Addis Ababa, Ethiopia. Picture: ISTOCK
Addis Ababa, Ethiopia. Picture: ISTOCK

Ethiopia, Africa’s second-most-populous country and the continent’s fastest growing economy, is inviting big business to cash in.

For so long a closed shop, on Tuesday, the Horn of Africa nation invited foreign investors to buy stakes in state-owned telecoms, shipping, power-generation and aviation companies, a rare opportunity to access such a large market. The bonanza will extend to railways, sugar mills and industrial parks, with the top brass of the ruling party embarking on long-awaited market reforms.

The move continues a breakneck push led by new Prime Minister Abiy Ahmed, who took office two months ago. As well as green-lighting the liberalisation of state companies, he’s taken steps to reduce the role of the military in the economy, agreed to the terms of a long-disputed peace deal with neighbouring Eritrea, and lifted a state of emergency that followed the snap resignation of his predecessor, Hailemariam Desalegn.

"Ethiopia’s market size speaks for itself," Jacques Nel, an analyst at NKC Africa Economics, said by phone from SA. "And the sentiment surrounding the country’s political environment has improved considerably with the appointment of Abiy. They want to signal to the world that this is a new Ethiopia."

Market liberalisation

The process was started by Hailemariam, who proposed partial market liberalisation to the ruling coalition’s 36-member politburo last year. Most of Ethiopia’s private businesses were nationalised in the 1980s under the former Communist Derg regime. That government was toppled by the Ethiopian People’s Revolutionary Democratic Front (EPRDF), a party with Marxist roots that has shifted toward a market-based economy since it came to power in 1991.

Reforms introduced by the EPRDF, along with investment in infrastructure projects such as the $6.4bn Grand Ethiopian Renaissance Dam, helped the economy grow faster than any other in Africa over the past decade. It’s expected to do that again this year, according to the International Monetary Fund (IMF), which forecasts growth of 8.5%.

"Poised with new dynamic leadership, economic liberalisation, mega-infrastructure projects, near double-digit growth, and attractive demographics, Ethiopia may well be Africa’s sleeping giant for foreign investors," Philippe de Pontet, a senior fellow at DaMina Advisors, said in a note.

Ethiopia is an attractive telecoms market and both MTN and Vodacom are likely to consider entering if a viable opportunity opens up.
Peter Takaendesa, money manager at Mergence Investment Managers

Investor deterrents

Deterrents to potential investors lie in the long-running threat that led to Hailemariam’s resignation: sporadic unrest against authoritarian rule and inter-communal violence. And the government has made it clear that investors won’t be able to take a majority stake, leaving them open to the vagaries of the state, while the banking sector remains firmly shut. At about $80bn, the economy is the second-largest in Sub-Saharan Africa not to have a stock exchange after Angola.

"It’s still a difficult place to do business in," Nel said. "Foreign investors won’t be able to independently make their decisions — they’ll have to always consider the government’s longer term development strategies. There won’t be that much freedom."

As for the companies made available for investment, Ethiopian Telecommunications Corporation is the most intriguing. The business dominates a phone market that’s long been coveted by MTN and Vodacom, Africa’s biggest wireless operators by sales and value, respectively. With about 60-million mobile and fixed-line subscribers, Ethio Telecom is roughly the size of MTN’s unit in Nigeria, its biggest business. However, it’s market penetration is far lower, analysts say.

‘Attractive market’

"Ethiopia is an attractive telecoms market and both MTN and Vodacom are likely to consider entering if a viable opportunity opens up," Peter Takaendesa, a money manager at Mergence Investment Managers in Cape Town, said by phone. Spokespeople for both companies said Ethiopia’s more than 100-million people represent a good opportunity for growth and they’re interested to hear details of the government’s offer.

Ethiopian Airlines Enterprise is by far the most successful carrier on the continent, turning a profit and linking almost 70 global cities outside Africa with about 60 across the continent from its hub in Addis Ababa, Ethiopia’s capital. However, unlike fellow state-owned South African Airways (SAA), it’s not in desperate need of investment.

The airline generates business from Ethiopia’s burgeoning flower-export business as well as from travelers, and plans to buy new regional jets in the next month or so, CEP Tewolde GebreMariam said last month.

‘Highly rated’

"The airline may be state owned but it rates highly in terms of customer service, an innovative strategy and its reputation within the industry," said John Strickland, a director at JLS Consulting in London. "Foreign investment could strengthen it further and take the pressure of the government shareholder. But I’m not sure if this the right time."

Among potential bidders, Abu Dhabi-based Etihad Airways is pulling back from overseas investments amid mounting losses and insolvency filings at Air Berlin and Alitalia, while Dubai-based Emirates would have to ditch a strategy of focusing solely on organic growth to make an offer, Strickland said.

Discussing the policy shift after his own company was put up for part-sale, Ethiopian Logistics & Shipping Services Enterprise CEO Roba Megerssa Akawak said the reforms are intended to "really serve the economy." "I see it as an opportunity. For us to be competitive in the global market for transport logistics services, efficiency can only be achieved through introducing best practices, management practices, systems and facilities."

Bloomberg