If former Egyptian president Hosni Mubarak ever returns to Bole Road in Addis Ababa, the scene of the assassination attempt on his life, he will find a very different street and city than he left in such a hurry in 1995. New apartment blocks and commercial centres are dotting the landscape. Bole Road’s dual carriage way links Meskel Square with the city’s bustling airport. The donkeys are all but gone, but the blue Ladas remain, a relic from the Cold War days, thanks to a 240% import duty on cars.
Ethiopia is Africa’s largest landlocked country, having lost its port in 1992 when Eritrea became independent. Ethiopia now relies on the port of Djibouti. Moving goods into and within Ethiopia is expensive. For example, it costs more to transport a container from Djibouti to Addis Ababa than Guangzhou to Djibouti. The Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset) holds potential, but the project has faced major setbacks and delays, most notably the Al-Shabab attacks on the Kenyan coast, including the port city of Lamu. However, the project is going ahead and security has been stepped up. The project will link the countries and make up an integrated transport and economic corridor.
Ethiopia is also constructing one of the most advanced railway systems in Africa. The country plans to build a 5,000 kilometre rail network connecting Addis Ababa with Djibouti and other major towns in the country. In Addis Ababa, workers are feverously labouring to complete a twin track light railway transit (LRT) system. The white and green trams are already rolling off the production line in Changchun, China. Furthermore, Ethiopia is in the process of constructing the largest hydroelectric power station in Africa, harnessing the waters of the Blue Nile. The Renaissance dam’s reservoir will cover 1,874 sq km and the 16 turbines will deliver 6,000 MW. The country has made great progress and has spent $US 1.3 billion or 10% of its GDP annually on infrastructural development.
Ethiopia’s more than 90 million people comprise Africa’s second largest population. Foreign investors are increasingly recognising the potential in the country, as recent acquisitions from Diageo, Heineken and Tiger brands have demonstrated. However, servicing this mainly rural population provides some challenges. In comparison to other African countries, Ethiopia has a low urbanisation rate (11% vs. 30%).
Engaged in a project in the country in the 90s, we quickly realised the challenges of developing a feasible Go-to-Market system. Ethiopia back in those days had a population of 60 million; today it has 90 million. After much analysis, debate and a few chartered flights across the country, we estimated a serviceable population of seven million, as the bulk of the population lived in rural areas and most were not even close to an accessible road. Today the serviceable population is closer to 10 million. It is estimated that 38% of the population still resides five hours or more away from a city with a population of 50,000. The country’s second largest city, Dire Dawa has a population of only 274,000. Addis Ababa’s estimated 3 million people remain the focal point for most investors entering the country.
In Addis Ababa, if you spend too much time at the impressive Chinese built African Union building and the modern Ethiopia Commodity Exchange, you might get a sense that the city has moved much quicker than what is has. To jolt to you back to reality, take a trip to Mercato Market. The Mercato market in Addis Ababa is one of the largest markets in Africa and the largest in Ethiopia. Navigating the narrow dusty streets of Mercato, visitors are overcome with the smell of spices and noise of traders and trucks. Ethiopia is known for its unique cuisine and spices, and any traveling Ethiopian worth his salt (or spice) has transported a bag of Berbere or Shiro to the far corners of the earth. In Mercato, pushcarts and donkeys all compete to move goods across the market and into the city. The market is dominated by wholesalers and for most companies Mercato is serious business, as the market remains a hub for retailers across the country. Some companies generate more than 70% of their sales from Mercato.
Modern trade is in the very early stages of development and you are more likely to buy your milk at the local souk (small grocery) than at a supermarket. Souks remain the largest trade channel in Ethiopia and Nakumatt and Shoprite have yet to make a foray into the country. Hence the market remains very fragmented with low sales and high distribution costs. However, for companies looking to build relationship with retailers and establish brands, wholesalers should be part of a bigger strategy. Most MNCs (multinational companies) we work with highlight the importance of direct distribution, as it remains difficult to build brands through a wholesale system.
For foreign companies looking to distribute imported finished products (sourced directly or from local importers), they need to be aware that by law they are required to use a local distribution network. For companies will local operations, direct distribution remains a viable option in Addis Ababa. However, most companies have opted to employ distributors servicing 2nd and 3rd tier cities. In addition, companies such as Coca-Cola have found Addis Ababa and the Mercato Market fertile ground for testing micro distribution concepts.
However, finding good distributors can be a challenging undertaking. For new investors, it might seem that the best ones are already taken by your competitors or too expensive to even consider. Few distributors handle the last-mile of logistics and most distributor footprints are limited to Mercato wholesalers and key account outlets. While Addis Ababa remains the focus, a number of large MNCs have opted for multiple distribution networks focused on geographic areas, as there are few distributors with a national footprint. It is important to note that third party distribution is in the early stages of development and most distribution roll-outs are bundled together with support in terms of training and account development.
While most of East Africa was colonised by the British, French, Germans and Italians, Ethiopia remained an independent nation. Although spaghetti and coffee shops abound, the five years of Italian rule are classified as Italian occupation only. The country remains significantly different from its East Africa neighbours and Ethiopians take great pride in their heritage and the differences between them and their East African neighbours. While residing in the country, I often heard moans and groans from my Ethiopian colleagues driving past billboards featuring Kenya role models.
For any company looking to invest, building a strong local team with the necessary training and support should be priority. However, the talent pool remains relatively small and a good Ethiopian recruit is a hot commodity. Ethiopia has become central to the narrative of African’s rise. However, investors must take time to understand this uniquely East African nation and the opportunities and challenges that it presents. While blue Ladas and modern white and green trams will share the streets of Addis Ababa, if Bole Road is any indication, the country is geared for an exciting future.
First Published: Strategic Marketing Africa