In 2013, east Africa-focused private equity firm Catalyst Principal Partners acquired a 50% stake in Ethiopia’s Yes Brands Food & Beverages, which produces the leading bottled water brand in the country. Speaking on a panel at a conference in Nairobi alongside other private equity and investment firm executives who have recently done deals in Ethiopia, Rajal Upadhyaya, Catalyst’s managing director, said that the business is going “exceptionally well”.

“There is a strong demand. It is one of the first businesses I have been to where the constant problem they face is production-related. They can’t make enough to supply the market,” explained Upadhyaya.

Private equity activity has increased in east Africa in the last decade, with more and more funds backing local businesses and setting up shop in the region, including in Ethiopia. Recent years have seen investments in various sectors, including fast-moving consumer goods (FMCG), pharmaceuticals and agriculture.

Global venture fund Acumen, which in Ethiopia focuses only on agriculture, has invested in Mekelle Farms, the country’s largest producer of day-old chicks. “We believe there are a lot of opportunities… in other value chains, for example coffee, bamboo, animal feeds. We feel there is so much [in agriculture] which will keep us busy for the next few years before we venture into other sectors,” says Duncan Onyango, Acumen Fund’s director of east Africa.

Speaking on the panel with Upadhyaya, Onyango said the poultry business is performing beyond Acumen’s expectations. Other panelists were upbeat about the availability of investment opportunities in Ethiopia.

“We have done a healthcare investment which I think is an amazing opportunity,” said Lucas Kranck, a partner at Ascent Rift Valley Fund. “In addition to that we are looking to closing two manufacturing investments. I think there is a huge opportunity where you just replace imports by making stuff locally.”

Patience required

But it’s not all smooth sailing. Kranck noted that, while his firm is interested in investing in the financial services sector, it hasn’t been able to overcome Ethiopian regulations prohibiting foreign capital participation in a number of sectors, including financial services, telecommunications, retail and media.

Another concern for investors is access to foreign currency, especially when they reach the exit stage. Mesfin Tafesse, principal attorney at Mesfin Tafesse & Associates Law Office, explained that foreign exchange is “very highly regulated” in Ethiopia. Guarantees in the law enable investors to repatriate their earnings, but the process takes a long time.

“This is not day trading,” said Kranck. “In my previous job I got US$100m out. So it can be done, but you just have to follow the rules, be very polite and wait a little a bit. It can take two or three months.”

However, Upadhyaya said there are some positive aspects to Ethiopia’s centralised regime and the strict forex control. “The benefit is its more dependable exchange rate. Unlike what happened in the rest of east Africa last year, the Ethiopian birr devaluation was more stable so you can plan for that. Also when it comes to decision-making, we find when you speak to the right levels within the Ethiopian government there is a lot of support for investments. And when decisions are made they are implemented relatively quickly.”

Tafesse assured investors that there have also been steady improvements in Ethiopia’s court system.

Strategic investors an opportunity for exits

Ethiopia does not have a stock exchange. However, private equity fund bosses say that when it comes to exiting their investments, there are a number of other avenues available.

“There is a lot of appetite for Ethiopian investments from strategic players,” Upadhyaya explained. “You have got a lot of multinational companies that are very keen on entering the Ethiopian market. I expect that will be our preferred exit route for a lot of our investments there. There is obviously also strong interest from other private equity players or financial investors, so there maybe secondary transactions there as well. But I expect majority of exits should be to strategic buyers.”

Despite the growth of private equity deal activity in Ethiopia, Onyango says there are still plenty of opportunities for new players interested in the market. “It’s a huge market. It is growing fast. And there are even more opportunities as more sectors become liberal,” he said.

When sourcing for deals in the country, Upadhyaya noted one has to spend a lot of time on the ground. “Even more so than the rest of east Africa, I think relationships are critical in Ethiopia.”