Pros of Ethiopia As An Investment Opportunity

The Ethiopian economy is essentially centered on agriculture, which actually account for more than
85% of Ethiopia’s total employment and 46% of its GDP. Similarly, the country has shown an
impressive economic growth from the past few years. Ethiopia is one of the largest landlocked
countries in sub-Saharan Africa and it is increasingly becoming a central point for the foreign investors
seeking forthcoming investment opportunities in that particular region. According to IMF, Ethiopia is
one of the firmest growing economies with approximately an average growth rate of 8.2%. The
economy brightly expected to grow further. It grew 9.6% in the previous fiscal year 2015 and is
expected to grow by double-digit i.e. 10.6% by the end of the fiscal year 2016 (Santander Trade,
2016). The inflation rate of Ethiopia is still in single digit and the growing economy is facilitating the
purchasing power of Ethiopian consumers to grow as well. Currently, the labor cost in Ethiopia is very
low, which can help investors to save cost.
As the economy is growing, the demand of Ethiopian consumers are also growing. This means that the
foreign investors have a brighter perspective of having a substantial sales volume and consumer base.
Additionally, considering the opportunities related to market and industrial policy, Ethiopia proposed
a state-led model of development and all the groundwork areas such as power, financial services,
shipping, transportation, telecommunication, and financial services fall under the monopolist
administration of the state (Santander Trade, 2016). While comparing to the last 10 years, the poverty
percentage has decreased by 9.1% i.e. from 38.7% to 29.6%, which indicates towards the better
consumer power, increased consumption, and improved living style (Quelch et.al, 2015).
Industries like retail, media, and transportation are also emerging alongside in order to provide an
improved business framework. Other important opportunities include the tax exception for the agro-
processing, manufacturing and production, and agricultural related industries. The exemption of tax is
also available for capital goods. Similarly, the country is improving and making attempts to protect
local business organizations to substitute imports, which is also an opportunity for foreign investors.
Apparently, opening a subsidiary or getting into a joint venture will enable them to harvest the fruitful
returns by operating closely to the community (CNBC Africa, 2016).

GENERATECHECK PLAGIARISM
Cons of Ethiopia As An Investment Opportunity
There are also some shortcomings for investing in Ehtiopia. It should be kept in mind while investing
in Ethiopia that the country is swamped in a proliferating rate of inflation, which means that returns
on the investment would be lower than that they should appear to be. On the off chance, if the
business would not succeed then taking the assets back to home country would turn out to be bigger
loss due to the difference in currencies. Secondly, the Ethiopian government has undemocratic nature
and depicts a picture of instability, which lacks peaceful business settings. This means that investors
tend to face political shakiness and uncertainty that may tend to affect the flow of operation, as well
as, profitability. Moreover, the principal economic structure is controlled by EPRDF (Ethiopian
People’s Democratic Revolutionary Front) and its representative called ‘Cadres’. The control by EPRDF
results in investors faccing too much interference from Cadres in the business functioning that
sometimes results in losses too. The system is also highly bureaucratic and inflexible (Setargie, 2015).
The country is completely landlocked and consequently, the investors are required to pay port fees.
Moreover, most of the payments go through Djibouti, which is the principal import/export channel of
Ethiopia. The ceding/forfeiting of ports and having easy access to sea has substantially increased the
exporting and importing cost of capital for the business. The country also keeps facing regional
conflict that may affect regularity of business operations. The country also lacks meaningful policy and
decision-making regarding business processes and unfair/discriminated practices at workplaces
(African Business Central, 2016). Similarly, developed infrastructure is still limited to a certain
geographical area; whereas, roads, cesspit system, electric and water supply in the entire region are
still in the developing phase, which means that the investments would take an additional cost to
flourish. The country also lacks skilled workforce as approximately 2 -2.5 million young individuals are
entering annually in the labor market; however, the employment rate is merely 7%. Therefore,
availability of amateurish workforce is abundant (Santander Trade, 2016).

CareCo.
CareCo. is a UK-based personal care brand founded in 1961, which is interested in investing in
Ethiopia. The strengths of CareCo, includes great brand awareness and a global brand recognition that
may assist it getting an initial customer base easily. CareCo. has prospects to exploit the chances of
increasing market growth, consumers’ purchasing power, low costs of labor and production, tax
incentives, and higher profit margins (Quelch et.al, 2015). However, there are certain weaknesses and
threats that are associated with its Ethiopian investment. For instance, it has to suffer from the high
custom duties while dealing with the local distributors that will consequently post low-profit margins.
Moreover, the competition in the industry is also building as the country is encouraging to substitute
imports with local production.
The available market entry options for CareCo. includes contracting with local agents, licensing, joint
venture, and subsidiary. However, each of them has some pros and cons associated with them. For
instance, contracting a local agent will facilitate CareCo. with better local market knowledge and
would decrease initial market risks and investment. Whereas, it would also require CareCo. to share
its margin with the local agents having less amount of market share and paying high customs duties.
Licensing would allow CareCo. to have lower investment and easy access to distribution channels via a
local partner. However, this will also bring about the cons of having IP infringement, low-profit
margin, and high risk of forgery.
Similarly, the option of subsidiary would help CareCo. to protect from IP infringement and tends to
post positive income in upcoming years. However, it also tends to face the disadvantages of unfair
treatment and will be compelled to operate within a poor infrastructure. Moreover, in personal care
product industry, the competitors are already enjoying the first mover advantage. Lastly, the joint
venture could offer the benefits of having low entry barriers, high acceptance of profit, and decrease
risk exposure. The only drawback joint venturing has in case of CareCo. is the loss of operational
control (Abiad et.al, 2015).

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