Russia’s foreign minister Sergei Lavrov’s visit to South Africa kicks off a year rich in cooperation between Pretoria and Moscow, much to ... the chagrin of those who have wanted to isolate Russia ever since it invaded Ukraine.
The strength of the state stands in contrast to the fledgling private sector, where foreign competition is barred in key industries and big sectors are entrusted to state-owned companies.
by default you have to produce millionaires when your overall economy has grown that much
But a curious statistic surfaced in December 2013, when New World Wealth, a research and consulting firm based in South Africa, reported that the number of US-dollar millionaires in Ethiopia rose by 108% between 2007 and 2013 – faster than in any other country on the African continent.
In Addis Ababa, these new moguls live in the tonier areas like Bole, an airport-adjacent neighbourhood dotted with embassies and hotels, or the Old Airport area in the south-west, home to the Addis Ababa Golf Club.
During the day, they hobnob with government officials at the upscale Hilton and Sheraton hotels.
Bars and nightclubs have sprung up to accommodate more expensive tastes, like The Gaslight at the Sheraton and the Suba bar near the centre of town.
Racing wealth creation
Their number is still relatively small, however. “Ethiopia has done quite well in terms of growth over the past seven years,” says Andrew Amoils, New World Wealth’s head of research.
“However, Ethiopia starts from a very low base of dollar millionaires, considering it’s one of the most populous countries in Africa.”
The report estimates that by 2013 Ethiopia had 2,700 millionaires, far behind less populous countries like Kenya and South Africa.
New World Wealth predicts that the number will rise to 4,700 by 2020 due to the country’s rapid pace of economic growth.
That will still not be enough to break Ethiopia into Africa’s top 10 countries for dollar millionaires.
The pace of wealth creation remains impressive – or worrisome, depending on who you ask – in a country where about one third of the people live on less than $1.25 a day.
“That report caught a lot of people by surprise,” says Zemedeneh Negatu, founding partner of auditing firm EY Ethiopia.
But, considering that Ethiopia’s gross domestic product growth rates have been in the double digits for much of the past decade, “by default you have to produce millionaires when your overall economy has grown that much,” explains Zemedeneh.
An Ethiopian-American, Zemedeneh left Ethiopia for the US as a teenager in 1978 – while the communist Derg was in power – and eventually landed a job with what is now the professional services group PwC.
He returned to Ethiopia during the 1990s with the intention of starting a factory, but that dream was deferred in 1998 after war broke out with neighbouring Eritrea.
Financial services was a logical fallback, and he has been working with EY since 1999. He is one of Ethiopia’s ultimate optimists when it comes to growth in the private sector.
Ethiopian entrepreneurs, he says, benefit from a low barrier to market entry. And as for challenges, “You need to be persistent. Investments here need to have long-term horizons. This is a very early- stage emerging economy.”
Less bling for your buck
Zemedeneh points out that many successful business owners are in sectors like financial services, trade and real estate but adds that they tend to keep a low profile.
“It’s definitely not part of our culture to display wealth in a garish way,” he says. “You would never know, if you saw them on the street, that they have enormous wealth.”
Inside his office in Addis – a room lined with windows on one side and mirrors on the other – coffee exporter Ali Hussein Mohammed points to a photograph of himself receiving a trophy from the trade ministry.
His company, Alfoz, was named Ethiopia’s best coffee exporter of the year for 2012, when it earned revenues of 1.2bn birr ($59.1m).
The firm buys most of its beans from the Ethiopia Commodity Exchange. It owns two facilities to clean the beans before they are shipped off, mostly to buyers in Saudi Arabia.
Ali’s father and grandfather both worked in the coffee trade, and in 1998 Ali decided to strike out on his own.
It was an excellent sector to work in, as coffee is Ethiopia’s largest export by value and the government is keen to support enterprises that bring in foreign currency.
“From the government side, policy is always changing because they support us, especially exporters,” says Ali.
“They discuss things with us, and then they change immediately. They call us all the time.”
The company has prioritised coffee since its inception, but now Alfoz is making moves into another key export sector: livestock.
Government statistics show that Ethiopia has the largest livestock population in sub-Saharan Africa, but animals make up only 3% of the country’s exports, according to a World Bank report last year.
That same report recommended that the country add value to its commodities through processing, and Ali hopes to move in that direction.
The company owns machinery – now idle in storage – for coffee processing, which it may soon dust off. Ali says he would also like to transform livestock into packaged meat.
In preparation for these plans, Alfoz has been conserving its energy since its peak year in 2012.
“Our strategy changes year to year. If the market is suitable for us, we’ll be working 24 hours [a day]. The last two years, the market was less,” he says. “We expect this year to be better.”
Another growing market in Ethiopia is real estate, particularly in Addis Ababa, where land values are skyrocketing.
But Tsedeke Yihune, owner of Flintstone Homes, which does contracting, marketing, design and development, criticises the unsustainability of the current business model.
“It’s like a pyramid scheme,” he says. “The developer finds a target customer, finds the money from the bank – which the bank originally gets from the same customers looking for homes – and then builds a few homes which attract even more customers, and it just gathers momentum and credit.”
He envisions a more holistic system where a developer chooses a neighbourhood and boosts its value by investing in commercial projects and community centres, thereby raising residents’ incomes and enticing them to stay put.
To gain a foothold in the market, Flintstone, which began in 1991, started doing things the old-fashioned way.
It got exposure with a campaign advertising homes for just 195,000 birr and delivered 600 units within two years.
But Tsedeke has also been working to convince officials that more sustainable development schemes would be well worth the investment.
Technically, Tsedeke is free to pursue his ideas, but he is hesitant to do so without explicit government approval.
“The biggest hindrance to private-sector development, to innovation in this country, is the blessing you expect from the government,” he says.
Flintstone currently earns most of its revenue from government contracting. It has delivered 1,200 housing units and several university buildings across the country.
Tsedeke says he is thinking about selling the company in three years, when he hopes to fetch a price of $50m.
In the meantime, he has become one of Ethiopia’s staunchest advocates for the private sector’s potential to engineer inclusive growth.
“There’s a glass ceiling here in Ethiopia,” he says. “You cannot grow any further without influencing the business environment.”
Most Ethiopian businessmen are familiar with Ambassador Garment & Trade, a leading purveyor of men’s suits in Addis Ababa.
It is owned by Seid Mohammed Birhan, who says his path to success depended largely on government policy.
“When the economy is growing because of the government’s strength, consumers’ buying power grows,” he argues.
Seid also owns Ambassador Hotel – a four-star establishment not far from the airport that charges up to $200 per night – and Ambassador Real Estate, which Seid says is building about 100 villas, 500 apartments and a new mall near the prime minister’s office.
Seid’s parents were farmers in Tigray. His education was cut short in the fourth grade after conflicts with Eritrea forced his school to close.
He found a job and saved 3,000 birr, which got him a second-hand sewing machine and space for a small shop. Today, his enterprise encompasses 85 stores across Ethiopia.
One of the ways Ethiopia guards its developing economy is by closing certain sectors to foreign owners, including banking, transport, telecommunications and retail.
That enabled Ambassador to claim market share that might have otherwise been gobbled up by Western suit manufacturers.
There have been disadvantages too. The closed system has made it difficult to attract investors.
“Challenges still exist,” Seid says. “A shortage of money makes getting a loan very difficult.”
But his overall take on ruling party policy is positive.
“In this government, at the top levels, there is no corruption. That’s rare. In other African countries like Kenya or Uganda, you’ll find corruption at the top. But here the government has a strategic plan, and that’s important.” ●
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