Doing Business in Ethiopia

1. Doing Business in Ethiopia Economic / Commercial Section Embassy of the United States of America Addis Ababa, Ethiopia February 2009 Fassil Yilma Commercial Specialist

2. Outline of Presentation • Market overview • Market Challenges • Market Opportunities • Market Entry Strategies • Conclusion

3. 1. Market Overview • Area: 1.1 million sq. km (472,000 sq. m.); about the size of Texas, Oklahoma, and New Mexico combined;

4. Market ..cont’d • After 1993 Ethiopia became landlocked; • Population: 77 million; • Rural population is 84 % while 14 % reside in urban areas; • The political environment is fairly stable despite border disputes with Eritrea and the volatile situation in the Ethiopia Somali region; • Elections take place every 5 years- the next one is coming up in 2010 • Controversial and very restrictive laws passed in the past one year (on media, CSO’s and banking) ; • Ethiopia is an agrarian economy ; • Ag sector contributes 46% to GDP; • Over 80% of the labor force is engaged • Over 60% of export earnings is generated.

5. Market ..cont’d • Real GDP for 2007/08 is $22.9 billion. Real GDP growth was double digits in the past few years, although official growth figures of 11.5% in recent years are inflated; • Unlike historical records, inflation has risen dramatically in recent years ( headline inflation is about 40%); • Significant and widening trade deficit in recent years has resulted in a foreign exchange crisis: • Value of exports $1.5 billion in 2007/08, • Value of imports $6.8 billion in 2007/08, • Forex reserves are currently estimated to cover only four weeks of imports; • Major exports : coffee, oil seeds, leather and leather products, Khat, cut flower, gold, fruits and vegetables, and live animals; • In 2007/08 ,coffee generated $525 million (35%), oil seeds $219 million (15%), pulses $144 million (9.8%), cut flower $111 million ( 7.6%) , khat $108 million (7.4% ) and gold $78 million (5.3%);

6. Market ..cont’d • In 2007/08 Ethiopia imported : • capital goods worth of $1.8 billion, petroleum products $1.6 billion, consumer non-durables 1.1 billion, consumer durables $459 million, fertilizer $300 million, cereals $207 million, medical and pharmaceuticals $211 million • U.S. exports to Ethiopia : • $262 million (2007/08 estimate), 4% of Ethiopia’s total imports • Ethiopian exports to the U.S.: • $140 million (2007/08 estimate); • Ranked 116th out of 181 countries worldwide and 11th in Sub-Saharan Africa for ease of doing business . • The WB ‘s 2009 Doing Business Report ; • WTO accession process commenced in 2003. Negotiations are still underway.

7. 2. Market Challenges • Government remains heavily involved in most economic sectors. • Services and trade sectors - difficult for foreign investor to enter. • GOE controls the utilities, telecoms, and other major services. • Financial sector is blocked for foreign ownership . • Land is owned by the government and can be leased on a long term basis of up to 99 years. • Foreign exchange is an acute problem. • Lack of access to finance is a great hindrance to both foreign and local businesses.

8. Market Challenges... (cont’d) • Inadequate telecom services; • Customs clearance process: • Slow and time consuming, • Imported goods being charged at attributed values instead of invoice values. • Labor force - largely semi-skilled; • Judicial system : - remains poorly staffed, • inexperienced, particularly with respect to commercial disputes.

9. Market Challenges- cont’d • All imports must be channeled through Ethiopian nationals registered as official import or distribution agents with the ministry; • In 2008, Ethiopia ranked 126th out of 180 countries in Transparency International’s Corruption Perception Index; • Corruption (bribery) is slowly increasing, while conflict of interest corruption (cronyism) remains pervasive; • Ethiopia still is not signatory to many international WIPO Regulations ; Domestic IPR laws are enacted but with limited enforcement capacity;

10. 3. Market Opportunities • Ethiopia is well endowed with abundant agricultural resources, and vast diversity of ecological zones; • Considerable opportunities - cultivation and export of cut flowers, dried fruits, and processed vegetable products; • Ethiopia is interested in exploiting its forestry and fishing resources; • Developmental projects on construction of roads and low cost houses, hydro-electric power, telecom and tourism offer key opportunities; • Other leading export s to Ethiopia include construction machinery, vehicles and spare parts, medical equipment, fertilizer and pharmaceuticals; • Priority Sectors set by the GoE include leather , textiles, cement , and agro-processing;

11. 4. Market Entry Strategies • Majority of procurement is undertaken by GoE, political dynamics do influence decisions. • U.S. firms are strongly advised to appoint local agents to represent their products and services in Ethiopia.

12. 5. Closing Remarks • Despite the numerous and stiff market challenges in the Ethiopian market, there are still opportunities for U.S. companies. • We are ready to assist you !!! THANK YOU.