uk-ethiopia investment trade and tourism forumthe data from the wb publication used in this e&y...

UK-Ethiopia Investment Trade and Tourism Forum

9th June 2011

Savoy Place, London

Presentation by:Zemedeneh Negatu, CPA (U.S.)Managing Partner - Ethiopia and Head of Transaction Advisory Services - Eastern Africa Ernst & Young, LLP

UK - Ethiopia Trade and Investment Forum

London, UKJune 9, 2011

Investing in Ethiopia

© 2011 by Ernst & Young. Presentation by Zemedeneh Negatu, Managing Partner, Ernst & Young.

UK - Ethiopia Trade and Investment Forum, London, UK, June 9, 2011

► Note: This document is being presented at UK-Ethiopia Trade and Investment Forum, in London, UK, and is designed to create dialogue and elicit comments amongst the conference‟s participants and should be viewed within the context of these objectives. This document contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. E&Y can not accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this document. On any specific matter, reference should be made to the appropriate advisor.

► The contents of this document can not be copied and/or distributed without written authorization from Ernst & Young and/or the authors/owners of this document and the owners of referenced copyrighted materials included in this document. For authorization see contact person listed on page 39 of this document.

June 2011

Terms and conditions for use of this report



Presentation Agenda

► Introduction……………………………………………………………………………….………….......

► Ethiopia‟s economy……………………………………………………………………….……………..

► The investment operating environment…………………………………………..............................

► Demographic trends……………………………………………........................................................

► Investors by region of origin…………………………………………………………….………………

► Investment Opportunities by sector………………….………………………………..….……………

► Success stories…………………………………………………………………….…………..….……..

► Conclusion……………………………………………………………………………............................

► Contact details…………………..………………………………………….…………….……..………..

► About Ernst & Young…………………………...……………………………………...........................



Introduction



Ethiopia is very big!

The following countries combined are

smaller than Ethiopia:

Map of Ethiopia

Ethiopia is 5 times bigger than the UK

► Interesting Facts:

► Ethiopia with 81 million people and Nigeria with 140 million

combined account for 25% of the total African population.

► Ethiopia is the diplomatic capital of Africa by being the

head quarters of the AU and UN-ECA and having the fourth

largest number of diplomatic missions in the world next to

New York, Washington and London.

► Ethiopia is the only country in Africa, Middle East, Asia or

the Americas where the U.S. has two Ambassadors.

Land Area Comparison

Country Sq. Miles Sq Km.

France 210,026 543,965

Spain 195,363 505,988

Total 405,389 1,049,953

Ethiopia 440,284 1,140,331



Ethiopia’s economy today



The 5 Largest Economies - Sub-Saharan Africa (PPP)

Note: The five largest SSA economies combined rank as the 15th largest in the world

Note: GDP stated in PPP = Purchasing Power Parity

RANK

AFRICA WORLD COUNTRY 2010 2003 Growth % - '03 vs '10

1 25 South Africa 524,324 474,317 11%

2 31 Nigeria 374,323 143,238 161%

3 64 Angola 114,343 31,701 261%

4 69 Sudan 98,969 64,088 54%

5 73 Ethiopia 86,017 48,780 76%

GDP - 5 LARGEST ECONOMIES SSA 1,197,976 762,124 57%

GDP TOTAL - SSA 1,887,240

GDP - 5 LARGEST AS % OF TOTAL SSA 63.5%



The Largest Economies in Sub-Saharan Africa

2003 vs. 2009 (Nominal GDP)

Rank CountryGDP 2003 (Billion

USD) Rank Country

GDP 2009 (Billion

USD) Growth % - '03 vs '10

1 South Africa 160 1 South Africa 277 73%

2 Nigeria 50 2 Nigeria 165 230%

3 Sudan 18 3 Angola 69 431%

4 Kenya 14 4 Sudan 58 222%

5 Côte d'Ivoire 14 5 Ethiopia 34 415%

6 Angola 13

7 Cameroon 12

8 Tanzania 10 Source: World Bank

9 Botswana 7

10 Ethiopia 7



Ethiopia’s economy by 2025



Five Largest Economies - Sub-Saharan Africa

Ernst & Young’s Forecast - By 2025

2008 2023

Country GDP (PPP) ' 000 World Rank Africa Rank % of 5 Largest Country GDP (PPP) ' 000 Africa Rank % of 5 Largest

South Africa 492,155 24 1 46% South Africa 995,238 1 35%

Nigeria 315,030 37 2 29% Nigeria 810,207 2 28%

Angola 106,296 61 3 10% Ethiopia 472,152 3 17%

Sudan 89,033 66 4 8% Angola 387,181 4 14%

Ethiopia 70,069 73 5 7% Sudan 185,093 5 6%

SSA Africa - Top 5 1,072,583 SSA Africa - Top 5 2,849,871

SSA Africa - Total 1,693,778 SSA Africa - Total 4,253,871

Top 5 as % of Total Africa 63% Top 5 as % of Total Africa 67%

Note: The 2025 forecast is by E&Y Ethiopia. Depending on numerous external (global) and internal (within country) factors, the actual results could vary significantly from the forecast..

By 2025 – Ethiopia’s economy

► Total GDP (PPP): Appx. half a

trillion dollars (US$472 billion)

► GDP/Capita (PPP): US$4,016



Five Largest Economies in SSA - GDP Forecast (PPP)

15 years: 2010 to 2025

Note: The 2025 forecast is by E&Y Ethiopia. Depending on numerous external (global) and internal (within country) factors, the actual results could vary significantly from the forecast. The graph appears to indicate “smooth linear” growth

due to the use of “averaging out” of growth & declines (including recessions) during the fifteen years‟ forecast period. Full details of assumptions for the forecast available from the contact details listed on page 33 of this presentation.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Year

US

$ P

PP

- M

illio

ns



World’s Fastest Growing Economies



Millennium Development Goals (MDG) Score Card

On track to meet 6 of 7

MDG goals by 2015.



The Investment Operating Environment – Evolving, Adapting & Improving



The Investment Operating Environment – Evolving, Adapting & Improving

Doing Business

2010

Ethiopia

Doing Business 2010:

Reforming Through

Difficult Times is the

seventh in a series of

annual reports

investigating regulations

that enhance business

activity and those that

constrain it. Doing

Business presents

quantitative indicators

on business regulations

and the protection of

property rights that can

be compared across 183

economies.

Note: The material in the Doing Business publication is copyrighted by the WB. The data from the WB publication used in this E&Y presentation (pages 14 to 18 is for

reference purposes only.

Ethiopia ranks higher in doing business

than 3 out of the 4 BRIC countries. Of the

BRICs only China (#89) ranks higher than

Ethiopia. Source: The World Bank’s 2010 “Doing Business” ranking and E&Y analysis.)

BRIC: Brazil, Russia, India and China, the four largest emerging market

economies in the world and members of the G-20.

Country Doing Business 2010 Rank

Doing Business 2009 Rank Change in Rank

Ethiopia 107 111 + 4

Russia 120

Brazil 129

India 133

#9 in Africa



Top 10 Best Countries to do Business in Africa

Economy

Ease of Doing

Business Rank ▲

Starting a

Business

Dealing with

Construction

Permits

Employing

Workers

Registering

Property Getting Credit

Protecting

Investors Paying Taxes

Trading Across

Borders

Enforcing

Contracts

Closing a

Business

Mauritius 1 1 4 3 6 8 2 1 1 8 7

South Africa 2 6 5 18 11 1 1 3 25 15 8

Botswana 3 8 23 8 4 5 5 2 27 13 1

Namibia 4 18 3 5 24 3 12 17 28 4 3

Rwanda 5 2 17 2 3 7 3 10 39 3 34

Zambia 6 10 30 19 12 4 12 6 30 16 12

Ghana 7 24 32 27 1 13 5 14 5 5 16

Kenya

Ethiopia 9 9 7 16 16 17 18 8 32 7 9

Seychelles 10 7 6 25 5 28 8 5 8 10 34

38 24 21 109 20 2 158 19 2

South Africa and Ethiopia are the only two of the five biggest economies in Africa to also

rank amongst the top ten best countries to do business in Africa

World Bank/IFC



Ethiopia – demographic trends



Demographics Advantages – Population Growth

Country 2020 2050 India 1,327 1,657 China 1,385 1,304 USA 341 439 Indonesia 268 313 Brazil 223 261 Pakistan 214 291 Bangladesh 183 250 Nigeria 182 264 Ethiopia 120 278 Mexico 125 148 Philippines 119 172 Russia 132 109 Japan 122 94 Congo 96 189 Egypt 96 138 Vietnam 99 111 Turkey 87 101 Iran 87 100



Demographics Advantages - Youth

Africa‟s current population of 1 billion is projected to exceed 2 billion – which is almost twice the size of today‟s Chinese market.

Ethiopia



Demographics Advantages - Urbanization

Africa‟s is the fastest urbanizing continent in the world

300 million Africans now live in cities

More than 40 African cities with a population of 1 million or more



Trends: global investors in Ethiopia by region of origin



Trends in global investors in Ethiopia, by region of origin

Note: Graph size proportionate to total size of investments by region

in US$. For example, China, followed by India, is now one of the

largest new FDI sources in Africa. Source: E&Y estimates and

analysis.

Asia led by China and India are some of the

largest sources of recent FDI into Ethiopia

Ethiopia

Europe

U.S. and

Canada

Middle East investments led

by Saudi Arabia and UAE



The Future Belongs to the C.I.A.: China, India & Africa

AFRICA

How China and India are

Investing in

Bharti acquired

Zain’s African

businesses for more

than $10 billion, the

single largest Indian

FDI into Africa.

China Invades Africa Jan 2008

At the most macro level, China's offensive in Africa is at once enthralling and unnerving, like watching a well-oiled war machine……. At its best, China's quest is generating business that the West is too timid to undertake. But the secrecy and elitism that already define the government of China, and many of those in Africa, are poised to usher in a toxic intercontinental corruption we can hardly yet imagine.



China, India & Africa (C.I.A.)



Middle East investments in Africa



U.S and Europe’s strategy for investing in Africa/Ethiopia?

► Only 14% of the S&P 500 have any

business dealings with Africa, and

American investments are being

marginalized by the newly

emerging economic power houses.

Wal-Mart offers $4 billion for S. Africa's Massmart

JUNE 6, 2011

U.S. Companies Race to Catch Up in Africa

http://us.rd.yahoo.com/dailynews/reuters/brand/SIG=pd7i95;_ylt=AtwwpJXOPnRdPpnXIkkwLjmb.HQA;_ylu=X3oDMTExaTJpa3NyBHBvcwMxBHNlYwN5bi1wcnZkbGluawRzbGsDcmV1dGVycw--/*http:/www.reuters.com



Investing opportunities in Ethiopia, by sector



Investing in Ethiopia – by sector

► Infrastructure

► Manufacturing

► Mining and Oil & Gas

► Hotel & Tourism

► Agriculture/Agro-industry

The new 420 MW Gibe II Hydro power dam

in Ethiopia



Investing in Ethiopia, Infrastructure



Infrastructure investment opportunities in the next fifteen years - Ethiopia

Note: Global average based on E&Y‟s global study of infrastructure investment

requirements for the years 2000 to 2030. The Ethiopian average is an estimate calculated

by E&Y Ethiopia based on the global average adjusted to reflect the estimated needs by

Ethiopia to maintain 10%+ annual average GDP growth over the next 15 years. Full

details of assumptions for forecast available at the contact details listed on page 33 of this

presentation.

+US$150+ billion of infrastructure needs and opportunities

Infrastructure Investment Needs

Sector Global Average Ethiopia Average

Investments - US$ '000

Road 0.32% 0.64% 21,909,701

Rail 0.07% 0.07% 2,396,374

Telecoms 0.09% 0.34% 11,639,529

Electricity 0.24% 0.48% 16,432,276

Water 1.01% 1.52% 51,864,370

Social Infrastructure 0.35% 1.04% 35,432,095

Aviation (includes ET's aircraft acquisition) 0.35% 11,981,868

Total - 15 years 151,656,212

Source: E&Y estimates and analysis.



Investing in Ethiopia – Manufacturing, Mining and Oil & Gas, Hotel & Tourism



Investing in Ethiopia by Sector – where global companies are investing

►Manufacturing► Consumer goods

► Textile

► Leather

► Cement

► Other - labor intensive but low cost manufacturing

►Mining and Oil & Gas► Exploration in mining and oil & gas underway by

several international operators.

►Hotel & Tourism► From five-star hotels to tour operations. Ethiopian

Airlines‟ success has greatly contributed to the sector.

http://news.bbc.co.uk/1/shared/spl/hi/pop_ups/07/africa_enl_1194627826/html/1.stm



Investing in Ethiopia, Agriculture



Investing in Ethiopia by Sector: Agro-industry

► 111 million hectares total land coverage

► 74 million hectares suitable for agriculture

► 15 million hectares cultivated land

► Agricultural sector includes

► Crop production

► Livestock production

► Fishery

► Beekeeping and

► Forestry

► 1.6 million hectare of land prepared in 4 regions mainly Benishangu Gumuz, Gambella, SNNP and Afar

► 3.0 million hectare (the size of Belgium) in total is being prepared for foreign investors.

0

500

1000

1500

2000

2500

1991

1993

1995

1997

1999

2001

2003

2005

2007

number of investors

year

9,000 investors licensed in the agriculture sectorExport - Ethiopia‟s geographical proximity and strategic location is ideal for

export of agricultural products to the Middle East, Europe, Asia and beyond.

Why Invest in Ethiopian Agro-industry?



Investment Success Stories



Success Story Example: Ethiopians Investing Locally

► Ethiopians are investing in their own country



Investing in Ethiopia – The Diaspora

► Millions in annual remittance

► Over 2 million Ethiopians in the

Diaspora especially in the U.S.

► Successful Diaspora returnees



A Global Network Carrier Remarkable achievements in a

complex global business

“For an airline of Ethiopian's size

and an airline in Africa, I believe

the limitation is only in the mind.

The continent has not been

explored. There aren't many

airlines which can properly go

the distance in Africa. It's still

untouched."

Girma Wake, CEO Ethiopian

Airlines, quoted in “Flight

Global” interview, March 16,

2009

Success Story Example – 2nd biggest airline in Africa: Ethiopian Airlines

► Profit „09: $117 million (record). More profitable than ALL African airlines combined..

► Revenue: $1.2 billion – 2nd largest airline in SSA.

► Largest cargo fleet in Africa.

► Launch customer for the Boeing’s 787 Dreamliner.

► Aircraft: 44 +36 on-order, including the Boeing 777-200 LR, first in Africa.

► With Ethiopia Airlines rapid growth, Addis Abeba is on track to becoming the largest aviation hub (MRO, Catering, Aviation Training, Cargo etc) in Africa.

► Voted Best Africa Airline several times.



Success Story Example – A Global Saudi Investor: MIDROC Group

•Agricultural Products

•Steel & Engineered Products

•Protection & Personnel Services

•Air Transportation Services

•Office and Household Furniture

•Engineered plastic products

•Car Rental & Tour Services

•Education

•Mining and Exploration

•Real Estate & Project Management

•Paints, Tiles & Building Products

•Household Goods & Appliances

•Gas & Plastic Products

•Computer, Networking & Glasses

•P. P. & Craft Paper Bags

•Agro Industry

Sheik Mohammed Hussein ali

al-amoudi, hairman (Photo source::

MIDROC website)

Sectors MIDROC has invested in Ethiopia

“Sheik Mohammed is the single largest international investor in Ethiopia. He has

invested more than $2 billion in Ethiopia”. Source: Forbes magazine (U.S.), March

11, 2009.



CONCLUSION



CONCLUSION

While a lot still needs to be done, Ethiopia‟s economy has already shown sustainable double digit

growth over the last several years. And, if recent trends in its economic development, such as

attracting large volumes of FDI, evolving and adoptive reforms in the business operating environment

and investments in infrastructure continue, Ethiopia‟s goal of joining the ranks of the middle income

Emerging Market economies, in the next 15 to 20 years, is achievable.

Photo of Addis Abeba on a

beautiful sunny day as seen

from the E&Y offices on Bole

Road. Source: Ernst & Young



Zemedeneh Negatu, CPA (U.S.)

Managing Partner – Ethiopia and

Head of Transaction Advisory Services (TAS), Eastern Africa

Ernst & Young, LLP

Email: [email protected]

Tel mobile: +251-91-1201741

Office Contact Details

Ernst & Young, LLP

Bole Road – Mega Building 11th Floor

P.O. Box 24875 Code 1000

Addis Abeba, Ethiopia

Tel :+251-11-550-4933

Fax:+251-11-550-4932

Contact Details

mailto:[email protected]



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