UK-Ethiopia Investment Trade and Tourism Forum 9 th June 2011 Savoy Place, London
Investing in Ethiopia 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, UK June 9, 2011
Terms and conditions for use of this report 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 Page 3
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...... Page 4
Introduction Page 5
Ethiopia is very big! The following countries combined are smaller than Ethiopia: 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 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 Map of Ethiopia 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. Page 6
Ethiopia s economy today Page 7
The 5 Largest Economies - Sub-Saharan Africa (PPP) 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% Note: GDP stated in PPP = Purchasing Power Parity Note: The five largest SSA economies combined rank as the 15th largest in the world Page 8
The Largest Economies in Sub-Saharan Africa 2003 vs. 2009 (Nominal GDP) Rank Country GDP 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 Page 9
Ethiopia s economy by 2025 Page 10
Five Largest Economies - Sub-Saharan Africa Ernst & Young s Forecast - By 2025 By 2025 Ethiopia s economy 2008 2023 Country GDP (PPP) ' 000 World Rank Africa Rank % of 5 Largest Country GDP (PPP) ' 000 Africa Rank % of 5 Largest Total GDP (PPP): Appx. half a trillion dollars (US$472 billion) South Africa 492,155 24 1 46% South Africa 995,238 1 35% Nigeria 315,030 37 2 29% Nigeria 810,207 2 28% GDP/Capita (PPP): US$4,016 Angola 106,296 61 3 10% Ethiopia 472,152 3 17% Sudan 89,033 66 4 8% Angola 387,181 4 14% Ethiopia 70,069 73 5 7% Sudan 185,093 5 6% SSA Africa - Top 5 1,072,583 SSA Africa - Top 5 2,849,871 SSA Africa - Total 1,693,778 SSA Africa - Total 4,253,871 Top 5 as % of Total Africa 63% Top 5 as % of Total Africa 67% Note: The 2025 forecast is by E&Y Ethiopia. Depending on numerous external (global) and internal (within country) factors, the actual results could vary significantly from the forecast.. Page 11
US$ PPP - Millions Five Largest Economies in SSA - GDP Forecast (PPP) 15 years: 2010 to 2025 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Year 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. Page 12
World s Fastest Growing Economies Page 13
Millennium Development Goals (MDG) Score Card On track to meet 6 of 7 MDG goals by 2015. Page 14
The Investment Operating Environment Evolving, Adapting & Improving Page 15
The Investment Operating Environment Evolving, Adapting & Improving 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 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. 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. Page 16
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 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 8 19 2 9 20 2 15 38 24 21 10 Ethiopia 9 9 7 16 16 17 18 8 32 7 9 Seychelles 10 7 6 25 5 28 8 5 8 10 34 Closing a Business 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 Page 17
Ethiopia demographic trends Page 18
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 Page 19
Demographics Advantages - Youth Ethiopia Africa s current population of 1 billion is projected to exceed 2 billion which is almost twice the size of today s Chinese market. Page 20
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 Page 21
Trends: global investors in Ethiopia by region of origin Page 22
Trends in global investors in Ethiopia, by region of origin Europe Asia led by China and India are some of the largest sources of recent FDI into Ethiopia U.S. and Canada Ethiopia Middle East investments led by Saudi Arabia and UAE 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. Page 23
The Future Belongs to the C.I.A.: China, India & Africa Bharti acquired Zain s African businesses for more than $10 billion, the single largest Indian FDI into Africa. How China and India are Investing in 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. Page 24
China, India & Africa (C.I.A.) Page 25
Middle East investments in Africa Page 26
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 $4 billion for S. Africa's Massmart JUNE 6, 2011 U.S. Companies Race to Catch Up in Africa Page 27
Investing opportunities in Ethiopia, by sector Page 28
Investing in Ethiopia by sector Infrastructure The new 420 MW Gibe II Hydro power dam in Ethiopia Manufacturing Mining and Oil & Gas Hotel & Tourism Agriculture/Agro-industry Page 29
Investing in Ethiopia, Infrastructure Page 30
Infrastructure investment opportunities in the next fifteen years - Ethiopia Infrastructure Investment Needs Sector Global Average Ethiopia Average Investments - US$ '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. +US$150+ billion of infrastructure needs and opportunities 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. Page 31
Investing in Ethiopia Manufacturing, Mining and Oil & Gas, Hotel & Tourism Page 32
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. Page 33
Investing in Ethiopia, Agriculture Page 34
1991 1993 1995 1997 1999 2001 2003 2005 2007 Investing in Ethiopia by Sector: Agro-industry Why Invest in Ethiopian Agro-industry? 2500 2000 1500 1000 500 0 number of investors year 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. 9,000 investors licensed in the agriculture sector Export - Ethiopia s geographical proximity and strategic location is ideal for export of agricultural products to the Middle East, Europe, Asia and beyond. Page 35
Investment Success Stories Page 36
Success Story Example: Ethiopians Investing Locally Ethiopians are investing in their own country Page 37
Investing in Ethiopia The Diaspora Millions in annual remittance Over 2 million Ethiopians in the Diaspora especially in the U.S. Successful Diaspora returnees Page 38
Success Story Example 2 nd biggest airline in Africa: Ethiopian Airlines A Global Network Carrier Remarkable achievements in a complex global business Profit 09: $117 million (record). More profitable than ALL African airlines combined.. Revenue: $1.2 billion 2 nd largest airline in SSA. Largest cargo fleet in Africa. 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 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. Page 39
Success Story Example A Global Saudi Investor: MIDROC Group Sectors MIDROC has invested in Ethiopia 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 Agricultural Products Steel & Engineered Products Protection & Personnel Services Air Transportation Services Office and Household Furniture Engineered plastic products Car Rental & Tour Services Education Sheik Mohammed Hussein ali al-amoudi, hairman (Photo source:: MIDROC website) 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. Page 40
CONCLUSION Page 41
CONCLUSION Photo of Addis Abeba on a beautiful sunny day as seen from the E&Y offices on Bole Road. Source: Ernst & Young 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. Page 42
Contact Details Zemedeneh Negatu, CPA (U.S.) Managing Partner Ethiopia and Head of Transaction Advisory Services (TAS), Eastern Africa Ernst & Young, LLP Email: Zemedeneh.Negatu@et.ey.com 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 Page 43
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