Ethiopia Macroeconomic Handbook 2011-12 DEC 30 2011r2

ACCESS CAPITAL
Ethiopia: Macroeconomic Handbook 2011/12
The 2011/12 Macroeconomic Handbook is the third such annual report
prepared by Access Capital. As in the past, we organize our report around
ten major economic and business themes. For this year, given the launch of
a new Five-Year Growth and Transformation Plan, we take a long-term look
at Ethiopia’s overall growth prospects (Chapters 1-4); highlight the
pressures faced by private business from certain macroeconomic and
regulatory policies (Chapters 5-6); and finally present our views (in
Chapters 7-10) on reforms that we think can help ensure a favorable
economic and business outlook. We also offer an Annex with Access
Capital’s macroeconomic projections for the year ahead.
Access Capital Research
December 30, 2011

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Ethiopia Macroeconomic Handbook 2011-12
Macroeconomic Handbook 2011/12: Executive Summary
Four growth drivers—Public Investments, an Agricultural Transformation, a Consumer Goods
Revolution, and Emerging Export Industries (or ―P-A-C-E‖)—will support a rapid pace of economic
expansion in Ethiopia in the coming years.
1. Massive public infrastructure investments are set to deliver a wide range of public goods—roads,
railways, power plants, schools, and clinics—while simultaneously propping up thousands of
private sector companies involved in building and maintaining these brand new public facilities.
2. A genuine agricultural transformation—involving a proliferation of modern commercial farms
as well as a leap in the productivity of smallholder agriculture—is in our view a very realistic
possibility in the next few years, and will hence be a key driver of economy-wide growth.
3. A consumer goods revolution is just beginning among Ethiopia‘s increasingly urban population
and will no doubt gather substantial momentum in the next five years.
4. Emerging export industries—in mining, manufacturing, and exportable services—are already
making their mark as sources of growth in the Ethiopian economy and will soon overtake
traditional foreign exchange earnings from coffee and other agricultural goods.
However, two overwhelming pressures in Ethiopia’s current economic climate—inflation and
challenging new regulations—are putting strains on private business and could potentially dent the
country’s positive growth prospects:
5. High inflation has been and remains a major weakness of economic policy, and poses serious
threats to the business environment by discouraging savings and distorting investment decisions.
6. Abrupt and challenging regulatory changes have also brought additional pressures to businesses
in the areas of licensing, registration, taxation, retailing, land acquisition, real estate, and banking.
Fortunately, these recent pressures—including inflation—can be addressed and contained by
actions firmly within the control of domestic economic policymakers. Indeed, taking an economic
policymaker’s view, we would:
7. Privatize the ―BIG 5‖ state-owned companies, even if just partially, as this not only provides a
major source of GTP financing but also offers a cure for inflation.
8. Modify regulatory policies that inflate business costs and depress urban consumer incomes.
9. Go for bolder and more unconventional agricultural policies, as would be more fitting for a
developmental state.
10. Put in place a smarter set of policies for the financial sector, the lifeblood and vital ―circulatory
system‖ for any fast-growing and modernizing economy

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1. Massive public investments are set to deliver a wide range of public goods—roads, railways,
power plants, schools, and clinics—while simultaneously propping up thousands of private
companies involved in building and maintaining these brand new facilities.
Key Points:
 Public investment, involving spending by both government and state enterprises, will be one of
the primary engines of the Ethiopian economy for many years to come.
 Even if not fully implemented, the scope and scale of the planned public investment is massive,
and involves vast new initiatives in both traditional government activities (road-building, power
plants) as well as in much less traditional ones (sugar factories and metal industries).
 An often unrecognized feature of such large-scale public investment is just how much of it
actually flows into private sector companies, large segments of whom stand to be major
beneficiaries of bigger government budgets.
Public investment has in recent years been one of the major drivers of economic growth in
Ethiopia. Total government spending, which is for the first time crossing Birr 100 billion this year, has
doubled in just the last three years and quadrupled in the past six years (Table 1.1). Expressed in relation
to GDP, total government spending now makes up nearly one-fifth of GDP. Besides the growth in
government, the activities of state enterprises have multiplied in parallel, a trend best captured by the five-
fold rise in their borrowing from the banking system, which is up from Birr 8 billion about five years ago
to an estimated 42 billion in FY 2010/11. The combined economic weight of both government and state
enterprise activity has led to a situation where roughly two-thirds of all banking system credit is now
directed to the public sector (Table 1.2).1
A five-year Growth and Transformation Plan (GTP) enacted in early 2011 has set the stage for an
even bigger role for public sector spending in the coming years. For the five-year GTP period as a
whole, the sum of budgetary government spending and off-budget spending by public enterprises is
programmed to reach Birr 1.26 trillion, or an average of 41 percent of GDP per year over five years
(Table 1.3). In short, the equivalent of two-fifths of total economic activity will be linked to public sector
activity in the coming years. One of the most distinctive features of the public spending envisaged above
is the unusually high level of capital expenditure, which will see its share rising from 56 to 61 percent of
total government expenditure.2
We find that Ethiopia now has the highest capital expenditure share in
government spending among African countries, where the normal capital expenditure share in
government spending is near 25 percent (Table 1.4). This means that much more spending is being
funneled to capital projects (roads, power plants, water systems, etc.) and to capital equipment (machinery
and equipment imports), rather than to current expenditure items such as wages, salaries, and operational
and maintenance costs.
1
Data for government expenditure based on MOFED budget data. Credit to government and credit to public sector figures from
the IMF Staff Report of November 2010 (www.imf.org), with FY 2010/11 representing estimates.
2
Beyond the high concentration on capital spending, two equally notable elements of the GTP public sector spending plans are
its large borrowing requirements and its substantial foreign currency demands, issues that are addressed later in Chapter 7.

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The public investments planned for the coming five years can be seen as putting in place the
necessary ―hardware‖ and ―software‖ needed for a modernizing economy.
―Hardware‖ investments encompass the whole range of physical and infrastructural facilities
needed to allow the movement of labor, goods, and services across a market economy—roads,
railways, power plants to generate electricity, electricity grid networks, water and sewage facilities,
etc. Among the notable plans in this area are:
 Roads: Building 71,000 kilometers of new roads, including all-weather roads to virtually all
kebele administrations and a modern Birr 6 billion eight-lane expressway linking Addis Ababa to
Adama (a key route to facilitate export and import trade);
 Railways: Constructing 2,395 kilometers of new railways linking Addis Ababa with Djibouti,
linking selected domestic cities, and within Addis Ababa itself.
 Air Infrastructure: Raising Ethiopian Airlines‘ air fleet by 35 additional aircraft, including 4
new cargo carriers, and building a huge new cargo hub at Bole Airport with a capacity to handle
125,000 tons per day in perishable export commodities, such as high-value fruits and vegetables.
 Power: Generating 8000 MW of new power generation capacity;
 Electricity distribution: Laying132,000 kms of new electricity distribution lines and the
expansion of electricity coverage to 75 percent of the country;
 Telecom: Raising mobile phone accessibility to 45 percent of the country‘s population, and
mobile phone users from 10 to 40 million.
 Housing: Building 157,000 new condominium housing units.
 Water Supply: Expanding the water supply infrastructure to 99 percent of the population and the
drilling of some 3,000 water wells per year;
 Irrigation: Increasing in irrigation coverage from 3 to 16 percent of total farm land.
 Industry: Developing new or additional capacity in sectors that include textiles, metals and
engineering, cement, fertilizers, and sugar production.
―Software‖ investments are best seen as the human capacity building required to run an increasingly
modernizing national economy-– from basic health care to ensure a capable labor force to the
provision of adequate education at the primary, secondary, and tertiary level, in additional to
specialized vocational and technical training schools needed to run an increasingly complex economy.
Among the key targets in this area are:
 Education: Increasing (net) primary enrollment to 100 percent; raising the number of students at
government universities to near half a million students (from 185,000 at present); ensuring
universal education to 8th
grade; raising the number of students at Technical and Vocational
schools to above 1 million (from 717,000 at present); establishing a public university student
body that will have 40 percent of students in science/engineering fields; ensuring 9,000 new
medical school entrants on an annual basis.
 Health: Reaching a 100 percent primary health services coverage (from 89 percent) through
large-scale expansions in public health centers and hospitals, and ensuring large reductions in
infant and maternal mortality as well as in the incidence of various diseases.

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Much of the public investment laid out above and in the GTP is needed, justified, and on the whole
appropriate, but how such investment is to be financed remains only partially addressed (see
Chapter 7) and the issue of who should carry out the investments is—in at least three specific
cases—quite questionable. The case for government investments in public goods such as roads and
power infrastructure is undeniable, as it is laying the essential foundations—the necessary conduits and
circuitry—of a modern economy without which a whole range of private players would be handicapped:
farmers seeking to take their goods to urban population centers, industries requiring water and electricity
to function; exporters requiring modern air, road, or rail links to deliver their goods on time, and so forth.
The lessons of other large and fast-growing developing countries—from Nigeria and its power shortages,
to India‘s road and port-related deficiencies— all point to the need to address infrastructure bottlenecks
well before they become handicaps to growth. The ―infrastructure gap‖ is a curse faced by many
countries in Africa and it is only to be welcomed that public policies in Ethiopia are addressing not just
present but also prospective needs in key public goods, all of which is something that can work to ―crowd
in‖ private investment. Moreover, many of the basic social sector investments that have public goods
characteristics—basic healthcare and education—should be done by no other than the government since
private returns in such activities are often not sufficiently attractive. However, in three specific areas,
most notably the planned public sector involvement in building railways, sugar factories, and a large
metal industries conglomerate, the prospect of government involvement is—in our view—far from ideal.3
These three activities are areas from which governments around the world have long removed themselves
and where private sector involvement—through green-field investments by domestic or foreign groups,
through public-private partnerships, or through project finance ventures—would have been possible and
preferable (see Chapter 7).
Big Government, Big Business
A somewhat under-appreciated feature of the large-scale public investments highlighted above is
just how much of it is actually implemented by and flows into private firms and individuals.
Particularly in the Ethiopian context, where so much of the public sector spending is focused on capital
expenditure, it is possible to identify three groups of major beneficiaries:
Contractors: The building blocks of most of planned government projects are provided by private
contractors, as they construct roads, schools, clinics, government buildings, power plants, railways and
the like. Thus, road and building contractors are obvious public investment beneficiaries, sometimes in a
very significant way—for example, the single biggest item in the government budget for many years now
has been road-building, which has benefited dozens of private companies engaged in this sector. More
specifically, of the Birr 73 billion spent in the last 14 years on road building projects, only 6 percent was
undertaken by the government‘s own agency, the Ethiopian Road Authority, while over 94 percent was
provided to several dozen private domestic and foreign companies.4
The implied income gains for such
contractors are substantial: assuming 10 percent profit margins on the gross value of the road projects,
3
Several large sugar producing plants are planned under a new parastatal, the Ethiopian Sugar Corporation. Another new
parastatal, the Ethiopian Railways Corporation, is to spearhead work in building railways between cities and within Addis Ababa.
In the metals, steel production, and engineering sector, a new behemoth, METEC, is an ambitious project to supply the needed
metal and engineering products needed for the other mega public sector projects, including for the Abay Dam, the new state-
owned Fertilizer Plant, the Ethiopian Railways Corporation, and the Ethiopian Sugar Corporation.
4
See Ethiopian Roads Authority‘s November 2011 publication, ―Assessment of 14 Years Performance: Road Sector
Development Program‖

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this amounts to around Birr 7 billion in net income to private contractors taken together. Major local
beneficiaries of such spending have included ―Grade 1‖ domestic contractors (of whom there are 63
registered by the Ministry of Works and Urban Development, each generally employing more than 1000
workers) and dozens of smaller scale road and building contractors who take on piecemeal tasks from the
largest foreign or domestic contractors. Not surprisingly, all this infrastructural investment has already
swelled the ranks of such contractors who rely heavily on government for their business; latest data show
143 building contractors, 38 general contractors, and 6 road-specific contractors in operation, all
substantial increases from even a few years ago. Looking forward, we anticipate that the numbers,
average size, and net income of this group will rise even further. For example, based on just the subset of
projects with high contractor use (namely roads, health, education, fertilizer and sugar industry, railways,
airlines, energy, and condominium construction), we estimate that the GTP will provide business
opportunities to contractors on the order of Birr 80 billion per year and prospective profits of 8 billion per
year (Table 1.5).5
Equipment and Service Suppliers: The delivery of goods to government institutions and facilities once
they are operational represents a second major line of business that huge public investments will be
bringing to private businesses. This beneficiary group will include, for instance: road work equipment
suppliers (graders, excavators, dump trucks); cable suppliers for the electricity company‘s huge
distribution expansion; private freight vehicle owners to transport thousands of tons of inputs and
equipment; private water drilling companies for the thousands of new water wells to be dug every year;
textbook suppliers for the thousands of schools being put in place; pharmaceutical and medical equipment
suppliers to sufficiently stock thousands of health centers; and computer hardware and software suppliers
that will deliver a whole range of information technology services to ministries, public sector agencies
and large state enterprises. Focusing on the Information Technology sector, for example, where
initiatives are underway to introduce technology-aided services in utility bill payments, social safety net
payments, and various other e-government initiatives, assuming one percent of capital expenditure is on
ICT expenditure (based on the norm in many African countries), this translates to total spending of Birr
7.5 billion in this sector and profit prospects of above Birr 1 billion given 15-20 percent margins
commonly seen in IT industries.6
Employees: Needless to say, public institutions cannot function without an associated human resource
base, and the hundreds of thousands who join the public sector as teachers, health workers, police, and
office workers represent a third major ‗private‘ beneficiary of large public investments. Already, as of
2011, the public sector is the single largest formal sector employer in the country providing work to
854,000 individuals. With the expansion of health and education services laid out in the GTP, we
estimate that 325,000 additional individuals will get public employment in the major lines of work
undertaken by the government, representing a 27 percent addition from present levels and a crossing of
the 1 million-mark in total public sector jobs before the end of the GTP period (Table 1.6).7
All of the above direct beneficiaries of public projects, such as road contractors, textbook suppliers,
or public sector employees, are in turn often key to sustaining huge pockets of indirect beneficiaries
5
This is derived by assuming particular shares of spending in a given budget line item is spent on contractors and that 10 percent
of the gross value of the projects is the net income margin of contractors (see Table 1.5).
6
Total capital expenditure is Birr 406.9 billion for budgetary expenditure and Birr 341 billion for off-budgetary expenditure
(using a 60 percent capital spending share for off-budget items). The combined total is thus Birr 748 billion over the five years.
7
We arrive at the estimate based on employment rising at half of the rate of growth of nominal government spending.

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whose primary line of business is also—in the end—closely tied with public investment. This
includes goods and service suppliers to many of the direct beneficiaries of government contracts. For
example, four important input suppliers to road/building contractors are themselves large business
operations indirectly tied to government spending: quarry owners and asphalt material producers (who
provide the needed raw material and foundations for all road-building projects) as well as cement
companies and iron bar producers (who provide the key ingredients in much public sector civil works).8
Thus, with the second and third-level suppliers involved, any initial public investment has a multiplicative
effect on overall economic activity, thereby placing public investment under the GTP—already two-fifths
of GDP in direct spending—as a force with even greater impact after accounting for associated activities.
Given huge efforts to integrate them in public sector projects, Small and Medium-Size Enterprises
or SMEs should also become major beneficiaries. Many public projects will seek to engage directly
with SMEs, including for example in condo construction (a Birr 1.4 billion project), small-scale road
projects (such as cobblestone road or side-walk projects), and other similar activities. Moreover, direct
set-asides for SMEs include some Birr 6.5 billion in funding and land allocations of up to 15,000 hectares
for work spaces. The combined impact of the above, if the targets are realized as programmed, is to see
SMEs provide up to 3 million employment opportunities, in large part driven by public sector initiatives.
The range of businesses propelled by large public investments will, of course, not be limited to
domestic firms—indeed foreign suppliers are likely to capture an increasing share of huge public
investments given the size, complexity, and financing demands of the projects involved. Among
already active or soon to be entering foreign suppliers handling large public investment projects include:
Salini Construction of Italy for the mega hydroelectric dams such as Gilgil Gibe and the Abay
(Renaissance) Dam; Chinese companies such as the China Road and Bridge Corporation,the China
Communication Construction Company (which is undertaking the Addis Ababa-Adama highway and the
Bole Airport-Meskel Square expressway) and the China Railway Group Ltd (which is working on the rail
link to Djibouti); and Indian companies such as the Overseas Infrastructure Alliance, which is involved in
projects linked to the state-owned sugar factories and part of the planned railway project. Beyond
contractors, there is bound to be a more prominent role for foreign capital equipment suppliers given
many complex technical projects: for instance, we estimate that foreign suppliers of specialized goods
(i.e., in the fertilizer, sugar, railway, airline and energy sector investment plans) stand to see $15 billion
(Birr 262 billion) of public sector related business opportunities and an estimated $3 billion (Birr 49
billion) in profits (Table 1.7 and 1.8). In some of these cases, the ability to arrange financing from home
country governments, institutions or banks provides these private or quasi-public companies with a
competitive edge. Finally, it is worth noting that foreign consultants and advisory service providers will
also continue to be important beneficiaries of and contributors to public sector programs. In recent years,
consultant groups involved in large-scale government or joint government/donor initiated projects have
included firms as varied as McKinsey, Booz Allen, Chemonics, ACDI/VOCA, DAI, Fintrac, and many
others—all consultancy and technical assistance providers whose volume of work will continue to
multiply in the years ahead as their specialized knowledge and expertise is sought to help in the
successful execution of large and complex projects.
8
It is no accident that there are some two-dozen cement projects in the pipeline, including a recently finalized $330 million
cement factory by MIDROC Ethiopia, and new planned cement plants by Lafarge (the world‘s largest cement producer), Dangote
Industries (Africa‘s largest cement producer based in Nigeria), and local entities such as Habesha Cement.

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In short, for many years to come, government will become a big source of business for thousands of
domestic and foreign private enterprises involved in supplying both the ―hardware‖ components
and the ―software‖ services needed to implement the government’s ambitious development
programs. This is, of course, not necessarily a bad thing, and is not much different from experiences in
many developing or developed countries where certain industries are heavily reliant on public sector
clients. But there are risks that arise when sizeable segments of a (still emerging) private sector have such
a significant reliance on government-affiliated projects. For one, such firms may face large declines in
activity if and when government scales back its investments over time. In addition, there is a risk that the
favorable business conditions for this ―government-affiliated‖ private sector, which benefits from bigger
budgets, misrepresents the more challenging conditions that may be faced by the rest of the private sector,
whose line of business lies elsewhere. In other words, the private sector that emerges in such an
environment should ideally not lose its dynamism, ignore other domestic business opportunities, or avoid
export markets in light of potentially more attractive and readily available government-linked business
opportunities. More fundamentally, while government and the affiliated private sector will unavoidably
be an engine of economic growth for some time given Ethiopia‘s need for basic public infrastructure, the
economy must not be driven by this single engine alone but rather be supplemented by another equally
dynamic private sector whose primary line of business is focused on, among other things, Ethiopia‘s agri-
business potential, on its rising domestic consumer markets, and on its barely exploited export potential,
areas of activity which are all addressed in the following three chapters.
Source: MoFED Annual Report on Macroeconomic Developments (2009/10), IMF Staff Review--November 2010, Federal Budget Summary
(2010/11)

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Table 1.3 Growth and Transformation Plan-- Projected Budget and Off-Budget Spending (In Birr Millions)
2010/11 2011/12 2012/13 2013/14 2014/15 2010-15
Total
Total Public Sector Spending 188,688 258,812 274,157 266,680 271,813 1,260,150
Budgetary spending 92,049 106,125 130,187 161,452 201,146 690,959
Non-Budgetary spending 96,639 152,687 143,970 105,228 70,667 569,191
Budgetary Expenditure 92,049 106,125 130,187 161,452 201,146 690,959
by type
Capital Expenditure 52,003 60,901 75,804 95,975 122,222 406,905
Current Expenditure 40,046 45,224 54,383 65,477 78,924 284,054
by sector
Agriculture & Food
Security
9,518 13,123 15,905 20,302 25,699 84,547
Education 21,703 24,562 29,579 36,354 44,025 156,223
Health 6,260 7,027 8,796 11,121 13,894 47,098
Road 17,304 21,752 28,762 36,581 45,898 150,297
Water 5,897 5,701 8,088 11,888 17,321 48,895
Other 31,367 33,960 39,057 45,206 54,309 203,899
Off-Budget Expenditure 96,639 152,687 143,970 105,228 70,667
Industry 16,230 51,955 56,728 42,057 26,592 193,561
Transport 35,088 43,223 41,795 30,550 11,048 161,704
Ethio-Telecom 6,580 1,900 13,190 - - 21,670
Energy 36,234 52,966 29,219 29,658 29,658 177,735
AA Condominium projects 2,640 2,640 3,080 3,080 3,520 14,960
In Percent of GDP 2010/11 2011/12 2012/13 2013/14 2014/15 2010-15
Total Public Sector Spending 42% 49% 45% 37% 32% 41%
Budgetary spending 21% 20% 21% 22% 24% 22%
Non-Budgetary spending 22% 29% 23% 15% 8% 19%
Budgetary Expenditure 21% 20% 21% 22% 24% 22%
by type
Capital Expenditure 12% 12% 12% 13% 14% 13%
Current Expenditure 9% 9% 9% 9% 9% 9%
by sector
Agriculture & Food
Security
2% 2% 3% 3% 3% 3%
Education 5% 5% 5% 5% 5% 5%
Health 1% 1% 1% 2% 2% 1%
Road 4% 4% 5% 5% 5% 5%
Water 1% 1% 1% 2% 2% 1%
Other 7% 6% 6% 6% 6% 6%
Off-Budget Expenditure 22% 29% 23% 15% 8% 19%
Industry 4% 10% 9% 6% 3% 6%
Transport 8% 8% 7% 4% 1% 6%
Ethio-Telecom 1% 0% 2% 0% 0% 1%
Energy 8% 10% 5% 4% 3% 6%
AA Condominium projects 1% 1% 0% 0% 0% 0%
Memo items:
Nominal GDP
448,348 526,853 616,047 723,157 848,235
Source: Growth and Transformation Plan (2010/11--2014/15); Nominal GDP of GTP used for FY 2010/11 even though inflation has resulted in higher starting
base.

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Table 1.4. Capital Expenditure in Ten Largest African Economies 2011
Country
Capital Expenditure (USD
mn)
Total Government Expenditure
(USD mn)
Percent of Total
Expenditure
Ethiopia 4,103 6,849 59%
Tanzania 2,045 5,686 36%
Kenya 2,899 9,175 32%
Ghana 1,973 6,681 30%
Zambia 1,224 4,432 28%
Cameroon 1,271 4,693 27%
Angola 8,543 33,330 26%
Nigeria 6,887 27,307 25%
Ivory Coast 686 4,718 15%
South Africa 3,383 135,321 2.5%
Source: IMF Country Staff Reviews (2011), Ethiopian Federal Budget Summary (2010/11)
Table 1.5 GTP Public Investments and Estimated Expenditure on Contractors
Total 5-yr Expenditure
on Sector
Percent on
Contractors
Gross expenditure on
Contractors
Estimated
Contractors' Profits
Roads 150,297 90% 135,267 13,527
Health 47,098 60% 28,259 2,826
Education 156,223 60% 93,734 9,373
Fertilizer complex 13,205 30% 3,962 396
Sugar Industry 72,781 30% 21,834 2,183
Railway 110,796 40% 44,318 4,432
EAL 31,142 0% - -
Energy 177,735 30% 53,321 5,332
AA Condos 14,960 90% 13,464 1,346
Total 774,238 394,159 39,416
Source: Growth and Transformation Plan (2010/11--2014/15) & Access Capital Estimates

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Table 1.6 GTP Public Sector Employee Projections
Public Sector Employment
Public Sector Employment o/w Federal Civil Service o/w Regional Civil Service
2009/10 854,316 65,238 789,078
2010/11 919,636 70,226 849,410
2011/12 1,023,892 78,187 945,705
2012/13 1,146,838 87,576 1,059,263
2013/14 1,287,817 98,341 1,189,476
2014/15 1,287,817 98,341 1,189,476
New employees after 2010/11 368,181 28,115 340,065
Source: Ministry of Civil Service (2009/10 Human Resource Statstics) & Access Capital Estimates based on employement
rising at fifty percent of the rate of growth of nominal government spending
Table 1.7 GTP Public Investments and Estimated Expenditure on Foreign Suppliers
Total 5-yr
Expenditure on
Sector
Percent on
Foreign
Suppliers
Gross expenditure
on Foreign
Suppliers
Estimated Foreign
Suppliers' Profits
Roads 150,297 0% - -
Health 47,098 20% 9,420 1,413
Education 156,223 0% - -
Fertilizer complex 13,205 60% 7,923 1,188
Sugar Industry 72,781 60% 43,669 6,550
Railway 110,796 60% 66,478 13,296
EAL 31,142 90% 28,028 5,606
Energy 177,735 60% 106,641 21,328
AA Condos 14,960 0% - -
Total 774,238 262,158 49,381
Source: Growth and Transformation Plan (2010/11--2014/15) & Access Capital Estimates

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Table 1.8: GTP Off-Budget Spending on Infrastructure & Industrial Projects-- Ranked by Value
Sector/Sub-Sector
Birr
Millions Business Beneficiaries
Foreign or
Domestic
Energy 177,735
Salini for Abay Dam construction;
Cement companies; Hydro plant
equipment producers
Mainly foreign, some
domestic
Railways 110,796
China Railway Group $1.6 bn; OIA
(India); local contractors; METEC
domestic
Sugar Industry 73,575 Sugar plant equipment producers
domestic
Chemical, Pharmaceuticals &
Cement Industries 34,593 Private and state enterprises Mainly domestic
Ethiopian Airlines 31,142 Boeing, Airbus, Bombardier, Fokker Exclusively foreign
Ethio Telecom 21,670
Telecom and networking equipment
providers Exclusively foreign
Metal Engineering Industry 20,466 METEC
domestic
Mgmt & Privatization of Public
Enterprises 19,095 State enterprises Mainly domestic
Textile & Garment Industry 15,946 Private enterprises Mainly domestic
AA Condo Construction 14,960 Domestic contractors and SMEs Mainly domestic
Fertilizer Industry 13,205 New state enterprise Mainly domestic
Leather Products Industry 6,734 Private enterprises Mainly domestic
Ethiopian Maritime Transit Service 6,666 Domestic transit service providers Mainly domestic
Micro & Small Scale Enterprises 6,600 Domestic SMEs Mainly domestic
Ethiopian Airports Enterprise 6,198
Domestic contractors-- runway, civil
works producers Mainly domestic
Agro-processing Industry 3,347
Domestic contractors and agricultural
producers Mainly domestic
Ethiopian Dry Port Service 3,276 Domestic contractors Mainly domestic
Ethiopian Shipping Lines 3,187 Ship-builders (China, Korea) Mainly foreign
Total Off-budget spending 569,191
Source: Growth and Transformation Plan (2010/11--2014/15); Sectors Ranked by Total Spending level.

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2. An Agricultural transformation—involving a proliferation of modern, commercial farms and a
leap in the productivity of smallholder agriculture—is a realistic and likely possibility within
the course of the next few years, and will hence be a key driver of economy-wide growth.
Key Points:
 Agriculture will have to be a key sector to drive any economic ―transformation‖ in the
Ethiopian context, via changes in farm types, in farm inputs, and in farm products.
 Plans for large gains in food production face daunting ―execution risks‖, both for commercial
and small-holder farms, but will still materialize in our view.
 The main reason for optimism with respect to the food production outlook is: (i) the strong
policy push and investor response to put in place hundreds of modern commercial farms and
(ii) the equally determined plans in place for comprehensive, output-increasing interventions
within the still-dominant smallholder agricultural sector.
The agriculture sector, representing 41 percent of GDP but a much higher share (85%) of
employment, is set to carry the burden of the ―transformation‖ sought under the GTP and will
most likely achieve it in our view. The need for a structural transformation in this sector is not in doubt,
given Ethiopia‘s long-standing challenges in ensuring nation-wide food security for its population.
Moreover, the scope for an agricultural transformation is significant when one notes that Ethiopia‘s
smallholder farmers: (i) cover only 19 percent of potentially cultivable land; (ii) utilize irrigation for only
a tiny share (1.3 percent) of their land; (iii) apply fertilizer to only 36 percent of land, and (iv) produce
yields that are just half of the world average (Table 2.1). These four remarkably low starting conditions
offer tremendous scope for improvement with carefully planned policy interventions and with the shifting
role of farms as business enterprises, be it for smallholders moving from subsistence farming towards
production of a marketable surplus or for large modern farms with an explicitly commercial orientation.
Changes in farm types, in farm inputs, and in farm products will be the most notable features of the
agricultural sector in the coming years. To be more specific, farm types will gradually evolve to
include some large-scale, commercial farms; farm inputs will be enhanced to deliver better seeds, more
fertilizers, and other yield-increasing inputs; and farm products will expand increasingly to include high-
value, export-oriented produce. All of the above are in line with the key objectives of the GTP, which has
laid out detailed agriculture sector targets as laid out in Table 2.2 below.
For two main reasons, we think an agricultural transformation involving rising acreage, rising
yields, and rising exports is a very realistic possibility within the next few years. Why? First, there is
now a deliberate push to put in place hundreds (perhaps thousands) of modern commercial farms, and
second because the still-dominant smallholder agricultural sector is set to benefit from a wide range of
output-increasing policy interventions (in the form of more irrigation, more fertilizers, better seeds and
better farming practices).
New Commercial Farms

14
For food-producing commercial farms, although this is a sector always vulnerable to ―execution
risks,‖ there is little reason to doubt—in our view—whether the promises of increased food output
will turn into a reality. We think this is the case for at least three reasons.
First, the conducive policy framework put in place for commercial agricultural ventures in 2009
remains in place and has recently been strengthened even further. As we highlighted in our 2009
Macro Handbook over a year ago, a combination of policy initiatives have laid the groundwork for
the take-off in commercial agriculture, including: a government allocation of 3 million hectares of
land for commercial farming investors; a streamlined process of providing large agricultural land
leases via the Federal Government; and a strong package of incentives. The latter include: (i) income
tax holidays that range from 3 to 7 years where the grace period becomes incremental depending on
the agricultural value added created by the investment scheme and the proportion of exportable
products; (ii) duty free imports of capital goods used for projects; (iii) no restrictions on repatriation
of corporate profits; (iv) no restrictions on the use of the land for particular crops or purposes (e.g.
exports); (v) absence of water charges, allowing investors to dig for and utilize underground water
sources without charged, and ; (vi) long-term leases (up to 45 years) with fixed prices (which are
generally set for a period of 10 years and then subject to an increase of only 20 percent).9
All of the
above make for very favorable supply-side factors which, alongside equally favorable demand-side
factors (rising populations, incomes, and urbanization), make for very positive prospects for rising
commercial farm production.
Second, a big part of the increased food production is coming simply from putting new lands
under commercial cultivation, a one-off and relatively ―easy‖ means of boosting food
production. Ethiopia is one of 11 African countries identified as having the largest amounts of still-
uncultivated land, estimated at 59 million additional hectares according to national statistics.10
A
large part of the still uncultivated lands are being developed via Federal Government allocations for
new commercial farms. Our compilation of the relevant data suggests that about 350,000 hectares, or
one-tenth, of the planned 3 million hectare allocation has already taken place. Of the already granted
allocations, we find that the five largest commercial land recipients are: (1) Karuturi Agro Products
Plc; (2) Shapoorji Pallonji; (3) BHO Bio Products Plc; (4) Ruchi Soya Industries; and (5) CLC
Spentex Industries Limited (see Table 2.3). The average size of the land leased is 15,000 hectares,
but excluding the top two exceptional cases, the median commercial farm size allocation is 5,000
hectares. We also find that the mix between foreign and domestic investors (based on land area) is
about 5-1, though this changes to just 2-1 if we exclude the top two cases. In terms of crop
production, plans by commercial farm investors are mainly focused on cereals and cash crops. The
focus on basic cereals such as wheat and maize makes particular sense, given the country‘s large
reliance on importing such food items in recent years: for example, cereal imports (which are
comprised mainly of wheat), have jumped from just $157 million about a decade ago to $480 million
in 2010 , or from 2 to 4 percent of total imports.
9
Lease rates for the majority of large commercial farm allocations have ranged from Birr 100-200 (or USD 6 to 12) per hectare
per year.
10
A recent Mckinsey study notes that 60 percent of the world‘s total uncultivated arable land is within Africa, while according to
Ministry of Agriculture and CSA‘s latest land utilization data Ethiopia is showing around 74 million hectares of arable land of
which only 15.1 million hectares is currently cultivated counting both small-holder and commercial farms.

15
Third, among commercial farms with land allocations, several of them are already operational,
often well past the land-clearing process and either in the planting phase or already producing
their first harvests. Some of the initial beginners include Karuturi PLC, Saudi Star, and BHO Bio
Products. Many of the above have spent the past two years in the clearing and preparation of lands
for planting. Most of the largest farms expect to realize their first crops in 2012 and are targeting
yields that will be about 2 or 2½ times the norm seen from smallholder farms. If this is realized, the
initial allocation of around 227,000 hectares to the top five commercial farm allocation recipients
alone could potentially be the equivalent of almost half a million smallholder farms based on the
latter‘s 2010/11 average produce and yields.11
All of the above encouraging trends—favorable policies, the large pipeline of new projects, and the
start of several promising commercial farming operations—are of course subject to risks and two
in particular could jeopardize the promised gains from an expansion in commercial farms. First,
there is the usual fear that promised and committed investments may not materialize due to a host of
―execution risks‖: investors failing to put in their equity contributions; becoming unable to find loan
financing; or encountering operational problems related to poor infrastructure, land clearing, and so forth.
However, it is becoming increasingly unlikely for investments to fall through due to such factors. The
dedicated government unit at the Ministry of Agriculture is, for example, screening potential investors
with much stricter standards to ensure that initial capital outlays are actually put in place and tight
‗delivery periods‘ of as short as six to twelve months are being imposed as an additional check on
performance (i.e., investors who fail to develop a given tract of land as promised lose the lease to the
undeveloped parts of land). Second, there is a modest risk that a backlash against commercial farm
allocations builds up as the public discourse on this issue is sometimes dominated by highly critical
commentary focused on themes of ―land-grabbing‖, population displacement, and/or environmental
concerns. However, while possibly legitimate concerns in other parts of the world, the validity of such
criticisms is quite weak in the Ethiopian case and the potential for a domestic backlash particularly
unlikely: Ethiopia is a country where any gains to food production are to be welcomed given still-fragile
food security conditions; the allocations are open to and being taken up by domestic as well as foreign
investors; the scale of the land allocations involve just 3 percent of total land and cannot by any stretch be
seen as large-scale land-grabbing; and the areas of land involved are generally remote areas with no or
very little populated settlements. For these reasons, we think both of the above mentioned potential risks
are unlikely to adversely impact the production increases envisaged from most of Ethiopia‘s commercial
farms.
Expansion in already-established agricultural exports
Beyond the changes expected from new commercial farms, a large part of the anticipated
agricultural transformation in Ethiopia will come from the planned boost to six agricultural
commodities in which the country has already established an export record—four of which are
11
According to CSA data for 2010/11, a total of 12.7 million smallholders farmed 10.6 million hectares in the production of 18.5
million tons of cereals, which gives an average farm size of 1.2 hectares per small-holder farmer and an average yield of 1.75
tons per hectare. Using 227,000 hectares for the (initial) land-holding of the ―Top 5‖ commercial farms and applying 2½ the
yield of smallholders gives an estimated ―Top 5‖ commercial farm production of 992,000 tons which is roughly the output
produced by 475,000small-holder farmers. Accounting for the extra anticipated allocations to these same ―Top 5‖ commercial
farms would double their land size to near 500,000 hectares and imply a potential output gain that is close to that of one million
(current) smallholder farmers.

16
particularly well developed (coffee, oilseeds, pulses, and flowers) and two of which are only just
emerging (fruits and vegetables and meat and livestock). For all six commodity groups, the next five
years are expected to show large production and export increases (Table 2.4), sometimes as much as three
to five-fold increases. As these sectors are almost exclusively in the private sector, these ambitious export
increases will have to be generated by existing private sector firms who are capable and ready to
undertake the large capacity expansions and by prospective new entrants to whom these sectors still offer
promising green-field opportunities.
Expansion in four well-established agricultural exports: Four large agricultural products—coffee,
oilseeds, pulses, and flowers—currently make up the bulk of the country‘s agricultural exports. With
the exception of the flower sector, which mainly comprises several dozen large, labor-intensive
greenhouse-using farms, the agricultural exports are largely grown by small-holders whose produce is
aggregated by cooperatives or traders for supply to central markets. Production and yield-improving
initiatives for the smallholder sector (see below) will thus provide part of the underlying expansion
for this sub-sector. But, in addition, changes in the ‗super-structure‘ of markets and institutions in
which these products operate will also help. Products like coffee and sesame that are currently traded
at the Ethiopian Commodity Exchange, for example, stand to benefit from two key contributions of
the ECX—the incentive to provide higher output across all quality levels (via more readily
transparent prices) as well as the incentive to focus on higher value produce (given price
differentiation by quality).
Expansion in fruits and vegetables sectors: Despite a potential for fruits and vegetable exports that is
as big or even bigger than flowers, Ethiopia‘s exports in this area have only recently and very
gradually begun to take off. This is a promising development, as the production of fruits and
vegetables tends to offer a high-margin and more stable business opportunity in contrast with the
flower sector, which tends to be a low-margin, high volume business and one that, as a
luxury/discretionary good, tends to be susceptible drops in demand during difficult economic
conditions in European markets. Moreover, the potential for growth in fruits and vegetables is as
large as what occurred in the flower industry: Kenya, for example, exports almost the same amount of
flowers ($380 million) as it does fruits, vegetables, and other horticultural products ($335 million),
yet in Ethiopia the flower sector has taken hold ($170 million exports last year) but the fruit and
vegetable export sector is still only beginning ($32 million in exports). Two notable challenges do, of
course, exist in this area and explain part of the divergent performance: (i) global health and hygiene
certification standards are required and often quite demanding for fruits and vegetables; and (ii)
securing regular and adequate air cargo transportation to key European markets has been difficult
since fruits and vegetables (much more so than flowers) have demanding temperature control and
time-to-market requirements. Both these challenges are gradually being addressed, however, as air
cargo issues are being eased with Ethiopian Airlines rapid expansion and some pioneering firms with
the requisite global certification standards are emerging. For example, several firms now have
―Global Gap‖ certification and regularly supply UK and other European supermarkets with vegetable
exports of several million USD dollars per year.
Expansion in Livestock and Meat Sectors: The livestock segment of the agricultural sector and one
of its primary end-products (meat) are likely to become a major part of the agricultural transformation
in Ethiopian given the country‘s livestock population (first in Africa, tenth in the world) and a

17
proximity to export markets that happen to have high demand for such products (North Africa and
Middle East). The GTP targets in this area foresee a quantum jump in activity levels, as seen from
the planned export increase in livestock exports (from 334,000 cattle heads in FY 2009/10 to 2.3
million cattle heads in FY 2014/15) and in meat exports (from 10,182 tons in FY 2009/10 to 111,000
tons in FY 2014/15). These targets are, in our view, certainly within the realm of the achievable
given growth rates being observed in both livestock and meat exports (up 74 percent last year and 88
percent in just the first quarter of this fiscal year). For meat exports, in particular, most of the growth
can be handled by large capacity-raising and/or expansion plans from some the largest players such as
Luna, Elfora Agro-Industries, Organic Export Abattoir, and Modjo Modern Export, in addition of
course to the inevitable new entrants that are likely to join the sector—and would be justified in doing
so—given the very promising market opportunities in this area.
Smallholder farms
A leap in the productivity of smallholder agriculture—involving the 12 million small farms
currently operating in Ethiopia—is the second and simultaneous transformation expected within
agriculture to boost food production levels and thereby stimulate overall economic growth. In this
case, although the outcomes involved are influenced by a much greater range of variables than is the case
for commercial farms, the overall prospects are still strong enough in our view that a major increase in
smallholder agriculture is achievable. We would question whether a doubling of agricultural output—as
envisaged under the GTP—is possible without a more radical set of policies (see Chapter 9), but there is
still a package of policies and interventions that in all likelihood can sustain agricultural growth by at
least at the same strong growth rate—of 8 percent per year—as what was registered in the past five years.
The set of GTP policies and interventions aimed at boosting smallholder agricultural output are
welcome for their comprehensive and complementary nature. Many of the policies have already
been in place gradually in recent years and explain the rising production and yield figures registered so far
(Table 2.5). At the same time, the intention is for an intensification of these early efforts, including
through the efforts of a newly formed Agricultural Transformation Agency that is backed with high-level
funding from the Gates Foundation and other donors and that can potentially play a spear-heading role in
precisely the task—of agricultural transformation—for which it is assigned. Most notable among the
public interventions planned under the GTP for the smallholder agriculture sector include improving seed
quality and supplies, expanding irrigation, intensifying fertilizer use, upgrading farmer extension services,
and adapting farm products to varying land and soil characteristics.
Upstream and downstream industries around agriculture
A host of business activities closely tied to agriculture are set to contribute to, and get a big boost
from, the prospective transformation in Ethiopia’s agriculture; this includes upstream industries
that provide inputs to farms as well as downstream industries that make use of the outputs
produced by farms. The striking element of Ethiopia‘s agricultural sector has been the limited number
of such upstream and downstream industries, especially in the form of commercially established operators
that have joined these activities for long-term, profit-making motives as with any other business
opportunity. In this connection, there is much scope for the emergence and growth of upstream input-
providing industries in areas such as the provision of: organic and chemical fertilizers; higher-yielding
seeds and plantings; irrigation systems and their associated parts such as water pumps and steel pipes;

18
agricultural tools and equipment; pest control systems; and modern cooling and cold storage facilities.12
In parallel, there is wide scope for downstream industries that utilize farm outputs (as is later discussed in
Chapter 3), including for example wheat derivatives, dairy products, and the processing of edible oil,
fruits, and vegetables to name just a few. The full development of such upstream and downstream
businesses, as highlighted in a 2010 McKinsey report covering African agriculture, has the potential to
add as much as an extra one-third of the value of agricultural produce. If extrapolated to the Ethiopian
context, this implies that an extra Birr 70 billion can potentially be derived from agriculture-affiliated
upstream and downstream industries over time, including (based on the McKinsey‘s indicative
proportions for African countries) activity levels that—focusing on three large segments alone—could be
as large as Birr 17 billion in fruits and vegetables processing, Birr 15 billion in grain processing, and Birr
8 billion in livestock related downstream industries.13
To summarize, given Ethiopia’s very low base when it comes to agriculture productivity and value
added, a combination of policy interventions and investor initiatives can bring quick and
potentially large payoffs to the incomes of a wide base of smallholder and commercial farmers. The
jump in farm sector incomes, where at least 80 percent of the population live, will in turn have a
transformative impact in boosting demand for a wide range of basic consumer goods, as is elaborated
further in the following chapter on this very topic.
Table 2.1: Ethiopia's Agriculture Potential: Starting From a Low Base
Ethiopia SSA Asia World
Land Cultivated (%) 25% 44% 51% 38%
Fertilizer Usage (Kg/Hectare of Cultivated land) 36 24 148 96
Irrigation usage (% of Cultivated land) 1.3% 4% 18%
Cereal Yields (tons/hectare) 1.7 1.3 3.6 3.5
Agriculture Value Added per worker (USD) 215 318 530 997
Source: CSA Agricultural Sample Surveys, FAO Country Stat, IFPRI
12
A recent synthesis report of diagnostic studies and recommendations on Ethiopia‘s agricultural sector entitled ―Accelerating
Ethiopian Agriculture Development for Growth, Food Security, and Equity‖ and compiled by the Gates Foundation highlights in
particular the role for ―capable, well resourced private sector actors that could have impact in key (agriculture) value chains,
including ―efficient, well-regulated, and socially-responsible input suppliers and distributors‖ for supplies of seeds, fertilizers,
and agricultural equipment inputs. At present, key input markets tend to be dominated by parastatal agencies such as the
Agricultural Input Supply Enterprise and the Ethiopian Seeds Enterprise.
13
This is based on the Birr 220 billion in agriculture value-added for Ethiopia as of FY 2010/11, and McKinsey‘s estimate—
based on African country norms—of potential upstream industries equivalent to 4 percent of agriculture value-added and
downstream industries of 28 percent of agricultural value-added. Within the latter, the largest potential opportunities are
identified as being with fruits/vegetables processing (28 percent of downstream industry value-added), cereals processing (24
percent) and livestock processing related industries (14 percent).

19
Table 2.2 GTP Targets for Agriculture and Rural Development
Description of Targets 2009/10 2014/15
Cultivated Land
1. Total cultivated land utilized by major food crops (mln ha) 11.25 12.17
2.Production of cereals (mln ha) 9.1 9.6
3. Cereals productivity (qt/ha) 17 22
Coffee production and productivity
4. Cultivated land by smallholder farmers (ha) 462,000 815,000
5. Coffee production (tons) 341,000 831,000
Livestock development
6.Cattle fed production (qt) 50,000 145,000
7. Improved cattle breeds (%) 10.3 37
8.Production and distribution of improved livestock gene (mln dose) 0.35 2
9. Proportion of livestock vaccinated (%) 40 65
10. Proportion of low grade hides and skins (%) 50 15
11. Production of improved animal fodder seeds (qt) 50,000 145,000
Agricultural inputs supply
12. Supply of improved seeds (mln qts) 0.56 3.6
13. Supply of chemical fertilizers (both DAP and Urea) (mln tons) 0.83 1.66
Agricultural extension
14. Number of beneficiaries of agricultural extension services (mln) 5.1 14.6
15. Of the beneficiaries of agricultural services proportion of women and youth (%) 40.0
Improving soil fertility
16. Areas under vertisol development( mln ha) 1 3
17.Acidic land treated with lime (ha) 2,210 37,850
Natural resource conservation program
18. Area of land rehabilitated (mln ha) 3.21 10.21
19. Land developed under community based water shade development program (mln ha) 3.77 7.78
20. Total area of land subjected to soil fertility research (mln ha) 0.894 2.82
21. Total area of land covered with forest and with forest master plan (mln ha) 0.7 2.2
22. Area of land covered with multipurpose trees (mln ha) 6.06 16.21
23. Forest coverage (mln ha) 13 18.23
24. Increase multipurpose trees (ha) 5,062 10,154
25. Natural resources conservation activities in pastoral areas( ha) 200,000 350,000
Small scale irrigation program
26. Land developed under small scale irrigation (mln ha) 0.853 1.850
Food security
27. Number of households participate in safety net programs (mln) 7.1 1.3
28. Food reserve (mln tones) 0.41 3
Agricultural marketing
29. Coffee export (tons) 172,210 600,970
30. Coffee export earnings (mln USD) 528 2037
31.Increase export earning of oil seeds (mln USD) 358 1120
32.Increase export earnings of pulses (tons) 129.86 882
33. Increase the export of oil seeds (tons) 299,198 724,216
34. Increase the export of pulses (tons) 225,446 1,120,981
35. Increase the live animals exported (no.) 333,743 2,353,000
36. Meat export (tons) 10,180 111,000
37. Live animals and meat export earnings (mln USD) 125 1000
38. Earning from flowers export (mln USD) 170 535
39. Earning from export of vegetable, herb and fruits (mln USD) 31.7 948
40. Earning from export spices (mln USD) 18.57 30
41. Export of spices(tons) 15,594 34,240
42. Export of gums and incense(tons) 4,370 10,233
43. Export earnings from gums and incense( mln USD) 12.68 33.43
44. At the end of the plan period it has been planned to generate USD 6.58 bln from the agriculture sector export market by exporting 3.81 mln ton of agricultural
products, 5859 mln flower cuts and 2.35 mln live animals
Cooperative development
45. Number of primary cooperatives 33,636 56,904
46. Number of cooperatives unions 212 546

20
Agricultural research
At the end of the plan period new technologies development in cereals, livestock, soil, forest development and agricultural mechanization will reach
265,140,41,219and 836, respectively
Private investment in the agricultural sector
47.Production of coffee and and tea and other exports crops(mln tons) 0.251 1.81
48. Transfer nearly 3.3 mln ha land to commercial farming investors in transparent and accountable manner
Horticulture development
49. Land area under flowers production(ha) 1,586 3,000
50. Flowers production(mln cuts) 2,748.0 5,859.1
51. Land under the production of vegetables, fruits and herbs(ha) 2,472 33,000
52. Production of vegetables, fruits and herbs(tons) 58,400 979,600
Source: Growth and Transformation Plan (2010/11-2014/15)

21
Table 2.3 Federal Land Allocations to Commercial Farm Investors in Ethiopia
No. Name of Investor Year Country of Origin Region of Investment Investment Activity Hectares
1
Karuturi Agro Products
Plc. 2008 India Gambela
Development of Palm, Cereals &
Pulses 100,000
2 Shapoorji Pallonji 2010 India Benshangul Gumuz Growing biofuel seeds, edible oil 50,000
3
BHO Bio Products PLC
2009 India Gambela Palm, Cereals & Pulses 27,000
4 Ruchi Soya Industries 2010 India Gambela Growing Soya bean 25,000
5
CLC Spentex Industries
Limited
2010 India
Benshangul Gumuz &
Amahara Growing Cotton 25,000
6
Huanan Dafengyuan
Agriculture 2010 China Gambella Growing Sugarcane 25,000
7
Adama
2010 Ethiopia SNNPR Growing Cotton 18,516
8
White field
2010 Indian SNNPR Growing Cotton 10,000
9
Saudi Star Agricultural
Development 2008 Saudi arabia Alwero, Gambella Wheat, maize and rice farming 10,000
10
Sannati Agro Farm
Enterprises 2011 India Gambella
Growing Rice and rotational pulses
& cereal crops 10,000
11
Daniel Agricultural
Development Enterprise
2010 Diaspora SNNPR Growing Cotton and Grains 5,000
12
Mela Agricultural
Development PLC 2010 Ethiopia SNNPR Growing Cotton 5,000
13
Access Capital Services
2011 Ethiopia Benshangul Gumuz
Development of Sesame, Cereals
& Pulses 5,000
14
Tracon Trading PLC
2011 Ethiopia Benshangul Gumuz Growing Cotton 5,000
15
Dr. Tamie Hadgu
2011 Diaspora SNNPR Growing cotton and seeds 5,000
16
Bruhoye
2011 Ethiopia Benshangul Gumuz Growing Cotton and soya bean 5,000
17
Lucci Agricultural
Development Plc 2010 Ethiopian SNNPR Growing Cotton 4,003
18 Vedanta Harvests PLC 2010 India Gambella Tea, biofuel and spices production 3,012
19
Rahwa
2010 Ethiopian SNNPR Growing Cotton and Grains 3,000
20
ASKY Agricultural
Development 2011 Ethiopia Benshangul Gumuz Growing Cotton 3,000
21
Tsegaye Demoz
Agricultural Development
2010 Diaspora SNNPR
Growing Cotton, Sesame and
Soyabean 1,000
22
Reta
2010 Diaspora SNNPR Growing Cotton and Grains 2,137
23
Keystone
2010 Diaspora Benshangul Gumuz Horticulutural and Crops 431
TOTAL COMMERCIAL LAND ALLOCATION 347,099
Note: This listing may not be comprehensive since some allocations are done at the regional level
Source: Ethiopian Agricultural Portal (Ministry of Agriculture), www.eap.gov.et

22
Table 2.4: Agricultural Exports-- GTP Production and USD earnings projections
Production ('000 Tons) USD Exports Earnings (Mn. USD)
Established Crops 2009/10 2014/15 Established Crops 2009/10 2014/15
Coffee 341 831 Coffee 528 2,037
Major Food Crops 19,392 26,774 Oilseeds 358 1,120
Root Crops 1,806 5,907 Pulses 130 882
Industrial Crops 630 1,175 Flowers 170 535
Spice Crops 182 322 Spices 19 30
Stimulant Crops (Chat) 462 1,040 Fruits & Vegetables 32 948
Flowers (Mn. Stems) 2,748 5,859 Natural Gum 13 33
Fruits & Vegetables 966 5,907 Live Animals & Meat 125 1,000
Total 1,374 6,585
Source: Growth and Transformation Plan Policy Matrix (2010/11--2014/15)
Table 2.5 SUMMARY OF AREA, PRODUCTION & YIELD OF GRAIN CROPS FOR
PRIVATE PEASANT HOLDINGS
Production levels (Millions of tons)
Cultivated Area (Millions of
hectares) Yield (Tons per hectare)
2007/0
8
2008
/09
2009/
10
2010/11 2007
/08
2008/
09
2009/
10
2010/11 2007/08 2008/
09
2009/
10
2010/1
1
Total
Grain 16.1 17.8 19.4 21.2
Total
Grain 10.9 12.4 12.7 13.0
Total
Grain 1.5 1.4 1.5 1.6
Cereals 13.7 15.1 16.7 18.6 Cereals 8.7 9.8 10.2 10.6 Cereals 1.6 1.5 1.6 1.7
Pulses 1.8 2.0 2.0 2.0 Pulses 1.5 1.8 1.7 1.6 Pulses 1.2 1.1 1.2 1.3
Oilseeds 0.6 0.7 0.6 0.6 Oilseeds 0.7 0.9 0.8 0.8
Oilseed
s 0.9 0.8 0.8 0.8
GROWTH RATES (%) GROWTH RATES (%) GROWTH RATES (%)
2007/08 2008/09 2009/
10
2010/11 2007/
08
2008/0
9
2009/
10
2010/1
1
2007/08 2008/
09
2009/
10
2010/1
1
Total
Grain 7.8% 10.5% 8.9% 9.6%
Total
Grain 3.5% 13.4% 2.7% 1.9%
Total
Grain 4.1% -2.6% 6.1% 7.5%
Cereals 6.5% 10.1% 10.6% 11.1% Cereals 3.1% 11.9% 4.9% 3.7% Cereals 3.3% -1.6% 5.5% 7.2%
Pulses 12.9% 14.7% -0.2% 0.2% Pulses
10.1
% 18.2% -4.5% -8.3% Pulses 2.6% -2.9% 4.5% 9.2%
Oilseeds 24.2% 6.4% -1.9% -1.3% Oilseeds
-
4.3% 21.9% -8.1% 1.2% Oilseeds 29.9%
-
12.8% 6.8% -2.4%
Source: CSA's Agricultural Sample Survey Reports (2006/07-2010/11)

23
3. A Consumer Goods revolution among Ethiopia’s 85 million-plus population is just beginning
and will no doubt gather substantial momentum in the next five years.
Key Points:
 The usual drivers of consumer goods markets in developing country contexts—rising
incomes, favorable demographics, and behavioral changes linked to urbanization—are all
increasingly evident in Ethiopia.
 We estimate that the collective buying power of Ethiopia’s urban consumers is now $6
billion (or Birr 95 billion), and this figure is set to expand by at least $1 billion (Birr 18
billion) per year according to our projections.
 We identify three high potential sub-categories in the Ethiopian consumer goods space,
including: (i) sectors where there has been very little domestic value-added so far despite
plentiful local supplies of needed inputs (e.g., processing of cereal grains, edible oils); (ii)
sectors where goods can be produced from basic, labor-intensive manufacturing facilities
(clothing, footwear), and; (iii) sectors where demand jumps sharply once incomes cross a
certain low threshold (such as for home rentals/purchases, beverages, household supplies,
mobile phone usage, and private health/education services).
An explosion in demand for a wide range of basic consumer goods and services will no doubt propel
the emergence and expansion of firms in the consumer goods space in the coming years. By
―consumer goods space‖ we are referring to items that fall under two broad groups: first, basic consumer
goods (foods, beverages, clothing, household consumables, and durable goods) and, second, basic
consumer services (rentals, private health, private education, telecom services, and banking services).
The usual drivers of consumer goods markets in developing country contexts—rising incomes,
favorable demographics, and behavioral changes linked to urbanization—are all increasingly
evident in Ethiopia:
Rising Incomes: Nominal economy-wide incomes, if proxied by nominal GDP growth, have been rising
by 30 percent annually in recent years and are set to rise by a somewhat reduced but still-high 20 percent
in the coming years.14
Within the past year, a step salary adjustment averaging 30 percent granted to
public sector employees in early 2011 has driven equal or higher step increases in many large private
sector employers.15
Such increases are enabling a gradually increasing number of urban Ethiopians to
spend rising portions of their income on consumer goods. For example, two separate sources of wage
statistics found median urban wages to be near Birr 1100 per month in 2009/10.16
However, driven by
government salary increases averaging 30 percent since then, median salaries would now be close to Birr
1430 per month. Moreover, based on the civil service scale and modified for the recent salary
14
Assuming real GDP growth of 11 percent and inflation of around 10 percent for the next few years, nominal GDP growth
should exceed 20 percent for all of the coming five year period.
15
Access Capital‘s Price Database shows, for example, large salary increases across many categories of wage earners between
January 2010 and October 2011, including close to 20 percent annual wage increases for job categories such as secretaries,
accountants, business managers and public hospital doctors.
16
The ―2011 Urban Employment-Unemployment Survey‖ of August 2011 shows median wages of Birr 1063 per month for the
urban employed population (Table 5.25). Focusing only on manufacturing firms, the ―Large and Medium Scale Manufacturing
and Electricity Industries Survey‖ released in 2011 shows average manufacturing wages of near Birr 1122 per month (Table
4.11).

24
adjustments, the distribution of income for those above the median would show 14 percent of urban civil
servants earning between Birr 1850-2600 per month and 8 percent earning above Birr 2500 per month
(Table 3.1).17
The pay patterns within the civil service should reasonably capture the median earnings
profile across urban areas: substantial portions of the urban population are of course not as privileged as
the group of 854,000 civil servants (implying civil service salaries might over state average salaries) but,
at the same time, a sizeable group of employees in the manufacturing, banking, insurance, and
NGO/service sectors earn substantially higher monthly wages. On balance, we think the civil servant
wage distribution offers a reasonably good indication of the median wage distribution in urban areas.
And on the basis of the median civil service wage, we find it reasonable to estimate that around 50
percent of Ethiopia‘s urban employed, or roughly 2.5 million individuals, already earn the equivalent of at
least $1000 per year (equivalent to about Birr 17,200 per year or Birr 1430 per month), a noteworthy
threshold after which demand for basic consumer goods jumps sharply based on international experience
of consumer spending patterns.18
Favorable Demographics: With respect to demographics, Ethiopia will increasingly stand out favorably
from the consumer goods space perspective on account of its huge size (second largest population in
Africa, 14 largest in the world) and a very young demographic (44 percent of the population is under 15
and 73 percent under 30).
Urbanization-linked changes in consumption: Finally, adding to the impact of rising incomes and
demographic changes, will be the increasing urbanization and emerging living patterns evident across the
country, most notably in the form of condominiums, organized neighborhoods, and other high-density
living arrangements. Ethiopia‘s urban population has, for instance, recently crossed the 10 million
threshold according to national statistics, with 5.1 million of these employed and 2.5 million engaged in
salaried, wage-earning occupations. In line with the consumption patterns seen in other developing and
urbanizing countries, the following main groupings of consumer goods and services typically become
important as a country rises up the income ladder. First, while food products will of course continue to
make up a large share of the consumption basket of most developing country consumers, its composition
will increasingly turn from basic staples to a more varied diet involving, for example, dairy, poultry,
meats, fruits, vegetables, and processed foods (e.g., wheat products, dairy products, etc). Beyond the food
itself, the way it is prepared and consumed itself also typically shifts over time, with increased use of
prepared inputs, food being purchased for taking home, and food being eaten away from home. Second,
as the share of food in total spending declines, this is typically taken up in by spending on housing/rents;
consumable basic household goods (toiletries, soaps, detergents); clothing and footwear; discretionary
consumables (soft drinks, beer, cigarettes, pastries/sweets); and durable household goods (simple
electronic goods; televisions; furniture; kitchen appliances). Consumption also shifts towards services,
including increased spending on telecom services (mobile phones and airtime); restaurants/cafes; private
education/training services; entertainment venues; and personal care services (private health facilities,
barber/beauty salons).
17
Wage distribution data for the 850,000-strong civil service is from the June 2011 ―Labor Market Information Bulletin‖ of the
Ministry of Labor and Social Affairs.
18
See McKinsey Quarterly‘s ―Africa‘s Path To Growth: Sector by Sector‖ report of June 2010 and its section on consumer
goods markets across Africa.

25
In the Ethiopian context, where within the consumer goods space is spending going to be most
concentrated? The clues are available from existing spending patterns as revealed by household surveys
and the composition of the consumer price index. We review both of these in turn:
Household expenditure patterns based on survey data: Data on urban household consumption
patterns are provided by periodic surveys conducted by the Central Statistical Agency. The most
recent survey showed that the typical urban Ethiopian household spent its income of the
following categories, in order of importance: food (34 percent); housing, fuel, water and energy
(24 percent); household furnishings (6.5 percent); clothing and footwear (6.2 percent); and
education (3 percent) (Table 3.2).
Composition of the Consumer Price Index: A much more disaggregated picture of the make-up
of urban consumption in Ethiopia is provided by the composition of the consumer price index. In
terms of broad categories, the largest items on which individuals spend their income are as
follows: food (41 percent), rental (11 percent), clothing and footwear (8 percent), transportation
(8 percent), household furnishings (4 percent) and education spending (4 percent). These
proportions show some differences, but not major deviations, from the household expenditure
surveys.
Putting together the data on the composition of urban spending (from the CPI) with data on overall
urban incomes makes it possible to arrive at reasonably good estimates of total urban spending in
the main categories of consumer goods. Starting with the calculation of overall urban incomes, we note
from CSA‘s urban employment and wages data that there was—as of 2011—a total of Birr 62 billion in
urban purchasing power from wage income alone (Table 3.3). Adding in three other sources of urban
incomes—dividend income, rental income, and remittance income— we estimate the collective buying
power of urban consumers to be Birr 95 billion (nearly $6 billion), or about 19 percent of aggregate GDP
(Table 3.4).19
Based on this aggregate urban consumer purchasing power, and applying the composition
of spending used by the CPI reveals the annual amounts spent in many specific consumer goods
categories (Table 3.5). Thus, for example, focusing on the largest items we estimate Birr 10.3 billion in
cereals-related spending (wheat, teff and maize primarily), Birr 10.3 billion in rent/home ownership
expenses, Birr 7.4 billion on transportation, Birr 6.6 billion on home furnishings, Birr 5.5 billion on
clothing, Birr 3.9 billion spent on education, and Birr 3.9 billion each on both ―food away from home,‖
and on edible oils. Beyond these major categories, consumer goods on which at least Birr 2 billion is
spent annually by urban consumers include vegetables, injera, peas and lentils, electricity charges,
kerosene, building materials, communication expenses, footwear and personal care items. Focusing on
implied future growth in these items (Table 3.5), the implied extra purchasing power from nominal GDP
growth rates of near 20 percent per year implies that at least 5 categories of consumer goods will see Birr
1 billion or more in annual market size increases (cereals, housing costs, household furnishings, transport,
and clothing), while another 8 will see market size increases of at least Birr 500 million (beef, food-away-
from-home, edible oils, bread, vegetables, electricity, education, communications).
19
As would be expected, the share of urban purchasing power in total GDP is much higher (19 percent) than its share in the
population (10 out of 84 million, or 12 percent). All data on urban employees, salaried numbers, and average wage levels are
from the Central Statistical Authority‘s August 2011 ―The 2011 Urban Employment-Unemployment Survey.‖

26
Based on the above data showing initial market size and anticipated annual increases, we think the
consumer goods space in Ethiopia over the coming years will be dominated by three high-potential
sub-categories: (i) consumer goods in which there is currently limited domestic value-added despite
plentiful supplies of needed inputs; (ii) consumer goods produced by basic, labor-intensive manufacturing
industries and that offer huge import substitution opportunities; (iii) consumer goods for which demand
jumps sharply once incomes cross a certain low threshold. A representative sampling of such consumer
goods with notable prospects in each of the main sub-categories is provided below.
Goods with limited domestic value-added despite abundant supplies of needed inputs
 Cereal products: This sector still shows very limited value-addition despite the huge potential to
process wheat, maize, teff, and barley by-products for an urbanizing population with rising demand
for products such as different types of bread, pastas, baby food products, and confectionery products.
Based on the urban CPI index and estimated urban incomes, for example, the market for bread and
―pasta and macaroni‖ is already Birr 2.6 billion and Birr 0.5 billion respectively (Table 3.4), with
potential annual increases of Birr 500 and 100 million per annum in the coming years (Table 3.5).
 Edible oils: Despite a huge supply of different oil seeds, most of this is exported in seed form rather
than consumed domestically as edible oils. Only a handful of edible oil plants operate (Addis Modjo,
Hamaressa, Adama, and Bahir Dar Food Oil factories), though these are now being joined by some
new foreign ventures (Ashraf and Acazis). Reflecting the still limited number of producers, edible oil
imports have risen 14-fold from just $18 million in 1999 to $248 million in 2010, equivalent to a Birr
3.2 billion potential market that is ready for import substitution by local firms.
Consumer goods produced by basic, labor-intensive manufacturing industries
 Clothing and footwear: We estimate the urban clothing and footwear market at Birr 7.5 billion for
2011, given its 8 percent share in the urban consumption basket. This figure represents a mix of
imports and local produce; given import figures of Birr 3.2 billion for clothing and footwear, this
implies that only 57 percent of the market is supplied by local producers, a ratio that can easily jump
in the years ahead.
 Vehicles: Although not a mass market consumer good for the Ethiopian context, passenger vehicles
represent a very fast growing niche segment (annual vehicle registrations are rising by 65 percent per
year) despite extremely high tariffs on auto imports (up to 250 percent of the vehicle‘s value). Not
surprisingly, taking advantage of low taxes on parts for car assembly, several such firms are already
in or entering the market, including Holland Car, Lifan Automotive, Belayab PLC, Marathon Motors
(Hyundai), Mesfin Industrial Engineering (Geely cars), and Betret International PLC (BYD cars). All
of these, including possible additional entrants, could easily multiply their sales volumes given latent
demand in this sub-sector.
Goods with large demand increases once incomes cross a certain threshold
 Soft drinks: Soft drinks are chronically in short supplies relative to demand, especially in areas
outside the main cities. The current dominant suppliers (Coca Cola and Pepsi) have large capacity
expansion plans, including a doubling of production volumes within a couple years through new
production lines as well as additional bottling facilities. Even with a doubling of annual sales,
however, this will still be well below sales in Kenya and Nigeria, both found to be firmly positioned
within the top 30 global markets in per capita consumption of soft drinks in 2010, indicating yet more
scope for on-going capacity expansions.

27
 Household consumables (such as soaps, toiletries, detergents) and basic medicines currently absorb
an estimated 2.1 billion in household spending but would grow by 420 million per year in the coming
years given the sharp jump in usage of such products as low levels of income rise over time.
 Home rental and purchase costs are typically the largest share of a household‘s incomes once basic
food needs are addressed. In many developing and developed country contexts, it is the norm for 25-
40 percent of a household‘s income to be devoted to meeting that household‘s housing needs, whether
in the form of rents or mortgage payments for purchased homes. Despite a large construction of
government-built condominiums, this sector still shows huge potential for growth given an estimated
shortfall of more than 400,000 housing units in Addis Ababa alone.20
Taking our urban income
estimate, allocating 25 percent of household income to rental/purchase costs would imply Birr 24
billion in opportunities for builders/renters of housing units.
 Mobile phone ownership and service usage: Projections to raise mobile phone coverage from its
current levels of 10 million to 40 million in 2014/15 (as per the GTP) imply huge growth in mobile
phone hardware and telecom airtime sales. An extra 30 million mobile phone units implies sales of
625,000 mobile phone units per month or 21,000 per day. With respect to airtime, an extra 30 million
users in four years time, assuming Birr 50 (≈$3) airtime usage per user per month, implies an extra
Birr 18 billion (≈$1 billion) in annual telecom service sales from new subscribers and voice services
alone.
 Private health and education services: Although still dominated by government institutions,
especially for basic health and education services, privately owned and run health and educational
institutions have mushroomed in recent years and appear likely to continue their rapid growth. In
Addis Ababa alone, for example, there were (as of 2011) 20 registered private hospitals, 342 private
clinics, 487 nurseries/kindergartens, 283 private schools and 38 private colleges/universities. Rising
populations, a preference for better quality services, and a demand for specialized offerings will all
push growth in this area. In terms of key pharmaceuticals used in the health industry, medicine
imports have jumped from $35 million to $321 million over the last decade, equivalent to a market of
Birr 5.5 billion that is also ready for at least partial import substitution in the case of basic ―mass-
market‖ medicines.
 Entertainment services and venues: Based on their weights in the CPI, ―food taken away from
home‖ (3.2 percent) and ―entertainment services‖ (1.5 percent), the market for eating venues
(restaurants, bars, etc.) and ―entertainment services‖ is on the order of Birr 3.1 billion and Birr 1.4
billion respectively. The size and scope of the markets in this area is certainly corroborated by other
data, such as Addis Ababa business registrations which show: 4,380 registered restaurants/bars/cafes,
1,792 personal care & effects service provides (barbers, beauty salons, spas, etc.), and 395
exclusively ―recreation, music and entertainment‖ venues (see Table 3.6).
 Retail Trade: As in most developing countries, the retail distribution of many goods and services
comprises a large part of the business landscape and Ethiopia is no different in this respect. For
Addis Ababa alone, for example, business registration data show close to 30,000 registered retail
traders, with the largest categories concentrated on selling food produce (9,893), clothing (7,303),
intermediate goods, household appliances, and vehicle/transport equipment (Table 3.7).
20
A very simple and revealing indicator of the scale of housing demand can be seen from the Government condominium lottery
of April 2010. A total of 485,000 individuals (almost one-seventh of Addis residents) applied for condominium units though
only 10,700 were made available (2.2 percent of total demand).

28
The scope and scale of business opportunities offered by the convergence of the above trends—
rising incomes, favorable demographics, and increased urbanization—are all nicely captured by
recent developments in just one corner of the consumer goods space: beer. Once an industry solely
operated by lethargic state-owned enterprises, the Ethiopian beer industry has in just the past year been
fully taken over by private operators (including two large foreign investors) and is set to see even more
entrants in the years ahead from at least three additional domestic brewers (Habesha Beer, Raya Beer, and
Zebidar Beer). What is particularly remarkable is the entry of two global multinational beverage
companies and their determined drive to join the domestic beverages market, even if this meant paying
premium prices to secure their investments: Heineken bought Harar Brewery for $78 million and Bedele
Brewery for $85 million while Diageo bought Meta Brewery for $225 million, resulting in a combined
sum of $388 million for the three breweries. By our calculations, the purchase prices paid amount to 15
times earnings for Harar Brewery, 23 times earnings for Bedele Brewery, and an astonishing 48 times
earnings for Meta Brewery. While it is the case that beer is a unique consumer product in some ways, the
bullishness shown by foreign investors in this sector does reveal many of the opportunities available from
Ethiopia‘s other consumer goods markets, including the potential to quickly increase sales given very low
levels of product penetration. Precisely for these reasons, foreign interest in the fast-moving consumer
goods space has not been limited to just beer, but is also evident in areas as varied as foodstuffs,
household goods, soft drinks, bottled water, and others as is summarized by a partial compilation of
recent deals and notable participants in Table 3.8.
Table 3.1. Urban Distribution of Income-- Proxied by Civil Servant Wages (FY 2009/2010)
Salary Bracket (In Birr)
Sex
%
Male Female Total
300-399 22,785 17,207 39,992 5%
400-599 47,501 28,955 76,456 9%
600-799 68,579 44,351 112,930 13%
800-999 92,949 45,694 138,643 16%
1000-1199 60,581 30,228 90,809 11%
1200-1399 35,781 12,139 47,920 6%
1400-1599 23,062 8,649 31,711 4%
1600-1799 22,759 6,156 28,914 3%
1800-1999 12,099 3,116 15,214 2%
2000-2199 7,957 2,390 10,348 1%
2200-2399 8,405 1,561 9,965 1%
2400-2599 5,697 1,484 7,181 1%
2600-2799 6,365 1,419 7,783 1%
2800-2999 4,294 1,328 5,622 1%
3000+ 9,706 1,787 11,493 1%
Not mentioned 145,570 73,764 219,334 26%
Total 574,089 280,227 854,316 100%
Note: For calculating wage groupings the ' Not mentioned' category is excluded
Source: Ministry of Civil Service (2009/10 Human Resource Statistics)

29
Table 3.2: Composition of Urban Spending by Broad Categories
MAJOR GROUPS
Proportion of
Expenditure (%)
Food and Non Alcoholic Expenditure 34.0%
Alcohol and Tobacco 0.4%
Clothing and Footwear 6.2%
Housing, Water, Fuel, Energy 23.9%
Furnishing Household Equipment and Maintenance Goods and
Services for Routine Household Maintenance 6.5%
Health Medical Treatment 0.8%
Education 3.1%
Other (including Transport, Communication, miscellaneous) 25.2%
Total Expenditure per capita 100%
Source: Household Income, Consumption and Expenditure (HICE) Survey 2004/05
Table 3.3.Urban Purchasing Power Based on Aggregate Wage Income
Urban Salaried group
Urban Non-
salaried group
Total Wage Paid
(in Birr) In USD terms
Numbers 2,544,615 2,595,216 … …
Mean Monthly
wage 1,063 957 … …
Monthly wage
paid 2,704,925,745 2,482,843,147 5,187,768,892 302,141,461.40
Annual wage paid 32,459,108,940 29,794,117,766 62,253,226,706 3,625,697,537
Source: CSA 2011 Urban Employment & Unemployment Survey & Access Capital Estimates
Table 3.4 Total Urban Income Estimate in 2011
(in Birr)
Birr per year
Wage Income 62,253,226,706
Dividend income 3,439,396,810
Rental income 6,225,322,671
Remittance income 24,038,000,000
Total Urban income 95,955,946,187
Total Income in Percent of GDP 19%
Source: CSA 2011 Urban Employment & Unemployment Survey & Access Capital Estimates

30
Table 3.5. Urban Consumption Estimates For 2011 (based on CPI Index)
Commodity Types
Weight in CPI
(%)
2011 Spending Level
(In Birr)
Estimated Annual
Incrase in Spending
(In Birr)
Food Items 41.0% 39,332,342,342 7,866,468,468
Cereals( teff, wheat, maize, etc) 10.7% 10,267,286,242 2,053,457,248
Beef 3.9% 3,742,281,901 748,456,380
Chicken & Mutton 1.4% 1,362,574,436 272,514,887
Food away from home 3.2% 3,070,590,278 614,118,056
Edible oils 3.2% 3,070,590,278 614,118,056
Bread 2.7% 2,590,810,547 518,162,109
Vegetables 2.6% 2,514,045,790 502,809,158
Injera 2.6% 2,494,854,601 498,970,920
Peas and Lentils 2.4% 2,302,942,708 460,588,542
Spices 1.9% 1,851,949,761 370,389,952
Sugar 1.8% 1,727,207,031 345,441,406
Coffee and Tea 1.6% 1,554,486,328 310,897,266
Milk and Eggs 0.8% 767,647,569 153,529,514
Potatoes, Other Tubers and Stems 0.7% 642,904,839 128,580,968
Milling Charge 0.5% 498,970,920 99,794,184
Pasta & Macaroni 0.5% 479,779,731 95,955,946
Other Foods 0.2% 220,698,676 44,139,735
Fruits 0.2% 172,720,703 34,544,141
Home-related 27.7% 26,582,675,772 5,316,535,154
Rent 10.8% 10,337,334,083 2,067,466,817
Household furnishing 6.9% 6,592,173,503 1,318,434,701
Electricity charges 2.7% 2,571,619,358 514,323,872
Kerosene 2.4% 2,274,155,925 454,831,185
Building material 2.1% 1,986,288,086 397,257,617
Charcoal & Firewood 1.6% 1,487,317,166 297,463,433
Water charges 1.4% 1,333,787,652 266,757,530
Services 17.4% 16,696,334,637 3,339,266,927
Transport 7.7% 7,388,607,856 1,477,721,571
Education 4.1% 3,934,193,794 786,838,759
Communication 2.8% 2,686,766,493 537,353,299
Entertainment 1.5% 1,439,339,193 287,867,839
Medical Care 1.3% 1,247,427,300 249,485,460
Clothing and footwear 7.8% 7,484,563,803 1,496,912,761
Clothing 5.8% 5,565,444,879 1,113,088,976
Footwear 2.0% 1,919,118,924 383,823,785
Personal care products 2.1% 2,015,074,870 403,014,974
Personal care 2.1% 2,015,074,870 403,014,974
Beverages 2.0% 1,919,118,924 383,823,785
Beer 1.5% 1,439,339,193 287,867,839
Soft drinks 0.5% 479,779,731 95,955,946
Other items 1.9% 1,823,162,978 364,632,596
Total Urban Consumption
Basket
100% 95,955,946,187 19,191,189,237
Source: CSA CPI COMPOSITION & WEIGHTS--Addis Ababa & Access Capital estimates

31
Table 3.6. Composition of Private Service Providers in Addis Ababa in 2010
Trade Fields
No. of Service
Providers
Combined Registred Capital
(in Birr)
TRANSPORT PROVIDERS 20,438 2,800,504,373
OTHER SERVICES 4,740 2,955,586,440
HOTEL, RESTAURANTS , BARS & CAFÉS 4,380 530,185,936
CONTRACTORS 3,436 1,987,888,152
RENTAL ACTIVITEIS 2,443 2,251,546,707
PERSONAL CARE & EFFECTS 1,792 20,898,764
PRINTING, PHOTOGRAPHING and SECRETAREIL SERVICES 1,454 199,695,696
EDUCATION & TRAINING CENTERS 1,280 807,785,498
REPAIRING, INSTALLATION & MAINTENANCE 666 92,542,871
PROMOTION & PRODUCTION 609 85,792,772
CONSULTANCY 532 235,473,886
CLINIC HEALTH SERVICES 403 135,395,291
RECREATION , MUSIC & ENTERTAINMENT 395 70,169,674
CLEANING &SANITATION SERVICES 342 28,862,429
COMMUNICATION 382 69,086,371
ENGINEERING SERVICES 209 81,821,052
TOTAL SERVICE PROVIDERS 43,501 12,353,235,912
Source: Addis Ababa Trade & Industry Bureau
Table 3.7 Composition of Retail Traders in Addis Ababa (2010)
Trade Fields No. of Retailers
Combined
Capital
(in Birr)
Durable Goods Retailers 4,864 555,898,751
Household Appliances & Utensils 1,871 127,463,249
Vehicles & Transport Equipment for "Personal" Use, Spare Parts & Accessories 1,591 265,815,678
Furniture, Furnishings, & Floor Coverings 764 86,780,192
Audio-Visual, Photographic, & Other Electronic Equipment (excluding ICT Products) 638 75,839,632
Non-Durable Goods Retailers 24,805 1,620,062,381
Food 9,893 339,925,910
Articles of Leather, Textiles, & Footwear (Wearing Apparels & Accessories) 7,303 300,338,810
Intermediate/Semi-Finished Products 3,111 252,772,346
Alcoholic Beverages & Tobacco Products 1,594 14,940,958
Others 1,401 512,635,291
Newspapers, Books & Stationery 756 123,078,504
Products of Personal Effects 408 27,161,608
Healthcare Products 224 42,939,348
Non-Alcoholic Beverages 115 6,269,606
TOTAL RETAIL TRADERS 29,669 2,175,961,132
Source: Addis Ababa Trade & Industry Bureau

32
Table 3.8 Sampling of Foreign Firms in Fast Moving Consumer Goods (FMCG) Sector in Ethiopia
Foreign Company Origin
Ethiopian
Subsidiary/Affiliate/Partner Notes
1 Heinken Netherlands Bedele and Harar Brewery
Heineken purchased Bedele
Brewery at $80 million and Harar
Brewery at $75 million in 2011.
2 Diageo UK Meta Brewery
Diageo purchased Meta Brewery at
a cost of $220 million in late 2011.
Diageo plans to invest 10 million
dollars on expansion of the brewery
and may introduce new line of
products to the Ethiopian beer
market
3 SAB Miller South Africa Ambo Mineral Water
SABMiller has improved
technology, boosted marketing, and
expanded into several new product
lines such as flavored water and
new bottle types.
4 Tiger Brands South Africa East African Group (Ethiopia) plc*
Joint venture with collaboration
expected in the areas of home and
personal care products, biscuits,
flour, detergents and pasta
5 Proctor & Gamble US Petram Plc & Al-Impex Plc
Rapid expansion in operations,
with products in market including
Ariel, Pampers and Gillette
products, Powder Milk &
Sunflower.
6 Nestle Switzerland Mulege Plc
Sole distributor of Nestle's Nido
Milk Powder
7 Unilever UK/Netherlands Alfaraj
Sole distributor of Unilever
products, including children's
products, detergent, sanitary items,
cosmetics (i.e., Sun silk), and
razors
8 Sony Japan Glorious PLC
Expanding sales and aggressive
promotions, especially in flat panel
TV sales
9 Samsung South Korea Garad
Samsung is planning set up an
assembly plant for refrigerators and
home appliances and to open a
state-of-the-art engineering
institution that aims to educate
more than 10,000 electronic
engineers in few years time.
12 Multichoice Africa South Africa Multichoice Ethiopia
Rapid expansion in operations with
rising choice of subscription
offerings targeting different price
points
12 Rina International India Aqua Addis Bottled Water
13 Coca Cola Sabco (CCS) South Africa
East African Bottling Share Company
(EABSC)
Rapid expansion in operations to
meet fast-growing and unmet
demand, especially in regions.
Source: Various News Articles and companies' profile notes

33
4. Emerging export industries—in mining, manufacturing, and foreign exchange generating
services—are already making their mark in the Ethiopian economy and will soon overtake
traditional exports of coffee and other agricultural goods.
Key Points:
 Three sets of industries focused mainly on selling to foreign markets—mining, manufacturing,
and foreign currency generating services—have shown sharp growth in recent years.
 Very large capacity expansion plans are in place in all three of these emerging export industries
and the prospects that these plans will be realized are quite solid in our view.
 By our calculations, the combined foreign exchange earnings of Ethiopia’s emerging export
industries will very shortly eclipse that of Ethiopia’s traditional agricultural exports.
Emerging export-oriented industries have recently been among the strongest sources of Ethiopia’s
economic growth. Three such ―emerging export-oriented industries‖ are particularly notable: mining;
manufacturing (namely textiles and leather products); and services with large foreign exchange generating
capacity (airlines, shipping, electricity). All three industries have tended to grow at or above the growth
rates of overall GDP in recent years (Table 4.1), and the prospects for continued growth in all these sub-
industries is promising, aided by policy reforms, favorable demand prospects, and on-going capacity
expansions
Mining
Mining has long been an industry with huge untapped potential but little actual delivery in the past
several decades—this is now changing for good, however. The past few decades have seen false
promises from the mining sector many times, including for example from anticipated oil discoveries in
the Ogaden/Somali region in the 1970s and from extensive natural gas explorations in the 1980s. None of
these materialized, however, in large part due to an inhospitable policy environment that discouraged the
large foreign investments typically required for successful mining projects.
With improving policy conditions and given the country’s substantive resources, Ethiopia is
beginning to appear on the radar screen of international mining investors. Driving this interest is the
size and scope of commercially exploitable mineral deposits. According to data from the Ministry of
Mines, Ethiopia‘s notable mining resources include an estimated: 61,000 tons of gold; 72 million tons of
iron; around 200 million tones of potash/phosphate; 3 million tones of marble; 430,000 barrels of proven
oil reserves; and much more (Table 4.2). Some very crude calculations of the gross market value of these
mineral resources is in the tens of billions of US dollars were all these prospects realized as estimated and
actually explored. The prospect of reaching $1.36 billion in annual mining exports by 2014/15 is thus
very much within the realm of the possible if investors capable of exploring these largely untapped
mineral resources are able to commence operations in the coming years.
Signs of the mining sector’s promising potential are already being witnessed in the gold sub-sector.
Gold has been the single biggest area of active mining, with export values rising nearly 100-fold from just
$5 million in 2001 to $485 million last year. Volumes exported reached 11 tons last year, reflecting the
roughly 4 tons output from the dominant producer, Midroc Gold‘s Legadembi Gold Mine, as well as

34
supplies of about 7 tons from hundreds of small-scale, artisanal miners. In a surprisingly short period,
gold exports have risen sharply to become Ethiopia‘s second largest export commodity ($485 million for
gold versus $842 million for coffee), surpassing long-standing traditional agricultural exports such as
oilseeds ($323 million), chat ($238 million), flowers ($175 million) and pulses ($139 million). This trend
is set to continue as additional gold explorations are in the pipeline: in FY 2010/11 alone, 54 mineral
exploration licenses were granted by the Ministry of Mines, up from just 15 licenses five years ago.
Existing firms also have large expansion plans: Midroc Gold, for example, plans to start underground
extraction at the (previously only open-pit) Lega Dembi mine and anticipates 2.4 tons per year of gold
from 2012 to 2014 and 1.8 tons per year from 2015 to 2021, to be supplemented further by a new mining
development (Werseti Mine) that would add 3.5 tons per year by 2016; total output from Midroc Gold
would thus amount to about 6 tons per year by 2014.21
Driven by such expansions within existing firms
and a pipeline of new commercial and artisanal mining operations, gold exports can realistically reach 20-
25 tons per annum within a few years time, equivalent to near $1 billion in export earnings assuming
prices do not fall much from their current levels in the years ahead.
Beyond gold, other notable minerals with significant exploration and export prospects include oil,
potash, platinum and tantalum. Of these, tantalum is the only one already mined in significant
amounts by the Ethiopian Mineral Development Share Company, with 66 tons of exports last year
earning $28 million. As for the other potentially large prospects, data compiled by the USGS Minerals
Yearbook and other sources show: oil exploration is taking place by South West Development and Africa
Oil Corporation of Canada; potash is being explored by Alana Potash and the Ethiopian Potash
Corporation; and platinum exploration is taking place by Australian company Nyota Minerals, a firm also
engaged in gold exploration (See Table 4.3).
Manufacturing
The manufacturing sector in Ethiopia is still in its infancy and its recent growth record has been
good but far from spectacular. Growth rates in the sector have been around 10 percent per year in
recent years, and given similar real growth rates in the rest of the economy, the share of manufacturing
has remained essentially unchanged at just 5 percent of GDP over the past decade (the manufacturing
sector is one part of the ―Industry‖ sector that also includes mining, electricity/water, and construction in
Ethiopia‘s GDP statistics). In terms of numbers, an estimated 2,172 medium- and large-manufacturing
firms operate in Ethiopia, up from around 700 in 2001 and the five largest sub-sectors are (in order of
their GDP contribution) food processing, cement, rubber and plastics, metals, textiles and garment22
(Table 4.4).
Despite a still small manufacturing base, an important sub-set of the sector focused on exports is
beginning to grow sharply from a small base. At an economy-wide level, this growth and expansion is
most evident from steadily rising manufactured exports, especially of leather products and textiles and
garments. Exports of these two commodity groups reached a combined $165 million in 2010/11, a
doubling from just five years ago and not far short of the highly successful and much-publicized
performance of the flower sector ($175 million in exports). Moreover, there is a strong momentum going
21
USGS Minerals Yearbook, quoting from Midroc Gold Mine PLC 2009
22
See CSA‘s 2009/10 Large and Medium Manufacturing Survey.

Ethiopia Macroeconomic Handbook 2011-12 DEC 30 2011r2

Ethiopia Macroeconomic Handbook 2011-12 DEC 30 2011r2

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