”

He described Ethiopia as a complex market. “You can’t just rush in, rush out and think you are going to figure it out. You got to invest time and energy to be on the ground and understand the people.”

“The Ethiopian people themselves are an incredibly entrepreneurial, hard working and talented group of folks who have been stuck in a rather difficult corner of the world through difficult times for many generations, but are now emerging to take their rightful place on the continent,” Schulze added.

Despite Ethiopia’s strong economic growth, the country is still likely to present many challenges to investors. “This is not a perfect place. One thing that drives me crazy is people walking around trying to find heaven on earth … You have to take things into perspective and realise that you are not going to find a place that is perfect. Africa has a lot of countries with very interesting opportunities, and a lot of problems at the same time. Ethiopia is not immune from problems,” said Schulze.

He noted one of the biggest hurdles in Ethiopia is human capital, especially for management positions.

Schulze also said that although Ethiopia has some of the lowest levels of corruption on the continent, the problem has not completely been stamped out. “The reality is this is one of the least corrupt countries in Africa … And that is an incredible thing. Now stop focusing on the fact that there are still people out there that aren’t quite perfect, and let’s focus on the fact that this place does provide a very interesting conducive environment vis-à-vis its competitors.”

Ethiopia’s first private equity fund

During his presentation Schulze also announced that SGI will launch and manage Ethiopia first private equity fund – a $100 million fund devoted exclusively to investment in Ethiopian companies.

“We … were approached by investors last year, who said, ‘Wouldn’t you please set up a fund?’… A few people have begun to see what is happening in Ethiopia … We as a family are putting $10 million into that fund … And I’m not clinically insane. This is actually a place where you can make that money work. We have a lot of money, we are blessed as a family, but we are not crazy enough to just throw money away.”