Ethiopia

Ethiopia – The Emerging Market and investment destination

Though Ethiopia is an ancient country, it is a new democracy in which its people are relentlessly struggling to improve its governance and economic development for the past twenty two years. As a result to this, Ethiopia has become one of the fastest growing economies in the world. Hence, because of the peace and security prevalent in the country as well conducive business and investment climate, Ethiopia has also become one of the most preferred destinations for Indian businesses including leather, textile, agriculture, information technology and pharmaceuticals.

Cotton Based textile industry

Ethiopia is an agriculture based economy which is why its textile industry is predominantly Cotton based. However, the Government has formulated and implemented a five year Growth and Transformation Plan (GTP) that transforms the economy into industrialization driven economy. Ethiopia has a vision of becoming a middle income country in the years during 2020 - 25.

One of the largest textile markets in Africa

Ethiopia is the second-largest populous country in Sub-Saharan Africa with a population of about 91.7 million (World Bank, 2012) which potentially makes it one of the largest textile markets in Africa. Some of the prominent industries in Ethiopia include food processing and beverages, textiles, leather, chemicals, metals processing and cement.

Ethiopia’s Textile Trade

As per latest information, Ethiopia imported USD 4750 million of textile products from world of which USD 190 million was of Man-made fibre textiles. Major suppliers of textile products to Ethiopia are China, India, Indonesia, Thailand, Germany, Turkey, etc.

Source: UN COMTRADE

Exports of Indian MMF textiles to Ethiopia

Value in USD Mn

Source: DGCI&S

Exports of Indian Man-made and blended textiles to Ethiopia are steadily increasing and during 2013-14 exports were USD 17 million recording a growth of 13% compared to the previous year. In exports yarn were the dominant products with 72% share followed by made-ups 18%, fabrics 8% and fibre 2%.

Ethiopia’s Merchandise Trade

According to the National Bank of Ethiopia in 2013, out of Ethiopia's total trade of USD 14.5 billion, imports crossed over USD 11.4 billion, while exports stood at USD 3.1 billion. China was the largest import partner for Ethiopia at over 27 per cent of the total import volumes. Other countries that had a significant share in Ethiopian imports were India at 11.1 per cent, Saudi Arabia at 8.5 per cent, Japan at 4.7 per cent and USA at 4.6 per cent.

Source: National Bank of Ethiopia

Ethiopia's major exports

Major exports from Ethiopia include coffee, oil seeds, pulses, gold, khat, flowers, pulses, leather and leather products, meat and meat products, vegetables and fruits and live animals.

Ethiopia’s main imports

The main imports of the country include capital goods, consumer goods, fuel, semi finished goods and raw materials.

As a developmental state, the Government of Ethiopia is developing its infrastructure such as road, railways and telecommunication in order to interconnect the country.  The ports are being connected through railways for an easy access and industrial zones with necessary facilities are being developed close to the main cities where road, air transport, electricity and the necessary infrastructure has already been put in place. Another area is human resource development where the Government is highly involved in providing health and education in order to maintain productive work force to the industry.

Investment Friendly Economy

Ethiopia has an investor friendly policy and the investment proclamation encourages investors by providing a package of investment incentives.  Moreover, a one-stop-shop where all the services including land clearance is given in one window is being developed for the convenience of the exporters. There are wide areas in which investors can participate and be part of this growth story of Ethiopia.

Priority Areas

Investment in agricultural products as well as value addition to the agricultural products is highly encouraged.  The priority areas in the agriculture sector are cotton, horticulture and floriculture. The Government is developing economic zones for commercialised farming while land on lease is available around main cities where the infrastructure and the necessary facilities are already in place. In the manufacturing sector the priority areas are agro-processing, textile, leather goods, pharmaceutical, chemicals, metals and information technology.

Investment Policy

A foreign investor can undertake investment as a sole proprietor or jointly with domestic investors. Capital requirement for foreign investors is USD 200,000 for a single and wholly foreign owned investment and USD 100,000 per project in areas of engineering, architecture, accounting and audit services, project studies, and consultancy services. If an investor wishes to invest jointly with local partner the capital requirement for investment in partnership will be USD 150,000 per project and USD 50,000 in areas of engineering, architecture, accounting and audit services, project studies and consultancy services. 100 per cent repatriation and remittances are granted to foreign investors in convertible foreign currency at the prevailing exchange rate on the date of remittance.

Incentives for Investment

Customs duty exemption

• 100 per cent exemption from payment of import customs duties and other taxes levied on imports to import all investment capital goods, such as plant machinery and equipment, construction materials, as well as spare parts up to 15 per cent of the value of capital goods imported.

Export Incentives

• Duty Drawback Scheme: Duty paid at the port of entry and locally on raw materials used in the production commodities is refunded 100 per cent upon exportation of the commodity processed.
• Voucher Scheme: It is a printed document to be used for recording balance of duty payable on raw materials imported for use in the production of goods for external market.
• Bonded Manufacturing Warehouse: Producers wholly engaged in exporting their products who are not eligible to use the voucher scheme and who have license that enable them to operate such warehouse.

Taxation

• Income tax exemption from 2-6 years depending on the type and area of investment.

Market Opportunities

• Second largest domestic market in Africa with about 90 million consumers,
• Proximity to the markets of the Middle East, Asia and Europe.
• Access to markets of 19 member states of COMESA, Common Market for Eastern and South Africa, with a population of over 400 million with a preferential tariff rates,
• Preferential access to European Market under EU’s everything- But-Arms (EBA) initiative,
• Preferential access to Austria, Canada, Finland, Japan, Norway, Sweden, USA and most other EU
• countries under Generalized System of Preference (GSP),
• Under the African Growth and Opportunity Act (AGOA) program, Ethiopia is entitled to duty-free U.S. market access.

Indian Investment in Ethiopia

• Total investment: USD 4.8 billion (in addition, there are pipeline investment projects)
• Number of Projects: 632 (June 2003-January 2014)
• Investment areas: Agriculture (cotton, horticulture, floriculture, bio- fuel, soya bean, edible oil crops and dairy farm); Manufacturing (garment and textile, leather and leather products, pharmaceuticals, metal, paper and printing); mining and consultancy.
• Regarding sector wise structure of investment, out of the total number of licensed projects 48 per cent are manufacturing, 22 per cent are agriculture and 13 per cent are real estate projects.

Ease of Doing Business

In the Ease of Doing Business 2013, conducted by the World Bank and International Finance Corporation (IFC), out of 185 economies across the world, Ethiopia has been ranked 124 out of the 185 economies.

Ethiopia debuts on Sovereign Credit Ratings

For the first time in Ethiopia's history, US rating agencies announced their credit rating for the country on May 9, 2014. The Government of Ethiopia (GoE) hired the three international ratings companies namely, Moody’s Investors Service, Fitch Ratings and Standard and Poor’s (SandP) to analyze and rate the sovereign default risk of the country. Moody’s gave the country’s credit worthiness a ‘B+’, while Standard and Poor’s (SandP) and Fitch Ratings gave it a ‘B’.

Opening a Branch Office of an Overseas Company

An overseas company wishing to invest through a branch office is required to submit the following documents to the Ethiopian Investment Commission:

i) A certified and notarised copy of the statutes or memorandum of association of the company;

ii) A resolution passed by the owners of the mother company, authorizing the establishment of a branch office in Ethiopia. The authorized capital of the branch, the activity to be undertaken, and the branch manager vested with the authority to become the legal representative in Ethiopia, should be indicated in the resolution;

iii) The Ethiopian Investment Commission shall, upon receipt of the above documents, issue a certificate of registration evidencing the formation of a branch of an overseas company.

India-Ethiopia Bilateral Trade in Goods

The bilateral trade between India and Ethiopia accounted to USD 1.260 billion in 2013, out of which India’s exports to Ethiopia were USD 1.224 Billion and imports were only USD 35.5 million.

Ethiopia’s major exports to India

The country’s major exports to India include pulses, semi precious stones, leather, oil seeds and spices. Pulses are the major items imported from Ethiopia, accounting 35.2 percent of India’s total imports from Ethiopia in 2013. It is followed by precious and semi precious stones at 24.5 per cent, leather at 18.3 per cent, spices at 8.7 per cent and oil seeds at 7.8 per cent.

Ethiopia’s major imports from India

The major imports from India to Ethiopia are iron and steel products, pharmaceuticals and medical supplies, transport equipment machinery and parts, paper and paper products. Iron and steel products are India’s major export items to Ethiopia, accounting for 12.9 per cent of total exports from Indi to Ethiopia followed by pharmaceuticals and medical supplies at 12.7 per cent, transport equipment at 4.9 per cent), machinery and parts at 4.4 per cent and paper products at 4.1 per cent.

Lines of Credit

Government of India has sanctioned Lines of Credit worth more than USD 1 billion to the Government of Ethiopia for sectors such as rural electrification, sugar industry and railways. Ethiopia is the largest recipient of long term concessional loan from India in the entire African region.

India Business Forum

Indian Embassy in Addis Ababa supports the India Business Forum (IBF) which focuses on promoting bilateral trade and investment between India and Ethiopia. The India Business Forum (IBF) was launched on October 30, 2005, and has organized meetings with the Presidents of the Regional states, General Managers of Banks, Director General, Ethiopian Customs Revenues Authority, Ethiopian Employers Federation, Minister of Trade, Industry and even with His Excellency Mr Meles Zenawi, Prime Minister of Ethiopia. IBF is the first foreign business community of its kind in Ethiopia and is considered a model for other foreign businesses to organize themselves on.

SRTEPC Promotional Programme

In view of growing scope for further increasing exports of Indian man-made fibre textiles to Ethiopia, the Synthetic and Rayon Textiles Export Promotion Council is organizing an exclusive Indian Textiles Exhibitions in Ethiopia and Sudan – which is also a potential market for Indian MMF textiles in African region during the 2^nd week of August 2014. The Exhibitions are being organized in association with Indian Missions in these countries and with active support of the local Trade Bodies. Through this SRTEPC initiative, its member-exporters will have the opportunity to explore these emerging and potential markets in Africa and build business contacts with buyers. Thus, the Council urges its member –companies to participate in a big way in these exhibitions and take maximum benefits of the events.