QUEENS COLLEGE
Postgraduate Program
Department of Masters of Business Administration
Group Assignment
International Business Strategy
Participant Students
Number Name ID
1 Senaiyt Bekele GSR/MBA/0228/14
2 Frehiwot Getachew GSR/MBA/0192/14
3 Wubalem Asfaw Dubale GRS/MBA/0457/14
4 Worknesh Kifle GRS/MBA/0145/14
5 Ayahlushm Mulugeta GRS/MBA/0043/14
Submitted to: Instructor Warkaw
Submission date: November 2022
Table of Contents
Summary....................................................................................................................................2
Introduction................................................................................................................................3
Analysis......................................................................................................................................4
Political stability and sustainable economic growth................................................................11
A Policy and institutional environment....................................................................................12
Possible policy recommendations............................................................................................15
References................................................................................................................................16
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Summary
Doing business in Ethiopia and the challenges you need to know: There are a number of
unique challenges European and US companies are most likely to face when doing business
in Ethiopia. Despite continued economic growth (8.3% in 2018), directors and decision
makers need to know the various pitfalls before setting up. Many well-known brands operate
in Ethiopia including Tesco, Unilever, Glaxo Smithkline and Diageo. FDI is a main priority
for Ethiopia’s government and they have streamlined the registration process to create a
simple one-stop-shop system.
Foreign exchange shortage is a problem in Ethiopia and investors have complained that the
lack of hard currency is stifling to the private sector. The International Monetary Fund said in
January that Ethiopia’s foreign reserves at the end of the 2016/17 fiscal year stood at $3.2
billion, less than what it spends on imports in two months. Recently, 300 million dollars was
released by the Commercial Bank to importers working in priority sectors. Any foreign
investors need to understand the exchange shortage in Ethiopia and obtain the right advice
and intelligence on how to handle funds.
Infrastructure in emerging economies is always a hindrance to the transportation of goods.
Although by no means perfect, Ethiopia’s road network has grown from nothing 20 years ago
into 136,000km today. Road projects now represent around a quarter of the annual
infrastructure budget and there are ten major highways spanning the country, one of which
connects to the Port of Djibouti. It is an important passage as Djibouti’s sea gateway
currently accounts for 95% of Ethiopia’s imports and exports.
The study aim has been achieved successfully through its three specific objectives including,
identifying challenges of business enabling environment with respect to the role of
Government, Business and consumer, pinpointing the major sources of challenges and
problems that hinder business enabling environment, and providing solutions that help
decision makers to take corrective measures, The major findings of the research relating to
challenges of Ethiopia is: unregulated computation, tax administration, electricity supply,
renewing business license, corruption, access to land and construction permit, access to
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finance, cost and availability of shops stores and offices, telecommunication service, frequent
change in business laws and regulations.
The main sources of mentioned problems are legal, bureaucratic and technological
incapability of government institutions. Unnecessary documentary requirements, lack of
clarity of procedures, poor institutional coordination, uneven enforcement of rules, uneven
registration for VAT, interruption and cuts in electric supply, unclear rules that leads to
discretionary practices of officials, oligopolistic market structure, limited accessibility to the
dispute resolution mechanism, severity of penalties and lack of guidance on compliance and
severity of inefficacy in service provision and client handling.
Export is an important ingredient for country’s economic growth and sustainable
development, like in Ethiopia; it is the back bone of the country’s economy.
The major factors of export are strong international competition, high transportation costs and
ineffective national export promotion programs. In the overall export performance as country
wide was deteriorating year after year and the firm’s perception about their performance was
extremely dissatisfied. However, the country has opened many doors for promoting the sector
in many incentive packages. Finally, based on the findings, results and analysis of the study a
general and policy implication recommendations are forwarded.
Introduction
The general objective of this study is to identify the major challenges of business
environment in Ethiopia and to find out ways to improve current problems of country.
Accordingly, Addis Ababa is a proper place to conduct this research, to identify the main
sources of challenges for doing business in Ethiopia and to determine and to recommend
measures taken by each actor (government businesses and consumers) by raising questions
What are the major challenges of enabling business environment in Ethiopia? How have
countries managed these kinds of reforms in the past and how they developed better enabling
business environment? How business perceives severity of problems related to Business
challenges in Ethiopia: And what obstacles lie in its path? What are prospective roles of
government, businesses and consumers to attain Better Business in Ethiopia? To answer these
questions and to find more specific, relevant and reliable information, the research has been
conducted based on a methodology developed in the light of positivism research philosophy;
this research also follows the paradigm of constructivism and applies an exploratory
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sequential mixed approach through mixed research method including survey questionnaire
and secondary data strategy.
The study was significant since it is expected to investigate the major problems that affect
doing business in Ethiopia. The researcher hopes that the study identified gaps that causes for
dissatisfaction of all actors. In addition to that the survey will contribute on the efforts of
government Endeavour for provision of effective and efficient service to businesses and
consumers, it is also significant to determine the factors that affect fair trade computation and
consumer right protection, further more it enables to demonstrate the role of each stakeholder
for further improvement and development.
To maximize these opportunities, government of Ethiopia had taken different regulatory,
administrative and institutional reform measures for last 25years; however, the key studies
undertaken by international organizations aimed at benchmarking the business enabling
environment and condition for doing business list similar barriers for business in Ethiopia.
For instance, The World Bank’s/IFC doing business report of 2017 ranked Ethiopia 159 out
of 189 economies in “Ease of doing Business (down from 112 in 2008). That indicates
Ethiopia’s score is substantially worse than that of sub Saharan peers.
Analysis
Doing business in Ethiopia and EAC the challenges you need to know: There are a number of
unique challenges European and US companies are most likely to face when doing business
in Ethiopia. Despite continued economic growth (8.3% in 2017), directors and decision
makers need to know the various pitfalls before setting up. Many well-known brands operate
in Ethiopia including Tesco, Unilever, Glaxo Smithkline and Diageo. FDI is a main priority
for Ethiopia’s government and they have streamlined the registration process to create a
simple one-stop-shop system.
Infrastructure in emerging economies is always a hindrance to the transportation of goods.
Although by no means perfect, Ethiopia’s road network has grown from nothing 20 years ago
into 136,000km today. Road projects now represent around a quarter of the annual
infrastructure budget and there are ten major highways spanning the country, one of which
connects to the Port of Djibouti. It is an important passage as Djibouti’s sea gateway
currently accounts for 95% of Ethiopia’s imports and exports.
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Ethiopia recently acquired stakes in all the major East African ports including Djibouti,
Somaliland, Sudan and Kenya. This has opened up import and export to the country
massively because there are now more options available for shipping. Although roads are not
the smooth runways we are accustomed to in the UK and America, they are there and can be
used. As an example, Ethiopia has already begun to ship large consignments of fertilizer
through Port Sudan with goods travelling along a 100km corridor completed in 2013. The
road cost $27 million and was executed by a Chinese construction company.
The Addis-Djibouti electric railway opened in 2017 and is 5,000km in length. Logistically
this is a game-changer because products can be moved so much quicker than before. It has
cut the journey time between Addis Ababa and Djibouti from 3 days to 12 hours. The railway
line also stops at every industrial park in Ethiopia so exporters can load goods daily to be
shipped. Total capacity is 24.9 million tonnes of freight annually, with 6 million tonnes
annually expected in 2023.
Air freight is another way for exporters and importers to move their goods, especially if they
are perishable or temperature sensitive. Ethiopian Airlines flies to more destinations in Africa
than any other carrier. It is one of the fastest-growing companies in the industry and largest
on the continent. In 2017 the company launched a new cargo terminal which is expected to
trans-ship roughly 600,000 tons a year.
“Ethiopia is an emerging market so issues do arise,” said Francis Agbonlabor, CEO of the
Diageo Brewery. “Clearance of goods and transportation can be complicated but with
patience and innovative thinking, solutions can easily be found. The government are always
here to help.”
Ethiopia is the 107th least corrupt nation out of 180 countries, according to the Corruption
Perceptions Index reported by Transparency International. That being said, there are a
number of support networks in Europe, US and Ethiopia itself to combat any fraudulent
activity effecting foreign investors. The general consensus from those operating in the
country is that corruption is very low and mainly effects areas of business completely
unrelated to FDI. International investors are also consistent in reporting that they are not
faced with demands for bribes.
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“The government is very committed to us,” says Raghav Pattar, VP of Chinese apparel
manufacturer Indochine International. “They had workers here 24 hours, day and night, to
build this Industrial Park. And there is no corruption. None!”
Transparency International is the main recognised coalition against corruption. Although they
don’t provide consultancy services, the organisation works tirelessly on global conventions
and research. The Business Anti-Corruption Portal is another useful platform offering tools
on how to mitigate risks and cost of corruption when doing business abroad. All the
information on the Portal is produced by GAN Integrity Solutions, a Denmark based IT &
Professional Services firm. The Portal was established in 2006 and is supported by the
European Commission and a number of European governments.
Here in the UK, there are a number of great consultancy firms advising investors on strategy,
risk, due diligence and dispute resolution. Africa Matters (ALM), based in London’s Pimlico,
is a commercial consultancy working with companies, institutions, funds and investors.
Directors and decision makers who are interested in Africa can rely on ALM’s insights and
access to information. This helps them make business decisions, strengthens their resilience
and improves ROI. Another firm based in Hammersmith called Africa Practice advise some
of the largest institutions, companies and investors on the continent. They gather information
and intelligence, analyse it and then develop advocacy / engagement strategies for clients to
succeed.
The Gov.uk website says “inconsistencies in tax assessments and excessive penalties are a
challenge when conducting business in Ethiopia”. Tax collection, policy unpredictability and
bureaucracy have been identified as issues affecting some areas of business in East Africa.
All the big 4 accountancy firms advise companies on tax matters in emerging economies.
Ernst & Young are probably the most trusted for Africa and they continue to publish
excellent business intelligence and analysis on the subject. Other firms do the same thing at
cheaper rates and on a smaller scale.
Foreign exchange shortage is a problem in Ethiopia and investors have complained that the
lack of hard currency is stifling to the private sector. The International Monetary Fund said in
January that Ethiopia’s foreign reserves at the end of the 2016/17 fiscal year stood at $3.2
billion, less than what it spends on imports in two months. Recently, 300 million dollars was
released by the Commercial Bank to importers working in priority sectors. Any foreign
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investors need to understand the exchange shortage in Ethiopia and obtain the right advice
and intelligence on how to handle funds.
“We see Ethiopia as having huge potential for future growth and development,” said David
Whiston, East East African Sales Director for JCB. “Projects around Ethiopia need JCB’s
equipment so it is satisfying to work here and be a pioneer in the market. Any foreign
investors moving to Ethiopia need to be in it for the long-term. It can sometimes be difficult
to get the foreign exchange to purchase the letter of credit which is needed to pay for a
product, but that’s just part of the process. I don’t see this as a negative it’s just a factor of our
operation. You have to be flexible in Ethiopia and keep at it. Understand you may need to do
things differently and change your payment terms or product for the market. If you can accept
that then you will function in Africa.”
Investors exporting to Ethiopia can benefit from access to Europe and Middle Eastern
economies, cheap and trainable labour, a stable political environment, low crime rates and
one of the largest domestic markets in Africa with over 100 million people. This economy is
expected to maintain the rapid growth it has experienced over the past 10 years but
businesses need to know what challenges they might face. If investors research the market
properly and get the right advice beforehand, Ethiopia and East Africa can be an exciting and
profitable location for many areas of FDI.
ITC News
New business survey identifies obstacles encountered by traders and points to reform agenda
Ethiopia’s export sector has grown rapidly in recent years, but the country’s businesses would
be performing even better in international markets were they not held back by an array of
non-tariff measures (NTMs).
According to a new survey of Ethiopian exporters, importers and producers by the
International Trade Centre (ITC), 96% of trading companies report difficulties related to the
application and implementation of NTMs. Exports are much more affected than imports: 90%
of exporting companies report facing burdensome NTMs, while only 56% of importing
companies report such problems.
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The NTM Business Survey focuses on six economic sectors: coffee, oilseeds, other
agricultural products, textiles, leather products, and other manufacturing. Among them,
leather products are the most affected by NTM-related obstacles.
The survey reveals as well that one-fifth of the export-related challenges pertain to technical
requirements imposed either by domestic authorities or by trading partners. Product identity
and quality requirements are the most frequent burdensome situations cited by businesses.
For agricultural products, these regulations define thresholds such as the percentage of coffee
beans that may be broken beans or the amount of pesticide residue beyond which a food
would no longer be deemed safe for consumption. For manufactured products, these
regulations may impose limits on the use of chemical inputs, such as chromium and sulphur
in shoemaking, for instance.
These regulations are designed to protect the health and safety of consumers. For exporters,
however, meeting these requirements, and obtaining related certification, can be costly and
time-consuming. The surveyed businesses report that much of the compliance burden is
rooted in the processes of obtaining necessary paperwork, delays in inspections, the lack of
testing and certification infrastructures in the country and the imbalance between the poor
quality of local inputs and the high quality demands of the international markets.
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Many export-related obstacles can be addressed at home
Many of the obstacles reported by Ethiopian traders relate to domestic policies and
procedures. The Ethiopian government is thus in a position to address these obstacles by
acting domestically.
For instance, Ethiopian export regulations, such as export clearance procedures, are pointed
to by exporters as a major hurdle to trade. Traders also point to the multitude of national
trade-related agencies, with overlapping administrative bureaucracies often leading to delays
in obtaining certificates of origin or securing necessary customs inspections.
Why trade matters to Ethiopia
Since the early 1990s, Ethiopian governments have launched extensive policy reforms to
make the economy more market driven. In 2003, the country began talks to join the World
Trade Organization (WTO), a process the government hopes to conclude by 2020.
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Using trade to drive faster growth is essential to Ethiopia’s aspirations to join the ranks of
middle-income states by the year 2025. Over the past 15 years, the value of Ethiopian exports
increased by 549%. Nevertheless, even faster import growth has led to a worsening balance
of payments deficit, making the country’s competitiveness in international markets an urgent
priority.
Most of Ethiopia’s leading exports have a large number of potential competitors. For
agricultural products in particular, such as coffee, sesame and beans consumer-driven
preferences are becoming more important. These consumption trends demand a high degree
of export competitiveness overall, as well as the infrastructure for testing and traceability that
Ethiopian producers will need to access lucrative niche markets such as organic food.
Key recommendations to lower trade obstacles
To date, ITC's NTM Surveys have been implemented in over 65 developing and developed
countries with nearly 30,000 interviews with trade companies. More than collect data, the aim
is to create a powerful instrument to help developing measures that reduce trade costs by
lowering the obstacles that businesses face.
The NTM Survey in Ethiopia interviewed 231 Ethiopian trading companies. Discussions
among national stakeholders led to a number of policy recommendations:
Comprehensive quality improvements in national production are key
To sustain the competitiveness of current exports as well as to achieve successful product
diversification in the future, a comprehensive approach to quality improvements is needed for
Ethiopian products to match international quality standards or requirements.
Further monitoring and transparency with regard to trade procedures
To achieve higher quality in production, it is necessary to disseminate knowledge of
standards and product regulations to Ethiopian businesses. Trade procedures can be perceived
as too lengthy because the processes are not fully understood. Access to information is thus a
key factor to overcome trade challenges. Higher transparency together with simplified
administrative procedures would significantly reduce trade costs.
Training is key to boost competitiveness
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Investment in laboratory infrastructure and training is crucial to obtaining international
accreditation for the laboratories that provide the conformity assessments goods need to
access foreign markets.
Further institutional coordination to facilitate trade
An inter-agency mechanism with focal points from different agencies would help facilitate
trade by coordinating and harmonizing regulatory reforms in addition to leading consultations
and informational outreach campaigns.
Political stability and sustainable economic growth
Ethiopia is considered as one of the most stable countries in Africa. The Constitution of the
country, adopted in 1995, provides for a multiparty political system, Elections are held by
universal adult suffrage every five years, The FDRE has a parliamentarian form of
government with a bicameral parliament which comprises of the House of the Peoples’
Representatives (HPR) and the House of the, Federation (HOF). The House of the Peoples’
Representatives is the highest authority of the Federal Government, Power of government is
assumed by the political party or a coalition of political parties that constitutes a majority in
the House of the Peoples’ Representatives (HPR); Executive power is vested in the Prime
Minister, elected from among the members of the HPR for a five-year term;
Ethiopia may well be considered as a country with the lowest levels of crime and corruption
among least developed countries. The Ethiopian government has formulated the five-year
Growth and Transformation Plan (GTP) to carry forward the important strategic directions in
maintaining a fast growing economy in all sectors. Accordingly, Ethiopia’s economy is
projected to grow at an average rate of11.2 percent annually. Enormous efforts have been
made in major key sectors to achieve the Millennium Development Goals (MDGs).
Ethiopia’s economy is based on agriculture, which accounts, in 2012/13, for about 42.9
percent of the gross domestic product (GDP), 90% of foreign currency earnings, and 85% of
employment. Generally, the overall economic growth of the country has been highly
associated with the performance of the agriculture sector. Coffee is a critical commodity to
the Ethiopian economy. It earned US dollars 745.1 million in exports in 2012/13. Other
important export products (2012/13) include gold (US58 dollars 4.4 million), oil seeds (US
dollars 437.1 million),chat (US dollars 270.6millions),flowers (US1 dollars 97.0
10
million),pulses (US dollars 232.5 million), live animals (US1 dollars 60 million), leather and
leather products (US dollars 120.6 million), meat and meat products(US74.1 dollars million),
fruits and vegetables (US dollars 43.7 million).The industrial sector, which mainly comprises
small and medium enterprise, accounts for about 12.4 percent of GDP in 2012/13. Similarly,
the service sector comprised of social services, trade, hotels and restaurants, finance, real
estate, etc. accounts for about 45.2 percent of GDP in the same year.
A Policy and institutional environment
The Industry Development Strategy of the country has put in place the principles that
primarily focus on the promotion of agricultural-led industrialization, exported development,
and expansion of labour intensive industries. These principles are inter-dependent and inter-
linked one with another. The strategy has also set the other principles that clearly stated the
pivotal contribution of the private sector, the leader ship role of the government, and the
integrated and coordinated participation of the public at large in nurturing the strategy. This
strategy refers to those industries which are primarily involved in the production of
manufactured goods. It is also tried to include other industrial classified sectors in the
document other than the manufacturing industries. The fundamental principles of the
Ethiopian industry development strategy are; Considering the Private Sector as an Engine of
the Industrial Development Strategy, Implementing Agricultural Development Led
Industrialization Principle, Implement Export-led industrialization principle since, Focusing
on the expansion of labour intensive industry direction, Implementing effective domestic-
foreign investment partnership method, Implementing the direction where, the government
will play a leading managerial role In implementing the principle that encourages the active
participation of the public.
B Legal and administrative frameworks /regulatory environment
The constitution is the supreme law, overriding all other legislation in the country. The legal
system depends on codified laws, including civil, penal, civil procedure, and penal procedure;
commercial and maritime codes. All proclaimed laws are published in official gazettes
(Negarit Gazeta).1 In administering justice, courts are directed by internationally accepted
principles of justice as well as by the laws of the FDRE. The practice of law is reserved for
Ethiopians. However; foreign nationals have the right to appear in courts as witnesses. In
such cases, the foreigner is allowed to communicate through a court-appointed translator.
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The Commercial Code of 1960 provides the legal framework for undertaking business
activities in Ethiopia. The constitution, in accordance with Article 40, ensures the right of
every citizen to the ownership of private property, including the right to acquire, use and
dispose of such property. The Investment Proclamation (769/2012) gives also a foreign
investor the right to own a dwelling house and other immovable property necessary for his
investment.
The Investment Proclamation (769/2012) guarantees investors against measures of
expropriation or nationalization, and specifies advance payment of compensation
“corresponding to the prevailing market value” of a private property earmarked for
expropriation or nationalization for public interest. Ethiopia is a member of the World
Intellectual Property Organization (WIPO) and the Multilateral Investment Guarantee
Agency (MIGA). Furthermore, Ethiopia has concluded bilateral investment treaties (BITs)
and double taxation treaties (DTTs) with a number of countries.
Business can be set up in the form of sole proprietorship, business organizations incorporated
in Ethiopia (a private limited company, a share company or partnerships), branch of a foreign
company, public enterprises and cooperative societies. Partner ships are associations of
persons whose liability is unlimited (except limited partners in limited partnerships).
The laws that regulate formation of business entities in Ethiopia are the Ethiopian
Commercial Code of 1960, Ethiopian Civil Code of 1960, Investment Proclamation of 2012
(as amended in 2014), Investment Regulation of 2013, Public Enterprises Proclamation of
1992, Cooperative Societies Proclamation of 2003, Commercial Registration and Business
Licensing Proclamation of 2016.
C. Recent tax and regulatory updates
The most recent government measures to create better business enabling environment is the
second Growth and Transformation Plan for 2015/16-2019/20, which calls for privet sector-
led economic growth through: support for development of large scale commercial agriculture;
creation of favorable condition and extension of incentives for export oriented and import-
substituting industries, particularly the sugar, textile, leather and cement industries; by giving
special attention for small and medium enterprise development; and enhancing expansion and
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quality of infrastructural development including, among others, road networks, railway lines,
electricity supply and telecommunication.
In recent years, another revision has also been made to Ethiopia’s key business and
investment legislation, including the rules governing business registration and licensing,
investment screening and issuance of investment permits, and trading across borders. For
example, the administration of investment permit, and post permit investment supervision has
been overhauled. Another area undergoing remarkable legal and institutional reform one is
customs clearance and management. With the implementation of a business process re-
engineering (BPR) project on human resource management and information communication
as well as modernization of service delivery through partnership programs, also, several
recently-introduced trade facilitation schemes promise to boost international trade and privet
sector development in Ethiopia.
D Constraints on ease of business enabling environment
Figure: How Ethiopia and competitor’s economies rank on the ease of doing business
Although several economic strategies have been formulated and implemented by the
government, aiming to direct economic activities and privet sector development as per the
overarching priorities of the country, businesses enabling environment in Ethiopia are
confronted with different legal, regulatory and administrative barriers to their operations 1,as
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illustrated above most of Ethiopia’s ease of doing business rank indicators in World Bank
doing business report 2016/17 are below regional average2.
In general terms, although some identified issues are specific to certain cities or regions,
many are either national level problems or regional problems with national
consequences.3 key problems identified by World Bank EODB report as constraining to
doing business in Ethiopia are the prevalence of bureaucracy and inefficiency in many
government offices providing business services, including Ministry of trade and regional
trade bureau, ERCA and regional finance offices, the Ethiopian investment commission and
regional investment bureaus, city councils notary offices as well as sect oral offices.4
Possible policy recommendations
The policy implications to increasing the availability of credit facilities, simplifying export
sector regulations and formulation short-term and long-term export growth policies are
essential to improve export performance of the country.
References
[1] “www.internationalbusiness.infoalbum.com/,” [Online]. Available:
http://www.internationalbusiness.infoalbum.com/415-1122363453/IB2020-Ethiopia.pdf.
[Accessed 20 11 2022].
[2] “https://intracen.org/news-and-events,” [Online]. Available: https://intracen.org/news-
and-events/news/most-ethiopian-exporters-face-challenges-related-to-non-tariff-
measures. [Accessed 20 11 2022].
[3] “http://197.156.93.91/bitstream,” [Online]. Available:
http://197.156.93.91/bitstream/123456789/6213/1/Mesfin%20and%20Biniam.pdf.
[Accessed 20 11 2022].
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