CCG Ethiopia 2020
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CCG Ethiopia 2020 1 Table of Contents Doing Business in Ethiopia _____________________________________________ 4 Market Overview _____________________________________________________________ 4 Market Challenges ___________________________________________________________ 7 Market Opportunities _________________________________________________________ 8 Market Entry Strategy _________________________________________________ 11 Leading Sectors for U.S. Exports & Investments ___________________________ 12 Aviation ___________________________________________________________________ 12 Road and Railways __________________________________________________________ 15 Agro-processing ____________________________________________________________ 18 Information and Communication Technology (ICT) _______________________________ 21 Energy ____________________________________________________________________ 24 Health Care ________________________________________________________________ 28 Agriculture _________________________________________________________________ 32 Customs, Regulations & Standards ______________________________________ 41 Trade Barriers ______________________________________________________________ 41 Import Tariffs _______________________________________________________________ 41 Import Requirements & Documentation _________________________________________ 41 Labeling/Marking Requirements _______________________________________________ 42 U.S. Export Controls _________________________________________________________ 42 Temporary Entry ____________________________________________________________ 43 Prohibited & Restricted Imports _______________________________________________ 43 Customs Regulations ________________________________________________________ 44 Standards for Trade _________________________________________________________ 44 Trade Agreements __________________________________________________________ 45 Licensing Requirements for Professional Services _______________________________ 46 Selling U.S. Products & Services ________________________________________ 47 Distribution & Sales Channels _________________________________________________ 47 eCommerce ________________________________________________________________ 50 Selling Factors & Techniques _________________________________________________ 51 Trade Financing ____________________________________________________________ 58 Protecting Intellectual Property ________________________________________________ 62 Selling to the Public Sector ___________________________________________________ 63 2 Web Resources (delete or incorporate in text) ___________________________________ 64 Business Travel ______________________________________________________ 69 Investment Climate Statement __________________________________________ 73 Political Environment _________________________________________________ 74 INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2020. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. Legal Disclaimer: The US&FCS makes every reasonable effort to ensure the accuracy and completeness of the information in this Guide, a resource for U.S. businesses to use in the exercise of their business judgment. U.S. businesses should conduct their own due diligence before relying on this information. When utilizing the information provided, the U.S. business is responsible for complying with all applicable laws and regulations of the United States, including the U.S. Foreign Corrupt Practices Act (FCPA). References and links to third parties and their content are provided for the convenience of readers, and are not exhaustive lists of such resources. The US&FCS is not responsible for the availability of any third-party or its content whether found on an external site or otherwise; nor does US&FCS endorse the third-parties or endorse, warrant, or guarantee the products, services, or information described or offered in any third-party content. Please be aware that when following a link to an external site, you are then subject to the privacy and security policies and protections of the new site. 3 Doing Business in Ethiopia Market Overview Ethiopia has a large domestic market of over 100 million people, making it the second most populous country in Africa after Nigeria. Over the last decade, Ethiopia has had one of the fastest growing economies in the world, with average annual growth rate of 14%. In 2019, Ethiopia’s real Gross Domestic Product (GDP) expanded by nine percent, and growth is expected to fall to 6.3 % in 2020 due to Covid-19, according to the World Bank. The business climate is undergoing significant changes with broad policy reforms implemented under the leadership of Prime Minister Abiy Ahmed. Government plans to privatize leading state-owned enterprises signal a significant shift toward market based reforms and a new flexibility with respect to economic policymaking. The acute foreign exchange shortage remains the leading challenge for U.S. suppliers, for which there is no quick fix. While the economy is growing rapidly, presenting many opportunities, there are also hurdles to doing business in Ethiopia. The 2020 World Bank’s Ease of Doing Business report (EODB) ranked Ethiopia 159th out of 190 countries, an improvement of two positions from 2018. The new leadership has a focused target to improve the country’s ease of doing business ranking and has formed an interministerial committee led by the Prime Minister to improve specific areas of the ease of doing business. The World Economic Forum (WEF) has identified burdensome customs administrative procedures, the high cost of logistics, and access to credit and foreign exchange as major challenges to small and medium-sized enterprises (SMEs) in Ethiopia. The agriculture sector has historically been the engine of the Ethiopian economy, but it has recently given way to the expansion of the service sector. The National Bank of Ethiopia (NBE) notes agriculture, industry and services have contributed 33.3%, 28.1% and 39.8% to GDP respectively during the 2018/19 Ethiopian fiscal year, as opposed to 36.3%, 27% and 39.2% to GDP in 2017/2018. The agriculture sector’s share of GDP shrank by more than 25% between 2005 and 2019, while the service sector’s share grew by 28% during the same period. Industry and the manufacturing sectors’ share gradually rose, expanding their share of GDP over the past ten years. The construction industry, particularly roads, railways, dams, industrial parks and housing development, is the main driver of growth in the industrial sector, contributing more than half of the sector’s growth. Service sector growth is dominated by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading. In May 2020, Moody’s downgraded Ethiopia’s credit worthiness to ‘B 2’, while S&P and Fitch maintained their ratings of ‘B’ with a negative outlook. These ratings reflect Ethiopia’s deteriorating fiscal position, but prospects for continued economic growth in the short and medium term and are on par with neighboring Kenya and Uganda. During 2018/19, the year on year inflation rate gathered momentum and rose primarily due to a price increase in food items. In April 2020, Ethiopian inflation stood at 19% percent. Real interest rates in Ethiopia remain largely negative. The minimum bank deposit rate of 7.00%, bond yield of 3.67%, and Treasury bill yield of 3.67% are lower than the annual inflation rate of approximately 15.3 percent. In October 2017, the National Bank of Ethiopia (NBE) devalued the birr by 15 percent relative to the U.S. dollar, thereby reducing overvaluation and enhancing competitiveness. In April 2020, the official exchange rate of dollar to birr rose to 33.15 with the birr devaluing by 15% in less than a year. The birr has continued to follow a steady depreciation, with the NBE following a crawling peg exchange rate policy. The black market exchange rate for the same period was approximately 42.00 Birr per dollar, a premium of 26.6% over the official rate. Ethiopia faces a growing trade deficit with total imports increasing on average by 12.5% per year during the previous 10 years. The rise in the trade deficit has been driven by rising imports, which ballooned from $3.6 billion in 2010 to $15 billion in 2018/2019, the peak of Ethiopia’s trade deficit. Concerned by the widening trade balance, the 4 Government of Ethiopia (GOE) works to suppress imports and has undertaken other macroeconomic measures in recent years, which has resulted in a narrowing of the trade deficit to $12.44 billion in 2018/19. Ethiopia’s total merchandise exports were $2.67 billion in 2018/2019 (a 6% decline from last year, 2017/2018), while imports for the same period were $15.11 billion, a 1% decrease from the previous year. In September 2019, the adminstration of PM Abiy Ahmed launched its new economic policy strategy termed the Home Grown Economic Reform Agenda, designed to eliminate macroeconomic imbalances and lay the foundation for sustainable and inclusive growth. The reform aims to transition the Ethiopian economy from a public sector led model to one that is driven by the private sector. In December 2019 the IMF approved a program for Ethiopia of nearly $3 billion in support of the Home Grown Reform, which according to government sources will require a total of $10 billion of new funding. The Ethiopian birr is a non-convertible currency, and private sector allocation to foreign exchange (U.S.