The 14th largest country in the world by population, Ethiopia is an emerging economy that has demonstrated impressive growth throughout the past decade, growth sustained through the global recession. Ethiopia is currently the fifth largest economy in Africa and is projected to become the third largest within a decade, making it an inviting target for multinationals seeking to establish a presence in Africa.1
Despite its attractions, however, Ethiopia does not offer a certain—or even a relatively clear—road to prosperity for multinationals looking to do business there. The great promise the Ethiopian market presents is counterbalanced by the many drawbacks and challenges that will have to be overcome.
Ethiopia has no harbors, making it the most populous landlocked country in the world.
Although the population is enormous (around 3 million people) most Ethiopians are rural and very poor. In fact, the poorest 20% of Ethiopia’s population accounts for 9.3% of the nation’s income share—a higher share than that of any other country in Africa. Although income inequality is less stark in Ethiopia than in many other African nations, this is due at least in part to the overall poverty of the nation.
3 FACTS ABOUT THE FUTURE
- While its people are young, a vast portion are uneducated and unskilled. The good news is that business and retail environments are slowly beginning to modernize, but government regulations are hampering— or even preventing—foreign players from entering the market.
- Ethiopia’s capital, Addis Ababa, is currently the nation’s only major metropolitan center. It is filled with about 1 million residents. By 2025, the city’s population is projected to rise to 4.7 million.
- Despite their hardships, Ethiopians are overwhelmingly optimistic about the future. A 2012 McKinsey survey found that an impressive 71% of Ethiopians expect their households to be either somewhat or much better off in two years.
3 KEY FINDINGS
- Ethiopia has shown steady economic growth for a decade, but remains largely rural and poor.
- The nation’s population is very young, and young adults comprise a disproportionate share of urban consumers.
- While the country’s middle class is growing only slowly, Ethiopia’s population of millionaires could double by the end of the decade.
3 BUSINESS IMPLICATIONS
- The sheer size of the market makes Ethiopia inviting to many multinationals. Yet plans to enter the Ethiopian market should entail a long-term strategy, not necessarily a quest for quick profits, which may be difficult to achieve. Although Ethiopia is a large and growing economy with very undeveloped private and retail sectors, many sectors remain closed to FDI, at least today.
- Retailers aiming to enter Ethiopia over the next decade or two should focus on supplying necessities, since the vast majority of Ethiopian consumers will have little discretionary spending money at their disposal. Supplying necessities, however, could give retailers a foothold in an economy that is expected to grow steadily in decades to come.
- Rural Ethiopia’s most pressing needs provide significant opportunities for companies to build brand recognition while investing in building a future worker and consumer base. Companies can offer supplies, equipment, and education to improve basic hygiene; to purify water for drinking, cooking, and washing; to repair and create better water infrastructure using available materials and labor; to reduce disease via simple mosquito management techniques; and to improve literacy. Avenues might include adopting BOP models, supplying or partnering with nonprofits aimed at accomplishing these ends, or engaging Ethiopian women in a door-to-door/ direct sales and distribution network as Hindustan Lever has done in India.