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| Displaying young glamorous women like this one, the government is doing what normally should have been done by private businesses, largely billed as the engine of economic growth. When is the monopoly to end? |
ADDIS ABABA — When global drinks giant Diageo bought a brewery in Ethiopia, it paid a premium for a stake in a barely tapped African market that in the 1980s had spectacularly failed to feed its own population.
Diageo paid $225 million for state-owned Meta Abo, joining a list of firms seeking a foothold in Africa's second most populous nation that was once run by communists and now has an emerging middle class after a decade of double-digit growth.“We paid a premium of course and that was a deliberate decision ... We knew the value of what we were buying,” Francis Agbonlahor, Diageo's managing director at Meta Abo, told Reuters in a capital that boasts smart highways and new office blocks.
Ethiopia is now sub-Saharan Africa's fifth biggest economy, leap-frogging next door Kenya and wooing investors from Sweden, Britain and China, as other emerging markets lose some of their shine.
Few nations can better tell the story of “Africa Rising,” the narrative of a hopelessly mismanaged and violent continent now prized for strong growth and, in many cases, the kind of political stability scarcely imaginable a decade or two ago.
Yet like other African nations, Ethiopia must now work out how to maintain economic momentum as the U.S. Federal Reserve starts to turn off the taps of easy money that drove investors to more adventurous markets, and when China's economy and those of other emerging powers start to shift down a gear.
That means another tricky transition for Ethiopia, which has until now relied on the state to run its economy, but which has seen growth rates slip to 7-8 percent, short of the level needed for its goal of middle income status by 2025.
“When you are starting from a very low base with a lot of donor support, it is easy enough to grow in a strong, robust way,” said Razia Khan, head of Africa research for Standard Chartered bank. “As the economy matures ... it is going to become a lot more difficult.”
Dilemma
Opening up the economy, as many businesses at home and abroad want, could draw in new investment but may also loosen the controls that can be exerted by a government made up of ethnic and regional parties that has carefully managed development and kept a lid on rivalries.
That is the dilemma for Prime Minister Hailemariam Desalegn and his cabinet, who still work in the shadow of Meles Zenawi, the rebel-turned-statesman who ruled with an iron grip for two decades until he died last year. Caution remains the watchword.
“We are not ready now,” Foreign Affairs Minister Tedros Adhanom told Reuters when asked if Ethiopia could open up its mobile network or banks, prime targets for foreign investors.
Concerns about a deepening rich-poor divide and worries about changing the tried and tested policies of a charismatic leader, all weigh in to deter officials from a big shift.
But moving too slowly risks squandering investor enthusiasm and damaging the prospects of a nation once best known for “Red Terror” purges under communist rule in the 1970s and its 1980s famine. For now, at least, it has not deterred investors.
“I was in India recently and the thing that caught me by surprise [when talking] to foreign investors [was] the country that kept being mentioned was Ethiopia,” said Khan.
Diageo is not alone in seeing the potential. Heineken of Holland and France's BGI Castel have snapped up breweries, which were among first state firms to be sold off.
The Ethiopian Investment Agency says Unilever and Nestle are sniffing around, and South Korea's Samsung told Reuters it was exploring Ethiopia as a place to assemble its electronic goods. The two European companies did not comment.
