2023-03-09As one of the economic engines in East Africa, Ethiopia's manufacturing industry, particularly light industries represented by textile and clothing, has seen significant development in recent years. Aligned with the national development and transformation plan, Ethiopia aims to become a middle-income country and a manufacturing hub in Africa by 2025.
So, what industries in Ethiopia,
committed to becoming a manufacturing hub in Africa,
are worth investors' consideration?
Ethiopia, located in the northeast of Africa, is the continent's fastest-growing economy and the second most populous country, mainly consisting of a young and capable workforce with abundant natural resources. It is also one of the world's oldest countries.
With the goal of becoming a middle-income country and a manufacturing hub in Africa by 2025, Ethiopia seeks not only quantitative targets but also aims to eliminate extreme poverty and improve health, education, and the environment. The focus is on developing light manufacturing industries, primarily textiles, leather and footwear, and agro-processing. Emphasis is also placed on education, health development, sustainable use of natural resources, and enhancing ecological resilience to address climate change, achieving the goals in economic, social, and environmental development by 2025.
Over the past 12 years, Ethiopia has consistently maintained double-digit economic growth (with an annual growth rate of 10.9%). Statistics show that from 2010 to 2015, Ethiopia was the world's second-fastest-growing economy. Economists believe that Ethiopia is likely to continue this growth trajectory in the future.
Such rapid economic growth can be attributed to the Ethiopian government's steadfast commitment to economic growth and continuous reforms that facilitate remarkable development in Ethiopia's economy and society. Ethiopia is one of the most attractive destinations for foreign direct investment in Africa, accounting for 18.5% of the continent's total foreign investment and employment. The top six sources of foreign direct investment are China, Turkey, India, Saudi Arabia, the Netherlands, and the United Kingdom.
Key industries in Ethiopia include textiles and clothing, leather products, agro-processing, building materials, pharmaceuticals, metal machinery, and chemicals. These industries are encouraged by the local government, with a particular emphasis on labor-intensive manufacturing projects. This strategy positions Ethiopia effectively to become a manufacturing hub in Africa. Among these industries, agro-processing and textile and clothing are considered promising investment opportunities.
Ethiopia boasts 74 million hectares of arable land (only 15 million hectares are cultivated) and is the largest wheat planting country and the third-largest maize planting country in Africa. It has the most significant livestock population in Africa and is the largest coffee producer in Africa and the fifth-largest globally. Cotton, flowers, vegetables, fruits, herbs, livestock, and poultry farming are all excellent investment opportunities.
In the textile and clothing sector, Ethiopia has experienced an average growth of 51% over the past 6 years. 40% of Ethiopia's textile and clothing products are exported to the United States, 10% to the United Kingdom, and 50% to other European countries.
The most promising investment areas in Ethiopia currently include agriculture, agro-processing, textiles and clothing, leather and leather products, chemicals, pharmaceuticals, and tourism.
(1) Textiles and clothing: spinning, weaving, printing and dyeing, garment manufacturing, knitting and crochet fabrics, carpets, sportswear, etc.
(2) Drugs and pharmaceuticals: production of tablets, capsules, syrups, and injectables; chemical and plant-based products.
(3) Leather and leather products: processing of leather and fur through tanning processes; manufacturing of luggage, handbags, saddles and harnesses, shoes, and clothing; and comprehensive tanning and manufacturing of leather
(4) Paper and paper products: production of pulp, paper, and paper products using local raw materials.
(5) Food and beverages: processing of meat and meat products, comprehensive manufacturing and processing of fish and fish products, fruit and vegetable as well as dairy products, manufacturing of starch and starch product, feed processing, bottled mineral water, sugar manufacturing, brewing, processing of beans, oilseeds, or grains and production of pasta/noodle.
(6) Chemical raw materials and chemical products: production of fertilizers using local raw materials and basic chemicals like nitrogen, sodium carbonate, rubber, PVC pellets extracted from ethanol; manufacturing of sodium hydroxide and chlorine-based chemicals; carbon and activated carbon; precipitated calcium carbonate; ballpoint pen ink and varnish; soap and detergents, cleansers and polishers, perfumes, and toiletries; insecticides, herbicides, or fungicides.
(7) Product assembly: agricultural machinery, automobiles, tricycles, machinery and equipment, home appliances, motor products and electric products, etc.
(8) Glass and ceramics: tableware and sanitary ware, flat glass and containers.
(9) Plastic products: high-pressure pipes, pipe fittings, shower caps, washbasins, insulation accessories, lamps, office and learning supplies, and furniture accessories.
(10) Building materials: lime, gypsum, marble, granite, limestone, ceramics, pipes, and fittings.
(11) Manufacturing of office and household furniture.
(12) Agricultural cultivation: cereals, beans, rapeseed, fruits, vegetables, fresh-cut flowers, organic coffee, cotton, tobacco, sugarcane, tea, and spices.
(13) Livestock farming, freshwater fisheries, honey, and beeswax production.
(14) Construction industry: general construction contracting (GCG1), building construction contracting (BCG1), road construction contracting (RCG1), water well drilling (Level 1), mineral exploration drilling (Level 1).
(15) Hotel and tourism industry: star-rated hotels and resorts, motels, inns, and restaurants, Level 1 tourism operation.
The rapid development of a country is closely tied to infrastructure development. Ethiopia is accelerating its investment in modern infrastructure. Power levels, roads, commercial services, and the aviation industry are rapidly expanding, with the construction of new airports and the expansion of existing ones actively promoted by the government. Ethiopia plans to further expand its road, railway, and import/export logistics capacity in the second development and transformation plan. One significant expenditure is to extend the 105,000 kilometers of roads already accessible in the first development and transformation plan to 205,000 kilometers. The Addis Ababa (SEBETA)-Galan section of the Addis Ababa-Djibouti railway is now operational, with further extensions planned in the second development and transformation plan. Logistics and transportation will greatly improve during this plan, with a projected 70% growth in sea export capacity. New airports are under construction, and expansion work on existing airports is in the planning stages.
In terms of market access, Ethiopia has its own advantages. Its geographical location and positive performance in regional and bilateral trade agreements make it an attractive investment destination for foreign investors. The region reachable within an 8-hour flight from Addis Ababa is home to 3.5 billion people globally. Agreements such as the African Growth and Opportunity Act (AGOA) with the United States (extended for another 10 years), allowing all goods except weapons to enter the European market, and being one of the founding countries of the Common Market for Eastern and Southern Africa (COMESA) in Sub-Saharan Africa, contribute to Ethiopia's appeal.
To attract more foreign investment, the Ethiopian government has introduced investment policies and incentive measures. The investment policy has been modified 4 times in the past 22 years to favor investors. Foreign investors can independently invest or collaborate with local investors in open sectors for foreign investment, with no restrictions on capital ownership in joint ventures. However, foreign investment is not allowed in areas such as import and retail trade, transportation, power transmission, and small businesses.
How to invest in Ethiopia?
For new investors:
1. It is required to obtain an investment license;
2. Have a minimum capital of USD200,000; if in joint venture with local investors, a minimum of USD150,000 investment is required;
3. It is required to submit an investment application to the Investment Commission. The Ethiopian Investment Commission will provide a one-stop service. Business registration for most investors now can be completed within a few hours and the overall process in 1-2 weeks. Subsequent tracking services will also be provided, such as investment land, residence permits, approval of environmental impact assessments, and obtaining water and power services, among other serials services.
Investment incentives:
1. Repatriation: profits, dividends, principal, and interest on convertible currency borrowed outside Ethiopia;
2. Right to employ foreign experts and managers;
3. Export enterprises with foreign employees enjoy a two-year corporate income tax exemption. This exemption applies to production materials, construction materials, and some spare parts (within 15% of the total production materials). The exemption period ranges from 2 to 8 years, potentially longer for textile and garment manufacturers within industrial parks, and 10 to 15 years for industrial park developers. Manufacturing, agriculture, information and communication technology, power generation, transmission, and supply, as well as export trade, are all eligible for both tariff and income tax exemptions. Sectors such as hotels and tourism, mining, construction contracts, import trade, education and training, medical services, and construction and engineering may benefit from tariff exemptions.
