Ethiopia – A land of promises!

Not many consider Ethiopia an attractive proposition for Indian exporters. Here’s a fact that could change your perception – over 8% of Ethiopia’s total imports from the world comes from India, and yet the market doesn’t feature in the top 10 export markets for Indian traders in Africa (it’s at no.15). With great potential for products like pharmaceuticals, iron & steel, cereals, plastics, commercial vehicles, chemicals, electrical machinery, cotton yarn & fabrics, bicycles and a host of other consumer durables and non-durables, Indian exporters can take more advantage of what we call the “Ethiopian consumer class”

Dr. A.K. Sengupta | @TheDollarBiz


India had a glorious history of trade relations with East Africa during ancient times. However, this trade relationship could not flourish due to the process of de-colonisation in East Africa, rapid expansion of western trade and investment, political turmoil, etc. In the last few years, this scenario appears to be gradually changing and what lies beyond, seems a palmy time for traders, full of opportunities and promises.

Fundamental changes have taken place in Africa in the last two decades, both in the political and economic spheres. The fall of the apartheid regime, the political restructuring of Ethiopia and other important political changes have been accompanied by across-the-board economic liberalisation. This combined political and economic restructuring has resulted in increased average economic growth rates, a positive growth per capita incomes and a large increase in FDI. Africa is poised to enter a phase of high economic growth. The liberalisation of trade and investment regimes, provides Indian businesses a perfect opportunity to feed and thereby benefit from this growth.

Ethiopia imports large quantities of capital goods, intermediates, raw materials, spare parts and fuels

Ethiopia is an excellent example of how Africa has changed over the last ten years. After a long period of civil war when it had a centralised command economy, Ethiopia is today in a period of peaceful transition. Political restructuring has ensured the end of the civil war and an enlightened policy of economic liberalisation has given prominence to private enterprises, trade and foreign investment. These policies have started attracting foreign investment. FDI into Ethiopia in 2012 has increased six fold as compared to 2002.

Ethiopia is located in the North-east of Africa, popularly known as the “Horn of Africa”. With a total area of 1,097 thousand square kilometres and a population of about 97 million (July 2014 estimates; CIA World Factbook), Ethiopia is the second most populous country in Sub-Saharan Africa. It is a nation with great natural resources. It has considerable untapped mineral wealth, fertile land, abundant man power, large water resources and Africa’s largest bovine population.

A strategic location gives it access to the markets of East Africa, Europe and the Middle East. This, when combined with membership of Common Market of Eastern and Southern Africa (COMESA) and GSP concessions from the United States, makes Ethiopia an ideal base for international trade.


Since 1992, Ethiopia has embarked on a wide ranging economic reform process which has been supported by the structural adjustment facility of the IMF/World Bank and a number of bilateral and multilateral donors. This reform process is based on the introduction of a market economy, privatisation of State-owned enterprises and the entry of foreign investment into most sectors of the economy.

The long term objectives of the economic policy are to raise appreciably the share of the industrial sector in the economy and to facilitate the development of core industries. The policy also emphasises development of resource based industries as Ethiopia has vast agricultural and mineral resources. Leather products manufacturing, processed fruits and vegetables and mineral processing are examples of some resource based industries that could be promoted in the short and medium term.

Ethiopia also has a large pool of cheap, skilled and easily trainable labour. This resource could be used in the production of goods involving labour intensive processes. Ethiopia has initiated important steps in attracting foreign investment to tap the nation’s latest economic potential. Foreign investors are allowed 100 percent equity holding, full remittance of profits and exemption from the payment of various taxes and duties.

In addition, foreign investors are provided with “single window” clearance of their projects. Given the large number of fiscal incentives and the provision for investment guarantees from both the Government and the Multilateral Investment Guarantee Agency (MIGA), Ethiopia has the potential to become the most attractive location for FDI in Africa.

At present, India caters to under 6% of the top 20 products that Ethiopia imports (in value terms)

Ethiopia’s trade with the rest of the world and India is a reflection of its economic structure and the global competitiveness of its economy. The Ethiopian economy is dominated by the agricultural sector; this sector contributes about 50% of the Ethiopian GDP. The level of development of the manufacturing sector in Ethiopia is low; this sector contributes about 11% of its GDP. Given the importance of the agricultural sector, this sector is the major contributor to exports from Ethiopia.

Agricultural products make up about 85% of Ethiopia’s exports. On the other hand as the industrial sector is underdeveloped, Ethiopia imports large quantities of capital goods, intermediates, raw materials, spare parts and fuels. The manufacturing sector contributes only 15% of its export earnings. Ethiopia’s exports are dominated by primary products, especially coffee, hides & skins, pulses, oil seeds, live animals, sugar, molasses, meat, fruits and vegetables. The export portfolio is highly concentrated with just one product, coffee contributing about 60% of Ethiopia’s export earnings.

What makes Ethiopia an attractive destination for Indian exporters is the manner in which the country has grown as an export market over the years. Total global exports into the market is scheduled to reach $10 billion soon, and with the potential for Indian exports to rise from the current 8% to much higher levels. At present, Ethiopia imports the highest values of iron & steel, chemicals, fertilizers, textiles, capital goods and consumer durables.

Imported capital goods consist of heavy transport vehicles and industrial machinery. Major consumer goods imported consist of automobiles and automobile components and parts, food items and pharmaceuticals. On the imports side Saudi Arabia, USA, Italy and Germany account for about 50% of its imports.


It won’t be wrong to say that trade and investment between India and Ethiopia have been well below potential. Trade has concentrated around limited basket of items. While India imports only traditional items like coffee and leather, Ethiopia imports various manufactured items from India. As the Ethiopian market is more akin to the Indian market as compared to the OECD markets, there is no reason why trade between the two countries should not diversify and include items which are at present being imported from the OECD countries.

Ethiopia’s strategic location and trade agreements also make it an ideal base for re-exports to Europe, USA and the Gulf. There exists potential for increasing the levels of Ethiopian exports to India by diversifying the basket of goods to include pulses, phosphorus and oil seeds. However the maximum potential for trade exists in hides and skins.

In the case of refined petroleum, India caters to only 1% of Ethiopia’s demand

On India’s part, it can export iron & steel, commercial vehicles, chemicals, electrical machinery, pharmaceuticals, cotton yarn & fabrics and bicycles to Ethiopia, and a host of other consumer durables and non-durables which Ethiopia is importing from other sources. Where lies the opportunity for Indian exporters to exploit Ethiopia as an export destination, is however a big question. At present, India caters to under 6% of the top 20 products that Ethiopia imports (in value terms; 2012; as per researchers at MIT’s Observatory of Economic Complexity).

What are these most demanded products by Ethiopian business and retail consumers? They include the following: Refined Petroleum, Wheat, Delivery Trucks, Palm Oil, Mixed Mineral or Chemical Fertilizers, Packaged Medicaments, Large Construction Vehicles, Raw Sugar, Raw Iron Bars, Cars, Buses, Rubber Tires, Aircraft Parts, Telephones, Stone Processing Machines, Computers, Nitrogenous Fertilizers, Synthetic Filament Yarn Woven Fabric, Gas Turbines, and Iron Structures.

And what are the exact opportunities?

In the case of refined petroleum, India caters to only 1% of Ethiopia’s demand, and in the absence of supply woes, policy hurdles and latent demand, our exports of this product can be raised by over 95 times.


There was recently much talk about how India missed out on strong wheat prices caused by crisis in Ukraine, drought in some US wheat-producing regions, season delays in Canada (due to a longer-than-normal cold season) and lower Australian produce due to the El Nino. It could have been missing out on much action in Ethiopia too! India is a country that already has excess of this crop in its coffers. India’s current wheat crop, is currently being harvested, and expectations are that the total output will reach the highest ever for a single season – 96 million tonne.

Add that to the 38 million tonne that is already stored away by the government, and there is no reason to believe why exporters from India should miss the opportunity of increasing their wheat supply to Ethiopia by anywhere up to 33 times. (At present, India caters to only under 3% of Ethiopia’s import demand for the cereal crop.)

The world hasn’t missed a blink in discussing how the great Indian auto road show is now losing steam. Especially in the passenger cars and commercial vehicles categories. What are we blaming? The EU crisis? Slowdown in the Americas? Elections in Australia? Stop blaming the PIGS, and start counting how many buses and cars domestic and multinational auto companies from India fell short of when it came to supplying automobiles. In 2012, India supplied 1.44% of cars, 3.68% of buses, and a paltry 0.74% of delivery trucks imported by Ethiopia. Is there scope to make more money from exports to Ethiopia? [Are you waiting for an answer?]

Indian exporters should increase shipments of cars and wheat to Ethiopia

Isn’t it surprising that India (which has so many domestic cellphone producers) exports only 0.07% of telephones imported by Ethiopia. With a strong manufacturing base, where it exports about $1.5 billion worth of aircraft parts to the world, it doesn’t pay attention to the $90 million plus demand in Ethiopia. Packaged and unpackaged medicaments and medical instruments, large construction vehicles, stone processing machines, and even gas turbines (of which India supplies nothing – some opportunity there!) – count the products and their count keeps on rising, there are reasons aplenty for Indian exporters to bet bigger on the Ethiopian market in the days to come.

For exporters looking at longer term and a bigger picture, investing in Ethiopia could also be an option. For Ethiopia to be able to integrate and assimilate foreign investment into its economy, the levels of technology and capital intensiveness should be appropriate for a developing economy. India’s long experience in developing appropriate technology and in the promotion of small industries could be used by Ethiopia, keeping the above objective in mind.

Opportunities for foreign investment in Ethiopia abound in the areas of mineral extraction, agro based industries and light manufacturing. Indian businesses can invest either individually or as a consortium in areas like infrastructure development and mineral extraction. Smaller units can be set up to tap opportunities in areas like leather & leather manufactures and food processing.


With well-chosen product categories, Indian exporters will find that getting an epic blend of products to cajole buyers in Ethiopia isn’t too difficult an exercise. A GDP growth forecasted of 7-8% over the next five years (Ethiopia is listed as one of the 26 nations that will record the fastest growth between 2012 and 2050 as per a report by HSBC) with expectations of a fast rising per capita income (that will become five times in the next thirty years from the current $410; as per World Bank, UN population projections and HSBC estimates), a young nation with a median age of 17.6 years and with over 64% under the age of 24 – the Ethiopian safari is one instance where it is hard to deny that every investor involved in the race to capture Ethiopia will fail to cash in on the market’s sweetness. India already supplies 73% of sugar demanded by this market. It’s time to make the shipping basket sweeter.

(The author is a former Dean of The Indian Institute of Foreign Trade (IIFT), New Delhi)

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