Kenyan retailers ready to pounce as Ethiopia to open up market

Men carry chickens home after buying them at Sholla Market, the day before the Ethiopian New Year, in Addis Ababa, Ethiopia Saturday, Sept 10, 2022. [AP Photo]

Kenyan companies are buzzing with excitement after Ethiopia announced plans to further open its retail and wholesale trade market to foreign investors.

This move by Ethiopia represents a golden opportunity for Kenyan firms looking to expand in the region, experts say.

The Ethiopian government has introduced reforms allowing foreign companies to participate in previously restricted sectors, including export, import, wholesale, and retail trade.

It marks a departure from the past, where these sectors were reserved solely for Ethiopian businesses. The latest development looks set to excite top Kenyan retailers such as Naivas and Quickmart, which have been executing ambitious expansion plans.

Ethiopia’s population of over 110 million people—the second-largest in Africa after Nigeria—presents a vast, previously untapped market for Kenyan businesses to expand their reach and tap into new customer bases, add analysts.

In a major policy change, Ethiopia’s government, led by Prime Minister Abiy Ahmed, will now allow foreign investment in sectors previously closed to outsiders, according to local reports and documents seen by The Standard.

This strategic move, Ethiopian authorities say, aims to boost the country’s productivity and competitiveness in the global market.

Keep Reading

The significant policy shift will see Ethiopia shake up its investment landscape to attract critical resources. East Africa’s most populous country, already struggling with high inflation, became the third African state in as many years to default on its debt in December.

In recent years, Abiy’s government has been opening up parts of the tightly controlled economy such as telecoms and banking to foreign investment as part of a plan to boost inflows of foreign capital to drive growth and create jobs for the expanding population.

The move allowed Kenya’s leading telco Safaricom to expand into the populous country.

“This opens up endless possibilities for both African and rest of the world brands to set up,” said Retail Trade Association of Kenya Chief Executive Wambui Mbarire in an interview.

“Kenya’s position as Africa’s second largest formal retail market may just be up for grabs as the competition for new markets by international brands intensifies. However, a lot depends on whether this will open the locks that have previously kept many out.” Ms Mbarire said this is also an opportunity for local brands to strengthen their internal structures and when ready venture into these new markets.

“This will open doors for exporting Kenya-made fast-moving consumer goods, pushing up our manufacturing numbers,” she said.

Under the new directive by the Ethiopian Investment Board, the populous Horn of Africa country has opened doors for foreign involvement in various areas.

Under the new regime, foreigners, including Kenyans, can now export key Ethiopian crops like coffee, oilseeds, pulses, hides and skins.

Most goods can also be imported, with the exceptions of fertiliser and petroleum.

The wholesale and retail sectors are now also fully open to foreign investors.

The directive, however, outlines specific requirements for obtaining investment permits. For instance, applicants must be established companies with a proven track record and minimum annual procurement history varies by product ($10 million for coffee, $5 million for oilseeds).

There are also higher barriers for new entrants. For instance, companies without prior Ethiopian experience face higher minimum investment amounts. Foreign investors must also commit to building modern infrastructure and streamlined logistics for their wholesale operations.

This policy shift aims to boost Ethiopia’s competitiveness by introducing foreign competition and expertise into key sectors.

By attracting foreign investment, the Ethiopian government hopes to stimulate growth and innovation in the Ethiopian economy. Additional requirements dictate that interested firms must also be either a manufacturer, an agent of a manufacturer, or an existing manufacturer in Ethiopia that exports at least half of its products. Alternatively, you can commit to importing at least $10 million (Sh1.3 billion) worth of goods annually.

New directive

Foreign investors can now participate freely in wholesale and retail trade in Ethiopia, with no restrictions (except for fertiliser imports).

A permanent committee will be formed by several government ministries and organisations, including trade, industry, revenue, agriculture, customs, and the National Bank of Ethiopia.

This committee will monitor the implementation of the new directive, assess its effectiveness in achieving the desired goals, and take necessary actions if needed. Ethiopia recently constituted a committee to liberalise the banking sector, taking a major step in opening the door for Kenyan lenders such as KCB Group to set up operations in the populous nation.

The committee started work to amend Ethiopia’s half-a-century-old financial code, meaning the long-awaited easing of restrictions on foreign banks making investments in Ethiopia inched closer. Recently, in a move aimed at attracting foreign capital, Abiy announced plans to liberalise two key sectors - retail and residential property.

This policy shift allows foreigners to invest in both areas, potentially boosting foreign direct investment which is crucial for Ethiopia’s development goals. Ethiopia also aims to pass legislation to let foreigners own real estate as part of the country’s broader plan to open up the economy and attract investors, Abiy Ahmed said in March.

Foreigners are barred from owning houses in Ethiopia, either residential or commercial buildings, which is seen as a hurdle to ongoing efforts to attract foreign investment to the country.