Kenyan business looks north as Ethiopia opens up [Nation (Kenya)]
(Nation (Kenya) Via Acquire Media NewsEdge) As the Ethiopian Airlines flight descends into Addis Ababa, it is clear that the city is a construction zone, the most visible sign of the country's economic transformation.
Seen from hundreds of metres in the sky, yellow earth movers burrow into the ground and shape a new landscape that speaks of an on-going revolution.
It is not just Addis Ababa that is under construction; the whole country is at the mercy of masons and architects.
On the shores of the copper-hued Lake Tana in northern Ethiopia, concrete buildings jut out of the fields of grain, dwarfing the mud-and-straw structures that characterise the countryside.
"We are growing, so we have to build. The whole country is a construction site," said Ethiopia's ambassador to Kenya, Mr Shemsudin Ahmed Roble.
In 2012/2013, the country reported 9.7 per cent economic growth, somewhat a disappointment given the 11 per cent growth projections.
With a population of about 91 million and a gross domestic product of Sh3.6 trillion ($43.13 billion), Ethiopia is the largest economy in the Eastern Africa region, one that is ripe for regional and global investors.
However, the country is by no means a low-hanging fruit.
Over the past decades, the nation's economic growth has largely been driven by public sector spending with the government fiercely shielding strategic economic sectors against foreign invasion.
"The public sector is taking the greater responsibility to push the economy forward and there is the perception that the private sector is not yet ready to take this primary responsibility," said Mr Regassa Getachew, the secretary general of the Addis Ababa Chamber of Commerce and Sectorial Association.
Despite geographical proximity, cordial relations and a high demand for manufactured products, Ethiopia's trade with Kenya has been minimal.
In 2012, the value of trade between Kenya and Ethiopia fell to Sh4.9 billion, down from Sh5.2 billion in 2011.
This is a sharp contrast to Uganda and Tanzania, with which Kenya recorded trade worth Sh82.86 billion and Sh61.44 billion respectively.
But change seems to be on the horizon as the two countries warm up to each other with a common target to improve trade relations.
In July, Kenyan investors, under the Kenya Association of Manufacturers (KAM), visited Addis Ababa to scout for investment opportunities barely a year after the pair signed a Special Status Agreement (SSA) to enhance trade.
The agreement is yet to be ratified, meaning that some economic sectors such as banking and telecommunications remain a no-go zone.
Once past this stage, the special status agreement will grant local businessmen unprecedented access to the Ethiopian economy.
Massive infrastructureEfforts to ramp up economic ties were advanced after Addis Ababa signed on to a massive infrastructure project, the Lamu Port and South Sudan Ethiopia Transport (LAPSSET) Corridor that is expected to ease transport logistics in the region.
The Kenyan Government has also embarked on a plan to plug its electricity deficit by constructing a Sh106.7 billion ($1.26 billion) high voltage electricity transmission line that will give the country a direct link to Ethiopia's massive energy reserves.
Engagement with the private sector is also improving after Ethiopia opened up her tourism, services, manufacturing, and agriculture sectors to foreign investment.
Agriculture and services are now some of the fastest growing sectors in the country.
"Ethiopia is opening up and we are looking to expand there.
Manufacturers, bankers and retailers are all interested," said KAM chief executive, Ms Betty Maina.
Cement and steel manufacturers, according to KAM, have already begun taking the first steps towards investing in Ethiopia.
On its part, Ethiopia is actively wooing tourism industry players.
Earlier this month, the Ethiopian government, which has been explicit in its desire to borrow from Kenya's experience in the tourism industry and to create a symbiotic relationship in the sector, took Kenyan tour operators and hoteliers on a tour of the country.
"Kenya and Ethiopia already have strong relations in other areas — infrastructure, for instance — so there are already many linkages.
We want to work together in also promoting the tourism sector," said Ethiopia's State Minister of Culture and Tourism, Mrs Tadelech Dalecho.
Ethiopia's banking and insurance sectors are dominated by government-owned organisations.
According to a June 2013 report by the World Bank, state-run banks account for 70 per cent of total industry assets.
Beyond ownership, interventionist policies mean that the government has a large say in the day-to-day operations of financial institutions with implications on the availability of capital for private sector investors.
A policy directive issued in 2011 requires private banks to purchase government paper equivalent to 27 per cent of any new loan disbursements.
The directive was issued partly to fund massive infrastructure developments currently being undertaken by the government.
However, it has had negative repercussions on the private sector.
According to the bank, purchase of government bonds has risen by 127 percentage points since the directive was issued.
In contrast, loans to the private sector increased only by 20 percentage points.
"The current policy mix makes it difficult for private investment, private consumption, and exports to flourish," writes the World Bank.
Currency trading is not yet liberalised.
Banks across the country do not deviate from the government set dollar exchange rate.
Even black market traders who tempt tourists with under-the-table deals adhere to the bank exchange rate.
Given the low levels of financial inclusion and mobile money penetration, this market, if opened up, would present numerous opportunities for Kenyan banks that have been on a campaign trail to rapidly spread out into the East African region.
"Ethiopia is among the fastest growing economies in Africa due to heavy public investment in infrastructure, increased investment in the agricultural sector, and political stability in recent years.
Liberalisation of its financial sector will open opportunities for the Kenya banks to invest in the country considering that Kenya has one of the most vibrant financial sectors in the region," said a Kenya Institute for Public Policy Research and Analysis trade expert, Mr Augustus Muluvi.
A government-owned firm, Ethiopia Telecommunications Corporation, monopolises the sector.
Government officials speak in vague terms about the liberalisation of the telecommunications and banking sectors.
It is a possibility but one that will occur at some indeterminate point in the future.
"We are yet to liberalise the financial sector. It is open only to nationals.
This does not mean that it will stay like that forever but we are protecting it for a good reason.
It is still in its infancy and we want the sector to be able to compete when we finally liberalise it," said Mr Roble.
The World Bank has warned that in order to rise to the next level of economic development, Ethiopia will need to step up investments in the private sector and ease access to capital.
"An expansion in credit to the private sector enables firms to invest in productive capacity thereby laying the foundation for a sustainable growth plan," writes the bank.
Despite the challenges that local business faces as it tries to make it in the Ethiopian market, the blame for the low volumes of trade and investment with Kenya cannot be solely laid on protectionist policies up north.
Supporting infrastructure for trade leaves much to be desired.
The road link from Mombasa to Addis Ababa is not complete, with large stretches of unpaved surfaces that cause tremendous delay in transportation.
"In road infrastructure, the problem that needs to be fixed is on the Kenyan side. Ethiopia has paved their road to the border," said Ms Maina.
Therefore, air transport is often the most viable means of moving between the two countries.
Given the high cost of plane tickets, Ethiopia often ends up turning to the Middle East for most of its imports.
(c) 2013 Nation Media Group. All Rights Reserved. Provided by Syndigate.info an Albawaba.com company
[ Back To Technology News's Homepage ]