As I sit on the plane from Addis Ababa to London, I am gathering my thoughts and impressions of Ethiopia. My trip made me realise just how complex a place it is. Ethiopia is different. Or at least, that’s what everybody keeps telling me. “The first mistake foreign businesses make, is to think that Ethiopia is part of East Africa. Ethiopians are not really Africans, nor are they Arab,” a leading distributor for the healthcare industry told me.
Ethiopians count time differently. It is currently the year 2006. Midnight is 6pm according to “Habesha time”. Unlike its neighbours, Ethiopia has long been closed to foreign exposure. It was famously never colonised, if one ignores the five years of Italian rule in the 1930s and 1940s – enough to introduce pasta to the national cuisine. From 1974-1991, Ethiopia was under communist influence. Today, Ethiopia is only at the very beginning of opening up to the world.
Yes, Addis Ababa has been the capital of international diplomacy in Africa since the early 2000s. Home to the African Union (AU) headquarters and other international organisations, the city also hosts diplomats from around the world in its swanky hotels and remarkable Chinese-built AU building. Diplomats are easily spotted – they drive big cars and wear expensive suits.
It seems odd. The majority of the population earns about US$60 per month and cars have a 240% import duty. The result is a stark contrast between rich and poor, diplomat and local. Most shops sell cheap Chinese imports or second-hand clothing. As a result, you can find the odd Ethiopian walking around in a Marks and Spencer shop assistant jacket. Russian Ladas from the socialist area, today widely used as taxis, contrast with the diplomats’ 4x4s. The high import duty means that cars, no matter how old, appreciate in price.
However, not all Ethiopians have low income levels. The number of dollar millionaires rose from 1,300 in 2007 to 2,700 people last year. GDP grew by 7.1% in 2013 and the government is implementing reforms to improve the operating environment. Ethiopia is therefore increasingly attractive for multinationals that want to tap into a large population estimated at around 90m people.
This population figure is nonetheless misleading. Local distributors in the fast moving consumer goods sector keep telling me that, “the addressable market is more like 10m when you count the people living in cities”. Some argue that the addressable market is even smaller. Contrary to other African countries, urbanisation is not very pronounced in Ethiopia as about 85% of its citizens live in rural areas. Despite low urbanisation, consumer goods companies present in the market are experiencing dramatic growth rates of between 20%-50%. It seems that growth, while from a low base, is happening fast.
I have come to see that doing business in Ethiopia is a long-term game. Companies must understand it will take time for income levels, and consequently consumption, to grow. It will take time for the government to build the required infrastructure to connect rural to urban areas, so that the addressable market will approach 90m and not 10m people.
The government’s main objective is to transform Ethiopia first and foremost into an export market before it becomes a consumer market. Industrialisation, job creation and poverty reduction are also major priorities – and indeed, it has already made major strides in reducing poverty. The government also wants to tackle the recurrent problem of forex shortages, which is only possible by having more US dollars come in through exports rather than by importing more. For example, the high import duty on cars has been implemented because the country spends a large amount of its export earnings on importing fuel. The government wants to change this trend.