Do you want to invest in Ethiopia? You’re not alone. In 2019, Foreign Direct Investment stocks were valued at 25 billion USD.
Even though foreign investment dropped slightly in 2019 due to ethnic conflict, Ethiopia still receives more foreign investment than anywhere else in East Africa.
I have been doing business and investment in Ethiopia (specialized in tech, agribusiness, and tourism) for almost a decade. While the rules and information to invest in Ethiopia that you read online are technically correct, they lack the real feel and reality of actually doing business here.
That’s why I put together my top 21 tips and insights to invest in Ethiopia in 2021.
Invest in Ethiopia
1) All the benefits of investing in Ethiopia
There are a lot of great reasons to invest in Ethiopia– otherwise, I wouldn’t have stayed here for so long.
Here are just a few:
*Competitive labor prices (more on this later)
*100 million+ people (there are always people you can hire, and always people you can sell to)
*Invest incentives (more on this later)
*Natural resources (mining, gold, fertile farming land, etc.)
*One of the fastest-growing economies in the world (averaging 10% growth in the past decade)
Great Country (overall Ethiopia has great weather, tasty food, a lovely culture, and super kind people)
2) Who is Investing in Ethiopia?
International companies around the world are beginning to flock to Ethiopia.
In the apparel industry, all the big names are in Ethiopia including Guess, Levi’s, H&M, and Gerber are here.
I find it a bit interesting since they are using local cotton because, during my meeting with IKEA who just opened an office in Addis, they said that even the lowest grade cotton in Ethiopia doesn’t meet their standards. So, I’m not sure who is right on the quality standards. But either way, it still looks to be great potential here.
Heineken, Pizza Hut, and Cold Stone Creamery represent some of the few, but sure to grow, rising international food and drink brands.
Dangote, present only in 10 African countries, has a large presence in Ethiopia.
The hotel sector is rising quickly. This includes international brands like the Hilton, Sheraton, Hyatt Regency, Best Western Plus, and Ramada. They are now entering secondary cities in the country.
And of course, more and more Chinese companies are springing up everyday.
If you are wondering if you are late to the party, you are. But it hasn’t even come close to peaking yet, so now is a great time to invest in Ethiopia.
3) Low-Cost Labor
Labor is very affordable in Ethiopia, and it’s one of the main reasons why large companies are shifting away from Asian countries and coming into Africa.
There is no minimum wage for private companies. Which is why some large American companies pay less than $1USD per day.
However, here is a list of average salaries in Ethiopia per sector:
General Labor for 5 1/2 days a week (factory workers, supermarket employees, cashiers, and anyone else without formal education)= 2000 birr per month ($52 USD)
Jr. Programmer fresh out of university= 5000 birr per month ($131 USD)
Sr. Programmer with 5+ years of experience= 25,000-40,000 birr per month ($656-$1050 USD)
Managers with 5+ years experience in their industry=30,000-40,000 birr per month ($797 USD-$1050)
I have heard of some high-level experts, working at international NGO’s, getting paid as much as 60,000 to 80,000 birr ($1575-2100 USD), but that is quite rare and represents only 1% of the companies in Ethiopia.
Most companies pay between 2000-5000 birr, with a few head managers earning 40,000 birr.
4) Government Crackdown on Illegal Businesses
Not too long ago, I was at a meeting when two potential “investors” were complaining about how new regulations were making it hard to bring illegal money in and out of Ethiopia.
I laughed– thinking yes that’s the point. (And as soon as I realized the true intent of these men, I stopped speaking to them and did absolutely zero work with them).
However, I found it really encouraging to hear that even people with the worst of motives were finding it hard to do anything but good, solid business here. A sure sign that things are improving.
Now of course, it’s not perfect. Not too long ago, a business man was sentenced to jail for being caught participating in corruption by the anti-corruption task force. He then promptly paid a bribe to the anti-corruption task force, and was let off.
In general, however, things are improving, and Ethiopia is becoming a safer and reliable country to do business.
5) Ethnic Conflict in Ethiopia
Unfortunately, Ethiopia is currently experiencing ethnic conflict which is not only devastating to the people, but also to the business climate.
For the most part, business is carrying on as usual. I regularly meet with business owners and they are still moving forward with new investments.
However, until the conflict is resolved, it’s important to invest in areas within the country that are more stable. Addis Ababa will continue, like always, to also be the most secure spot.
6) Tourism Resorts
Despite the damage done to the travel industry by COVID-19, hotels and resorts continue to be a growing investment opportunity.
I regularly help connect investors to different hotel opportunities. Most decent local hotels in Addis Ababa are selling between $5-7 million USD.
The average small resort in many tourist towns can bring in a minimum of $850,000 USD in revenue (almost half of that is profit) per year and will sell around $3.25 million USD.
Most of the new resort investors I have met with are pursuing the luxury glamping accommodation found in safari lodges in South Africa and Kenya.
Because Ethiopia is so geographically, historically, and culturally unique compared to its neighbors, tourism will continue to rise.
7) Main Exports of Ethiopia
From the start of Ethiopia’s budget year (July) to October 2020, the country earned $1.1 billion during this four-month period.
Needless to say, exporting is on the rise.
Ethiopia’s top exports include coffee, tea, oilseeds (some of the best sesame seeds in the world are grown here), fresh-cut flowers, knit accessories, clothing, gems, and vegetables.
Opal exports are especially promising since it is one of the only African countries that has opal, and they are much cheaper and have more color variations than Australia (currently the world leader).
Coffee is of course synonymous with Ethiopia, and more and more companies, like Moyee, are beginning to roast the coffee before exporting it.
I am seeing more and more companies build facilities (or relocate here from abroad) to do more value-creation instead of exporting raw material only (which with labor prices, export incentives, and investment incentives, makes a lot of financial sense).
8) Tech Outsourcing
I am most excited about tech outsourcing. There are so many great companies in Addis Ababa that are handling the tech needs of some of the biggest companies in the world such as McDonald’s, Altour, Facebook, and more.
MMCY Tech, for example, has an office in Ethiopia which provides Cvent Support, Telemarketing, and Level 1 Helpdesk Support. (Okay, I’m biased because they hired me to help them do a bit of marketing, but truly, they are an A+ company).
Other companies are doing software development for large banks in the US, and Gebeya will connect you to software developers skilled at AI, Agritech, and more.
My suggestion is that you create a partnership with a company you trust instead of opening your own branch.
Even Ethiopian Diaspora, who would have more knowledge than most foreign investors on doing business here, still often choose a partnership because they know that doing business here is time-consuming and challenging.
(If you’re more interested in bringing your tech application to Ethiopia, then learn how to sell your software in Africa.)
9) Tax is extremely challenging
The tax authority, Ethiopian Revenue & Customs Authority (ERCA), is notorious for being one of the worst agencies in the country.
The level of corruption, bribes, and injustice are horrible.
I know someone who has a copy of a signed and a stamped statement from ERCA saying they already paid their 300,000 birr in taxes. ERCA said they couldn’t find their copy of the document and my friend is now expected to pay again.
It doesn’t matter whether you are a big or small company, ERCA will be a challenge for you. You truly need to plan and set aside extra money to pay bullsh*t fines they will give you.
Now, in all fairness, they are making tiny, tiny steps forward. For example, instead of paying monthly, you can do it quarterly. A small, but sure sign that they are becoming more conscious of making paying taxes easier.
But know that if your investment is based here, you will need an amazing accountant.
Also, depending on the structure of your investment, you may be able to make more money in foreign currency and deal with your own home country, which will no doubt have a better system then Ethiopia to minimize your legal taxes here.
10) Minimum Foreign Investment in Ethiopia
If all of this doesn’t scare you off, then you can begin to look at the required minimum investments. $200,000 USD- Required minimum investment as a foreign investor
$150,000 USD- Required minimum investment if you have an Ethiopian partner
$100,000 USD- Required minimum investment as a foreign investor if you are doing engineering, architecture, or technical consultancy
$50,000 USD- Required minimum investment as a foreign investor with an Ethiopian partner doing engineering, architecture, or technical consultancy.
I always recommend a local partner, if you know and trust them, because they will have so much knowledge and experience dealing with the quirks of business here.
If you cannot afford the minimum investment or want to establish a MVP first, you could form an exclusive partnership with a local company. If it’s an export product, you would make your money by buying from the local company and selling at a higher price to your buyers.
11) Ethiopian Investor Incentives
If you do choose to invest formally in Ethiopia, there are many incentives.
It depends on your industry, but most likely you will receive: Tax exemption for 5-14 years
*Duty free imports
*Duty free exports
*Ability to export to USA and Europe without paying tax on their end
*The right to hire foreigners
*The right to take your foreign currency out of the country
On top of that, there is a heap of programs that will give you market linkage and other support.
13) Ease of Doing Business in Ethiopia
The World Bank publishes an “Ease of Doing Business Report” each year. Last year, Ethiopia ranked #159 out of 190 countries.
That’s not encouraging. Especially because the only countries that rank worse than Ethiopia are ones like Yemen, Venezuela, and Somalia which came in last.
Now to be fair, that score is an average of several factors. This means that in terms of enforcing contracts, Ethiopia ranked #67 worldwide. But that also means it ranked worse in other areas. In fact, Ethiopia ranked #189 in protecting minority investors. Somalia is the only country in the world that ranks lower than that.
Despite all this, there are million and billion dollar companies in Ethiopia. Proving that it is very possible to succeed. But you will need resilience, patient, and smart strategy.
14) Getting Easier to Export from Ethiopia
One thing I really appreciate about investment in Ethiopia is that the policies are continuing to improve. Not quickly. But it is always moving in the right direction.
For example, a new rule is allowing exporters and others who receive regular foreign currency to open a foreign exchange retention account.
Before, exporters would sell grains, seeds, and produce from farmers at below-market rates (usually at a loss) The farmers would get practically nothing. Ethiopia’s reputation was sinking because of this. And the money generated from agribusiness was not going back into the land to actually make farming better.
Plus the exporters would use the foreign money they received to help their real business which was usually importing luxury items like big-screen TVs, phones, and computers, which 99% of the population can barely afford.
Not to get too technical, but the new law actually helps incentivize proper exporters, puts more money into the hands of farmers, and better manager gives foreign exchange in many sectors.
This is just one of many examples of investment in Ethiopia heading the right way.
15) Patience. Patience. Patience.
One thing that has not changed in the last 10 years I have lived here is the overarching patience you need to invest in Ethiopia.
Things take much longer than you expect.
I have a partner company whose manufacturing facility is over 2 years delayed.
I have a friend who has been waiting for more than a year for the government to pay him for his service.
And any person who told you he will get back to you in a week from now, will probably get back to you next month.
That’s just how it is. It always happens. You will get paid. The building will go up. Your equipment will arrive. But not on time.
This means you need to plan on delays and watch your cash flow.
16) Ethiopia is the Hub of Africa
Ethiopia is often called the hub or capital of Africa.
This is partly because the African Union is here. This means that Africans from every country are here to help make policies and programs for the continent. It also means most embassies are double the size because they have an entire program devoted to supporting the African Union.
The United Nations Economic Commission for Africa HQ is in Addis Ababa.
And of course, Ethiopian Airlines is the biggest airline provider on the continent.
All of this, plus Ethiopia’s convenient location nearer to Europe, Middle East, and Asia, make the country by default, a natural hub.
This helps your investments in Ethiopia simply because you will have more resources and much more exposure than doing business in another African country.
17) Finding an Investment Partner in Ethiopia
I keep mentioning this, but it’s so key.
Finding a partner to invest in Ethiopia is by far the best strategy. It reduces your minimum investment, will help you work faster, and make smarter more contextual decisions.
But you need to be seriously careful.
I know a couple who invested in a new restaurant in Addis Ababa. They trusted the Ethiopian partner they had found and put the bank account in his name. Once money stockpiled there, the partner took the money and ran.
That’s why it’s imperative that you find an Ethiopian lawyer to ensure your investment is set up securely.
18. Work with a Consultant
Unless you were born in Ethiopia or have spent significant time here, I highly recommend hiring a consultant to review your investment strategy. It doesn’t matter how much research you have done on the internet, things are different than they seem.
I regularly advise investment ideas and setups in Ethiopia. And if I can’t help, I can usually point you to someone who can.
But whether you contact me or a friend you have in Addis Ababa, I would definitely get on-the-ground feedback before beginning.
19. Power and Internet in Ehtiopia
Despite it being almost 2021, power and internet in Ethiopia are not guaranteed.
Even getting connected to the grid and getting a transformer for a new facility can take a couple of years.
That’s why you will need a backup power source. I recommend an inverter or solar panels over a generator. First, because in the long run you’ll save more money since you won’t have to pay for fuel. Fuel lines are also long and often there are shortages which means it’s not a reliable backup. Also, generators are not eco-friendly.
Modern Eth is a great local company that sells renewable energy products, and their service is very professional and reliable.
Regarding internet, it’s important to realize that the government often shuts off internet country-wide when there are protests. We went almost 3 weeks without internet in July 2020.
Therefore, if you are doing tech outsourcing, especially inbound support like Level 1 Help Desk, you will need a backup team stationed outside of Ethiopia for emergencies.
20. Other Challenges of Business in Ethiopia
A few other challenges to invest in Ethiopia is that it’s a landlocked country. This means exporting and importing suffer a bit. The country does have a deal with Djibouti, but most people find it cheaper to ship from China to Djibouti, than from Djibouti to Ethiopia.
Also, like so many people will tell you, foreign currency is a big problem.
A foreign investor, especially someone in the export industry or other foreign-currency earner, is entitled to the currency of their choice. But you have to apply for it and actively seek to get it out.
The inflation rate in Ethiopia is also a major issue, and the currency is regularly losing its value. In 2014, 18 birr equaled 1 USD. Today, at the end of 2020, 37 birr equals 1 USD, and by the time you read this, it will probably have changed even more.
Despite all of these challenges and more, people continue to invest in Ethiopia and earn sizeable returns as well as a great impact driving Ethiopia into a lower middle-income generator by 2025.
21. In summary…
In today’s age, you won’t find what you can get in Ethiopia anywhere else. With competitive labor wages, rich resources, and business incentives, investing in Ethiopia is really one of the best ways to profit.
And despite all the political tension occurring now, I have no doubt in my mind that Ethiopia will continue to be a great place to invest in 2021.