# Presentation: 600934

## Doing Business in Ethiopia

- Economic / Commercial Section
- Embassy of the United States of America
- Addis Ababa, Ethiopia
- February  2009
- 						Fassil Yilma
- 					Commercial Specialist

**Notes:**
DOING BUSINESS WITH THE US SEMINAR
I would like to focus on three principal areas: 1) provide an overview of the US Market, 2) discuss the US-Ethiopian Trade Relationship, and 3) describe how the Commercial Section can help to facilitate US-Ethiopian business partnerships.
One message that I have for companies is that while the U.S. government has tools to help you, as businessmen and women you must take the initiative.  This means you must do your own business development: such as identifying your resources and determining market needs and trends. 

I) Overview of the US Market
The U.S. is the world's largest and most diverse market-oriented economy.  Its technical and business service sectors rank second to none. U.S firms are at or near the forefront in most technological advances, especially computers, telecommunications, other IT, medical, aerospace, and defense-related equipment.
U.S firms generally enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in adjusting rapidly to new conditions (e.g., decisions to expand capital plants, lay off surplus workers, develop new products, etc.)
Some general statistics: 

	Gross Domestic Product (GDP) (2004): $11 trillion
 	Population: 295,421,349 (Feb 2005 est)
	Exports (2005): $904 billion, increase of almost 11% from 2004
	Imports (2005): $1,6 trillion, increase of almost 14% 
•Major Exports: Capital goods, aircraft, automobiles, industrial supplies, raw materials, consumer goods, and agricultural products
•Major Imports: Crude oil and refined petroleum products, machinery, automobiles, consumer goods, industrial raw materials, foods and beverages
•Major Trading Partners: Canada, Japan, European Union, Mexico
Leading Sectors: 

 Services:  advertising; accounting & management consulting services; architectural, construction & engineering services; computer & data processing 
Industry: Petroleum, steel, automobiles, aerospace, telecommunications, medical equipment, chemicals, electronics, food processing, consumer goods, lumber and mining industries. 
Agricultural and food products:  wheat, corn, other grains, fruits, vegetables, cotton, beef, pork, poultry, dairy products, fish, and forest products. 
II:  What does this mean in the US-Ethiopian context? 
Ethiopia has been among the top ten US markets in Sub-Saharan Africa over the last several years. Ethiopia’s large population, combined with strong economic growth mean that Ethiopia is potentially one of the largest domestic markets in Africa.  There is increased interest from US companies in a variety of sectors. 
In 2005, Ethiopia’s exports to the United States totaled over $61 million, an increase of 50% from 2004; U.S. exports to Ethiopia in 2005 totaled approximately $515 million, an increase of over 12% from last year.   
The US Government has identified several key sectors for potential US trade and investment. These include: Aviation, Road Construction, Telecommunications,  Hydro-Electric Power, Tourism, Airport Equipment, Trucks, vehicles and spare parts,  and medical equipment and pharmaceuticals. 
Leading US Exports to Ethiopia: Ethiopia’s main imports from the US include: aircraft and parts, cereals, motor vehicles, pharmaceutical and medical products, various types of machinery and equipment, agricultural and industrial chemicals, fertilizers, and irrigation equipment.    
Leading Ethiopian Exports to the US:  Ethiopia’s main exports to the US include: oil seeds and other grains, seeds and fruits; coffee;  and apparel products.   In 2005, Ethiopia also saw a significant increase in exports of works of art and antiques (over $5 million). 
III. How we can help 
While our primary mission is to assist US companies—by providing information (market, companies), advocacy, and promotion, trade is a two-way street:  so, for example, when a US firm is looking for an agent, partner or distributor, we come to you.   
What we can/cannot do:
What we CANNOT DO: tell a US company that they should invest in Ethiopia or work with a specific company, intervene directly in disputes between private companies. 
We CAN help facilitate contacts, inform US companies of opportunities, help provide you with information on US companies and the US market.  We can also provide information on US Government programs.  I’ll mention a few of these shortly.

I would like to highlight several of these programs that can help you locate a US partner.  But, as I said in the beginning, your success in establishing a partnership with a US company will in large part depend on your initiative and planning. 

Locating a U.S. business partner
The Commercial Service in Nairobi helps American firms to locate agents and distributors in East Africa through the Gold Key and International Partner Search (IPS) programs. As American firms seek business partners or representatives in East Africa, the Commercial Service will contact local companies which meet the profile sought by U.S. companies. 
On-Line Resources: 
A) BuyUSA.  Buy USA is new, free web portal that matches U.S. sellers with international buyers. Once registered, you will have access to the following: Online access to thousands of U.S. product and service offers;  Automated business opportunity matching; Information on doing business with U.S. companies; Access to in-depth U.S. industry information; One-on-one assistance from Commercial Specialists located in your local U.S. Embassy; Guidance on importing U.S. products and services;  and Information about U.S. Embassy Commercial events.
B) Directories:  EG Thomas Registry
C) Commercial News USA (CNUSA). A U.S. magazine listing U.S. companies that seek distributors or agents in Africa. Commercial News USA is the official United States Department of Commerce showcase for American-made products and services. The catalog-style magazine is designed to help American companies promote products and services to buyers in more than 145 countries--at a fraction of the cost of other advertising options. Commercial News USA is distributed bi-monthly to readers outside the United States. The magazine, which is free, is mailed directly to qualified recipients and distributed by U.S. and Foreign Commercial Service personnel at U.S. embassies and consulates worldwide.
USG agencies/programs:
We also recognize that access to credit is often a constraint for local businesses.  In addition to financing through commercial banks, 
EX-IM Bank:  Export-Import Bank of the United States (Ex-Im Bank) offers several different programs that are designed to meet the diverse needs of exporters and their businesses. 
OPIC: Both project financing and insurance coverage are available through the Overseas Private Investment Corporation (OPIC).  In October 2000, the  Ethiopian Investment Commission signed an Investment Incentive Agreement with OPIC and the agreement was ratified by the Ethiopian Parliament in April 2003.
USTDA: Independent Government agency that funds various forms of technical assistance, investment analysis, training, orientation visits and business workshops that support the development of a modern infrastructure and a fair and open trading environment. 
In closing, I would like to reiterate a couple of points.
US market is large and diverse, US companies are increasingly interested in the Ethiopian market.  
The US Government has tools to inform US companies about trade and investment opportunities in Ethiopia and can assist local companies create partnerships with US firms. 
But, local companies must also take the initiative. 
The US Embassy stands ready to assist  the private sector, both in Ethiopia and the United States, expand our commercial relationship.

## Outline of Presentation

- Market overview
- Market Challenges
- Market Opportunities
- Market Entry Strategies
- Conclusion

## 1. Market Overview 

_***1. Market Overview ***_

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

## 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.

## 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%);

## 		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.

## 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.

## 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.

## All imports must be channeled through Ethiopian nationals registered as official import or distribution agents with the ministry;

- 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;

***	***_***Market Challenges- cont’d ***_

## 3. Market Opportunities

- 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;

_***3. Market Opportunities***_

## 
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.

- 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.

***	***_***4.  Market Entry Strategies***_

## 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.