5 tips for a successful and sustainable investment in Ethiopia
Ethiopia is the second most populous country in Africa, and it has been developing rapidly.
My work as an academic at Wageningen University brings me into contact with a number of businesses in the agriculture and food (agri-food) sector in the Netherlands and Europe. I am a native of Ethiopia who has lived and worked in the Netherlands for many years.
As a person of two worlds, I get the chance to reflect on both worlds: the Netherlands and Ethiopia. Despite major challenges the country has faced and is still facing, I see a lot of opportunities for investment in the agri-food sector of Ethiopia
Recently, I volunteered for the Connecting Diaspora for Development (CD4D) program of IOM in Ethiopia, and I am now one of the program’s goodwill ambassadors. In that capacity I would like to share my ideas and expertise with Dutch companies who are interested in investing in Ethiopia or expand their existing investment.
In this first blog I summarize five tips for successful and sustainable investment which I will explore more in depth in subsequent blogs.
1. The Dutch have been leaders in innovative investment in Ethiopia
From the 60s up until the 80s, the Dutch were not only well-known because of the Philips radios and electric light bulbs (which for many town dwellers in Ethiopia constituted the two main modern technologies they had at home), they were also famous for “Wonji Sugar”, the first large scale sugar production in Ethiopia. The first large billboard I ever saw was that of Wonji Sugar — with its famous red elephant logo on a yellow background.
Dutch agri-food investment in Ethiopia has a long history. The Wonji Sugar production and sugarcane plantation was started seven decades ago by the Dutch HVA (Handelsvereniging Amsterdam).
Since this time, the next largest Dutch agri-food investment was probably the Genesis integrated farm in 2004. The farm produces vegetables, flowers, dairy products and eggs, and also serves as a demonstration and training farm for interested Ethiopians.
The Dutch growers introduced cut flower farming to Ethiopia in 2006. A substantial number of the farms are joint ventures with Ethiopian growers — a business arrangement that was relatively new for the Ethiopian business community and which contributed to knowledge transfer in the sector.
Starting from 2015, Bavaria and Heineken started to build their breweries in the country. Bavaria’s investment was supported by 8,000 Ethiopian shareholders; Heineken’s brewery became the biggest in the country, and according to a recent publication of World Bank’s IFC, involves around 30,000 smallholder farmers — yet another business innovation that was largely unfamiliar to Ethiopian businesses.
The Dutch investment mentioned above match with the periods of the highest FDI (Foreign Direct Investment) inflows to Ethiopia indicating the significance of Dutch investment for Ethiopia. The obvious lessons from these are that nearly all agri-food sectors are profitable, the Dutch investments in Ethiopia have been innovative and profitable, and the investments made significant and meaningful contributions to Ethiopian farmers, business community and the society at large.
2. Focus on the new metropolitan areas
Much of the investment in Ethiopia, foreign and local, targets consumers in and around Addis Ababa or foreign markets that are accessible by air.
However, other cities, which the country’s main business journal Capital Ethiopia refers to as “Cheetah Cities”, are growing fast.
Metropolitan areas are arising around Bahir Dar/Gondar, Dessie/Kombolcha, and Adama/Bishoftu, etc. These new metropolitan areas have large populations and are well connected to local and foreign markets through international airports or the national railway network.
Lifestyle is also rapidly changing in the rising metropolitan areas. Incomes are rising, households increasingly want to shop in supermarkets, and consumers demand easy to use food products.
Compared to Addis Ababa, there is a shortage of nearly all convenience products providing investors opportunities to capture market share without major competition. HVA was the pioneer in capitalizing on such an opportunity, and nearly all Dutch agri-food investors benefitted substantially from early market entry.
3. Work with local investment clubs and societies
Ethiopians realize that the key to improving their livelihood is to invest. Until recently, private investment in property has been the main and the easiest investment opportunity people had.
However, people are discovering new ways of investing. Their traditional neighbourhood organisations and saving-and-credit societies (such as edir and equb) are increasingly becoming vehicles for investing in diverse production activities.
The next breakthrough for investors will probably be working together with local investment clubs and societies, who attach great importance to making the most out of their savings and will ensure that their joint ventures succeed.
The Dutch beer brewers have proven the value of working with local farmer shareholders who generally have low income and have less influence. City-based investment clubs will bring with them a kind of social capital that farmers cooperatives do not possess.
4. Use the knowledge and expertise of the Ethiopian diaspora
When I started my professional life two decades ago, there were very few (naturalised) Ethiopians working in the Netherlands. Now there are many first and second generation “Ethiopians” working in diverse sectors of the Dutch economy.
In the past, one of the major obstacles for investment in Ethiopia has been the lack of interface between foreign investors and Ethiopians. It is not always easy to deal with the authorities, market actors, and the workforce. Now, there are many diaspora professionals, some of whom run their own businesses, that can bridge this gap.
The Ethiopian diaspora has facilitated trade and investment in engineering, poultry, feed and other investment. Holland Car PLC was one such exemplary case. Increasingly, Dutch export to Ethiopia is being facilitated and mediated by Ethiopian diaspora in the Netherlands who work as agents, business consultants or offer their local knowledge as good citizens and academicians.
These immigrant professionals can help bridge the cultural, language and bureaucratic barriers at various levels. These boundary spanners are increasing in numbers which means that there is a large pool of potential associates to choose from.
5. Work with local universities
Ethiopia has 10 regional and 2 city states, and most of them host a number of universities.
In Ethiopia, the largest government budget is assigned to education and universities have relatively large budgets allocated to them. They have major influence in their localities in many ways. Universities are very keen on facilitating and encouraging investment.
Members of universities are generally more exposed to the outside world and understand the importance of investment and trade much better than others within their environment. By the nature of their work, they are open to new ideas.
Universities can help investigate the market, identify sourcing and production alternatives, and help address barriers. Foreign investors are not yet capitalizing on this opportunity, but they should.
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I hope to have given you some insight that could be of help when you are thinking of investing in Ethiopia. In follow-up blogs, I will share more personal insights about each topic.
