Kenyan businesses see opportunities in Ethiopia

25 Nov

The East African

What is Hailemariam Desalegn, the Ethiopian Prime Minister up to in East Africa? This is the question being asked after his two-day visit to Kenya that left in its wake an elaborate agreement between the two countries.

Four months after the death of Meles Zenawi, Ethiopia is opening up to foreign investors after years of its seemingly closed door policy.

A look at Mr Desalegn’s itinerary in Kenya — a visit to milk processor Brookside Dairy, the Aga Khan Hospital, a tour of mobile phone company Safaricom, a breakfast meeting with leading business executives — highlighted Ethiopia’s game plan.

Addis’s strategy is said to be shifting from security and political relations to economic focus, with Kenya first on a list of countries it wants to court.

Ethiopia is looking to open up the country to foreign investors, as it cements its position as the world’s fastest growing non-oil economy.

This strategy could have informed Mr Hailemariam’s decision to grant Kenya, a longtime political and security ally, access to sectors that Ethiopia had closed to foreigners.

In his first trip abroad, the Ethiopian leader signed the deal that opens up agriculture, manufacturing and tourism, a move the country hopes will help address its unemployment challenge.

Sources who spoke to The EastAfrican said the Addis Ababa agreement was signed only months after Kenya agreed to grant Ethiopia special concessions to operate some of the 33 berths it plans to put up at the Lamu port.

It will be the first time that Kenya is allowing a country to operate a berth at any of its harbours, a testimony to the importance of the economic partnership with Ethiopia.

The arrangement highlights the growing economic partnership between the two countries over the past year, a relationship punctuated with an agreement to develop joint infrastructure projects.

Ethiopia, with an average economic growth of 11 per cent over the past nine years, is keen to tap into Kenya’s expertise in capital markets and ICT.

“We would like learn and see greater partnerships between Safaricom and Ethiopia as we work to grow our ICT sector. We believe this will be mutually beneficial to the people of Kenya and Ethiopia,” the Ethiopian premier said during his tour of Safaricom.

Ethiopia is also seeking employment for its young population. “We are targeting companies that are involved in capital intensive sectors like agriculture and manufacturing,” said Mr Hailemariam.

In a move that may suit Kenyan banks, the prime minister said his country will remain closed to Western banks.

“We shall not allow them to operate. The whole Western idea that governments have no role in the economy is not feasible. Government must be able to provide lending to areas that it thinks are good for the economy,” he said.

Locking out Western banks will give Kenyan lenders a big advantage. Kenyan banks have about Ksh180 billion ($2.11 billion) in capital, while Ethiopian banks have Ksh75 billion ($882 million).

The two countries are developing 1,000 km of transmission lines linking their power network, which will allow Ethiopia to start exporting 400MW of power annually from 2018.

This will be a relief for Kenya which hopes to increase power generation from the current installed capacity of 1,533 Megawatts to 3,750MW over the next six years.

Together with South Sudan, the two countries are also developing the LAPPSET project, which involves the construction of a railway and roads running from the proposed port of Lamu in Kenya, to Ethiopia and South Sudan.

The African Development Bank estimates that completing the road from Nairobi to Addis would push trade between the two countries from the $69 million recorded in 2009, to about $200 million in 2017.

Kenya’s trade with Ethiopia in 2010 was $56 million, whereas with Tanzania and Uganda it was $527 million and $739 million respectively, suggesting considerable potential for growth.

“The two countries have agreed to allow trucks to operate across the border, removing the unnecessary costs that traders incurred by having to transfer goods meant for Addis Ababa from a Kenyan truck to an Ethiopian truck and vice-versa,” said Johnson Weru, the co-chair of the joint negotiation team.

Negotiating the deal took just six months, the shortest time for any agreement between the two countries.

“It was challenge discussing the deal since we are members of EAC and the Free Trade Area, which Ethiopia is not, meaning that we could not push for a free trade area, thus the preferential trade agreement,” Mr Weru said.

Regional observers say Ethiopia has more to gain strategically from the deal.

“Yes, Kenya will get a bigger market for its goods. But Ethiopia is surrounded by countries that are either enemies, or that it views with suspicion, so cementing its relation in Kenya is important for it,” said Prof Macharia Munene, from the United States International University.

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