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Ethiopia: Are US investors missing out?
African Business / February 2001

By Larry Luxner

Ethiopia, one of the world's poorest countries, is hanging out the welcome mat for potential U.S. investors.

In 1999, U.S. exports to Ethiopia came to $164.7 million, a slight increase from the $143.1 million in exports reported for 1994. But Ethiopian exports to the United States tumbled from $34.1 million to $30.2 million over the same time period -- a fall made even worse by the fact that in 1997, exports to the U.S. had hit a high of just under $70 million.

"Trade with the U.S. isn't much, but compared to trade during the Marxist regime, we can say that it has increased dramatically," says Mohammed Yahya Garad, trade and investment counselor at the Ethiopian Embassy in Washington. "During the 1980s, there were less than 20 U.S. companies operating in Ethiopia. Today, there are over 300."

Under leftist leader Mengistu Haile Mariam, who had overthrown Emperor Haile Selassie and abolished the monarchy in 1975, Ethiopia bolstered its ties with the Soviet bloc and let its relations with the United States deteriorate. Famine ravaged the country in the mid-1980s, resulting in the deaths of an estimated one million people. After the fall of the Mengistu regime in 1991, a transitional government was set up, leading to Ethiopia's first multiparty general elections in 1995.

Even now, average life expectancy in Ethiopia is 43 years, and the literacy rate is only 37%. According to the World Bank, 45% of the population lives below the poverty line.

The few U.S. companies that were allowed to stay during the Mengistu years -- Coca-Cola, Mobil Oil and PepsiCo -- are today among the largest foreign investors in Ethiopia. Between 1992 and 1999, direct foreign investment came to around $1.2 billion.

But that's not enough for Garad, who says foreign investment is absolutely critical to Ethiopia's future.

"The Ethiopian government has a policy that is conducive to investment. It's one of the least corrupt countries in Africa," he told African Business. "There's not much we can do to alleviate our image. But we can prove to investors that as far as potential, Ethiopia has a wealth that would stagger anybody. It's very difficult to convince people of that when they see we're not self-sufficient in food. Farmers depend on rain. But at least six of our 12 rivers have the potential to be a cotton belt. If we could develop our hydroelectric potential, Ethiopia's cotton exports would surpass anything we make from coffee."

Garad said rebuilding the country's crumbling infrastructure is the No. 1 priority of Ethiopian Prime Minister Meles Zenawi, who came to Washington last September to dedicate the country's beautiful new $6.5 million embassy.

"During a business forum we organized for the prime minister, the prime minister told businessmen that rail transportation is very urgently needed, and he invited private investors to look into that opportunity, as well as hydroelectricity," said Garad, who like most members of his country's professional elite speaks fluent English in addition to his native Amharic.

Another opportunity for investment is the telecom sector. State-owned Ethiopia Telecommunications Corp. has only 365,000 phone lines in service, translating into a "teledensity" of 0.28 lines per 100 inhabitants. Mobile service is even more limited, with only 4,000 lines. ETC, which plans to add 700,000 phone lines over the next year, will itself be sold to the private sector, with PricewaterhouseCoopers advising the government on how to carry out the proposed privatization.

"The outlook is certainly more positive now than it was before," says Tshanda Kalombo, a Washington-based U.S. Commerce Department official who recently returned from a six-week assignment in Ethiopia. "The country is getting a lot of interest from the investment community. Some of that stopped when the conflict began. Before that, Ethiopia was seen as one of the most promising countries in Africa. Then all of a sudden they went to war with Eritrea -- sort of a nonsensical conflict -- then they got lumped together with the basket cases of Africa."

In mid-December, the two warring countries signed a peace treaty. According to Kalombo's report, the positive changes that result from the end of the Ethio-Eritrean conflict should fuel U.S. commercial interest in the country. "Promising markets for U.S. exporters include aircraft and parts, vehicles and spare parts, construction equipment, agricultural equipment and supplies, telecommunications, medical products and chemicals," she says.

Much of the investment will likely come from the estimated 250,000 to 300,000 Ethiopians living in the United States. By far, the biggest community is Washington, home to around 70,000 Ethiopians. Smaller communities also flourish in Atlanta, Dallas, Houston, Los Angeles and New York.

"There's a very vibrant entrepreneurial group of Ethiopians residing in the U.S., and a number of them are professionals with their own businesses -- more so than from any other African country," said Garad. "In any major city today, you'll find two or three good Ethiopian restaurants. Here in Washington, there are over 50."

Garad, 51, graduated from the law school of Haile Selassie First University (today Addis Ababa University), and also earned a master's degree from Harvard Law School. Along with Texas businessman Gezahgen Kebede, he helped found the Ethio-American Trade and Investment Council, which today has 89 members.

Kebede, interviewed by phone from Houston, says Ethiopia faces a number of obstacles in attracting investment, chief of which is the lack of accurate information.

"Like with any other African country, a lot of American companies don't know about the potential that exists there. They see Africa as a big risk," he said. "It is risky, but any business anywhere has risks, and most of the U.S. companies really don't see beyond that. They see only what they read in newspapers and hear on TV."

Kebede said a 35-member trade delegation traveled to Ethiopia last year, producing encouraging results. One of the mission's participants, Texas-based Rift Valley Industries, will soon begin assembling laptop computers in Addis Ababa for the Ethiopian and sub-Saharan African market. The company's local partner, Garad PLC, already assembles TV sets. The venture plans to invest $7 million and employ around 100 people.

Despite the country's efforts to diversify, however, Ethiopia is still highly dependent on agricultural exports. Coffee alone accounts for 65% of the country's export earnings, though the sector was battered last year by Ethiopia's war with Eritrea as well as low world coffee prices.

"We haven't done a very good job marketing our coffee," said Garad. "It's really the power of advertising that, for example, makes Colombian coffee famous. Roasters know that Ethiopian coffee is superior, but they can't sell it because there's no demand at the consumer level. We are handicapped because we've not approached it systematically. We've been too timid to spend money on advertising. We need to take a systematic approach to the marketing of Ethiopian coffee in the United States."

Garad and Kebede are currently organizing a reverse trade mission, in which 35 to 40 Ethiopian executives will soon visit Washington, Houston and Atlanta for meetings with potential U.S. business partners.

One factor that could spark new interest in Ethiopia is the African Growth and Opportunity Act (AGOA), passed and signed into law by President Clinton in May 2000. Under one provision of the law, which took effect Oct. 1, Ethiopia and 31 other African countries will receive duty-free treatment of textile and apparel exports to the United States.

Ethiopia is also applying for loan insurance and guarantees under the Overseas Private Investment Corp., a move that will help attract U.S. investment.

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