1/2014
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Johanna Maula

Changing urban economy in Addis Ababa

The rapid economic growth in Ethiopia during the past decade is very visible in the capital city.

Addis Ababa, the teeming multimillion city – with at least three, but maybe up to eight million inhabitants – resembles a giant construction site with road and building projects being undertaken everywhere.

Rows and rows of colourful condominiums are being built in the new suburbs that now reach more than 25 kilometres east from the old city centre, the former Royal Palace. Roads are blocked or simply dug up for the light railway, water and electric cables and it is best to be careful while driving in Addis Ababa after dark; a road that was there still in the morning might simply have disappeared in the course of the day, and warning signs are not always placed in front of the gaping holes.

Colourful condominiums are built in the new suburbs. 

Thanks to a post-doctoral research grant from the Finnish Cultural Foundation, I conducted a pilot study on on successful female entrepreneurs in Addis Ababa in March‒April 2014 and had a possibility to closely observe rapid changes taking place in the city that I have known since 1998, and where I lived in 2001–2002. In the course of some 50 interviews of both successful and smaller female and male entrepreneurs, as well as various leaders of entrepreneurs’ associations, bank directors, the current and former presidents of the Ethiopian Chamber of Commerce, as well as others, I focused on the changing urban economy in Addis Ababa, as well as the country at large.

Fast track growth

It is a well-documented fact that Ethiopia has since the beginning of the 21st century been one of the fastest growing economies in the world, with double digit growth figures for a large part of the first decade. Recently, whilst some of the steam has gone off of the economy, the growth in the Gross Domestic Production (GDP) is expected to hover around and above 7 % annually for the next years, which makes Ethiopia still one of the fastest growing non-oil producing economies in the world. At the same time, many changes are taking place in the economic and financial structures. These are also reflected on social roles and attitudes of men and women.

Ethiopia is one of the fastest growing non-oil producing economies in the world.

At the end of the 2008/2009 financial year, for the first time in Ethiopian history, agriculture has been superseded by the service sector as the largest contributor to the nation’s GDP. However, the growth of the industrial sector has seen robust, registering on average growth rate of 16.7 % during the Growth and Transformation Plan’s (GTP) first three years. The government has regarded this as the foundation for the country’s quest to reach the lower ranks of middle income countries in 2025, by increasing industry’s share of the GDP to 27 %.

Although income inequality has according to most observers grown in the past years, considerable progress has been made to alleviate the desperate poverty of the masses of population that was so much part of the Ethiopian society until the early 21st century with the huge famines of 1973 and the 1980s still forming the principal image of Ethiopia to many outside the country.

In fact, the average life expectancy in Ethiopia is now 63 years – above the average for sub-Saharan Africa (62 years) – which marks a huge 14 years increase compared to 1994. The poverty head count was according to the latest World Bank figures (2011) 29.6 %of the population, down from 45.5 % in 1995. Although Ethiopians complain about the steeply increasing prices, inflation has recently been brought down to 8 %, from double digit figures of the past years. Yet, the high prices of staples like teff are threatening the dietary needs of Ethiopians who might be forced to go for cheaper – and less healthy – alternatives.

Positive changes

One of the most visible changes of the last years is the high level of school enrollments. Hundreds of thousands of school children in Addis Ababa, who in their various colourful uniforms fill the streets every morning and afternoon (many schools offer classes in evening as well to cater to the needs of the youthful population), bear witness to this. Primary school enrollment that in 1994 was only 26 % had reached 79 % in 2005. In Addis Ababa this figure is close to 100 % and those desperate ragtag armies of begging children that filled the streets of the capital in the late 1990s are not to be seen anymore.

Investors from abroad have invested 894 billion Birr (about € 34 billion) in Ethiopia since 1992.

It is also well documented that foreign direct investment (FDI) in Ethiopia has grown since the liberalization of the Ethiopian economy which started in 1992. Investors from abroad have invested 894 billion Birr (about € 34 billion) in Ethiopia since then, with Turkey and China leading the investments.

Much has already been written about the role of China in Africa’s economic development during the past decade, but in fact Turkey alone invested 9.5 billion birr in the 2012/13 fiscal year in Ethiopia, which was 42.6 % of the total capital register last year (Ethiopian Business Review, March 2014, No 13). All in all the FDI created almost 67,000 permanent and 130,000 temporary jobs in the country.

It is therefore no wonder that most of the entrepreneurs I interviewed expressed satisfaction about the impact of foreign investments in Ethiopia. Especially those with less education emphasized its impact on employment. On the other hand, some with more education and larger operations thought that the government should be more selective and not allow foreign investment in retail trade and certain types of light manufacturing where they could easily outcompete Ethiopians.

However, as Ethiopia is bound to become a full participant in the Common Market for Eastern and Southern Africa (COMESA) and its Free Trade Area (FTA), and even the WTO in the coming years, it is hard to see how it could protect itself from such competition. In fact, the IMF is now calling for the Government to add sugar production and logistics to sectors that should be opened to foreign investors in addition to its earlier demands on private banking sector and telecom.

New challenges

Yet others noted that the level of FDI is still relatively low with 2.8 % of the annual Gross National Production (GNP), and much more would be needed. Interestingly, although six of my interviewees maintained preferring to work with North Americans and British clients and investors, who were seen as “straight forward”, no one expressed other preferences as to the nationalities or origins of the foreign investors. Whilst some commented on the presumably low quality of Chinese products, others, on the other hand, maintained that the Chinese are socially adapting well in Ethiopia, with intermarriages, and getting involved even in small-scale agricultural production.

Ethiopia is the country with the largest public investments in Africa and sixth in the world.

The IMF country representative Jan Mikkelsen recently identified the lack of investments as one of the largest problems affecting the further growth of private sector in Ethiopia. With its huge infrastructure projects, such as the Grand Ethiopian Millennium Dam, which is totally funded by domestic investors, Ethiopia is now the country with the largest public investments in Africa (and sixth in the world), but the level of investments in the private sector has remained on the same level the past four years. My own research showed similar results with several interviewees pointing to the lack of finances, including foreign currency, as a major impediment for their businesses. 

It is already well known that the problems that women entrepreneurs in sub-Saharan Africa face in accessing starting capital and trade or working credit from banks and other formal sector investors are more pressing than those of their male counterparts because women more often lack a collateral, in the form of a house or other property in their name. In my sample, practically all the female entrepreneurs had had to use own savings or gifts or loans from their family members to raise the starting capital for their businesses. Some had been more innovative or persuasive, and secured trade credit or advances from their prospective clients.

On the other hand, all the interviewees, male and women, in my study acknowledged that the government and kebeles (lowest administrative units) have done a great deal to promote women’s micro- and small-scale enterprises and tackling the pervasive poverty by raising awareness, organising the poorest inhabitants in teams of street cleaners, as well as offering micro-credits and training for prospective entrepreneurs. Although it was admitted that the informal sector traders sometimes face harassment from police, it is evident that the officials try to upgrade their conditions. To that end, the City administration of Addis Ababa has, for instance, organised open air markets and provided very inexpensive sheds and shades for the street traders. The smallest traders also pay only the sales (or turnover) tax of 2 %, and are exempt of the value added tax (VAT) of 15 %. These reforms are reminiscent of those undertaken in Kenya as a part of promoting “Jua kali” or “Hot sun”, i.e. informal traders since the 1980s.

However, some of the traders in the textile business in the Shiro Meda neighbourhood complained about what they felt was unfair competition. Whilst all the traders there sell identical products (traditional cloths), on one side of the main road the smaller traders rent inexpensive sheds from the municipality (for about 100–200 Birr a month) and pay only the 2 % sales tax, whereas on the other side of the road the larger traders rent proper shops from private owners (for 4000–6000 Birr a month) and pay 15 % VAT as well as capital tax. Given that there is no variation in pricing of the products, nor attempts among the traders to specialize in different types of clothing, it is obvious that with their lower fixed costs, the smaller traders are able to make more profits.

It was also noted by my interviewees that recent legal reforms, that require that both the husband’s and wife’s names are listed in their property, and allowing women land entitlements to small lots of land in the rural areas, have raised the women’s status and made them more credible entrepreneurs in their own right. Whilst some at the lower end of operations claimed that members of the ruling party were given preferential access to micro-credits and training, some of the larger entrepreneurs denied this vehemently.

Professional networks needed

However, practically all the women entrepreneurs that I interviewed mentioned the lack of professional networks as one of their major problems. Using almost identical words the women described how male entrepreneurs meet each other and other male power figures after working hours, drinking beer and socializing. “Business men do their real work at nights, negotiating loans, sealing deals. Then signing the deals the following day is a mere formality”, exclaimed a business woman when discussing differences between female and male entrepreneurs.

Mrs Mulu Solomon  is the president of the Ethiopian Chamber of Commerce. The lack of professional networks is one of the women entrepreneurs' major problems. 

Recently, some of the more prominent business and professional women have started a new private bank, “Enat” or “Mothers” that is supposed to cater for the financial needs of women entrepreneurs. Although majority of the more than 6,000 account holders are women, it remains to be seen whether the bank will be able to channel more funds to the women owned enterprises.

Corruption was mentioned by some of the larger entrepreneurs in my sample especially in the construction and transport businesses, as one of their most important problems. The interviewees even mentioned certain foreign embassies where local staff was claimed to require “commissions” for allowing them access to tenders.

On the other hand, the draconian measures that the government has taken to fight corruption and tax evasion with several prominent business people given long prison sentences or having actually fled the country in anticipation of such were well known. In fact one of the first and largest investors in construction business is currently serving a 15 year sentence for tax evasion – but allegedly taking care of his business from behind the bars.

However, some of the entrepreneurs that I interviewed complained that tax inspectors were not always well trained in their profession. “I had to show them how to inspect my company’s accounts”, described one prominent business woman. Some smaller and newer entrepreneurs, on the other hand, worried about being persecuted for possible mistakes in their accounting. “We would need more training in bookkeeping and accounting. As we are new to business, we are not always sure to get these right”. Such smaller entrepreneurs are not always able to afford outside bookkeepers and the possibility of getting a jail sentence for mistakes in their accounts weighs heavily on their mind.

Pressing issues

One of the most pressing issues for the residents of Addis Ababa is finding affordable and decent places to live in. There are in total 628,986 housing units in Addis Ababa out of which about one third are owner occupied and over 385,000 are rented. The remainder (about 37,000) are rent free.

More than a million people have registered for one of the several government housing programmes.

The rental prices are spiking in the city and settling for smaller houses, located far from the centre, has become a necessity for the squeezed renters. The government and the city of Addis Ababa are doing their best to cater for the pressing housing needs and to upgrade the previous substandard slum areas.

In Addis Ababa more than a million people have registered for one of the several government housing programmes. The 10/90 or 20/80 programmes that target people in the lower income brackets have attracted 860,000 registrations. The 40/60 programme, which targets the emerging middle class, encompasses more than 160,000 registered clients.

Other persistent problems in urban Addis Ababa are the still common disturbances in power supply and internet and phone connections. Although Ethiopia is already selling electricity to Djibouti (80 % of its energy requirements) and Sudan, it still fails to provide uninterrupted electricity current even in urban Addis Ababa.

Officially the reason for power cuts are the faulty modules of transmission (some claim the Chinese transformers), yet others suspect that in its need to raise more foreign currency, the government might be exporting electricity on levels that endanger the local needs. The unreliable power supply poses problems for industries as well, not to mention the household needs.

It is therefore no wonder that all eyes are focused on the construction of the Grand Ethiopian Millennium Dam (GRED), now in its third year and to 30 % completed, that with its anticipated annual production of 6000 Mw (megawatts) would increase to threefold the energy supply and thereby secure the energy needs of Ethiopia and its neighbours as well.

Unfortunately the GRED is highly politicized with Egypt vehemently opposing it, though Sudan has taken a positive stance and looks forward to increased control of the Nile floods as well as access to Ethiopian energy. The GRED was the brainchild of the late former Prime Minister Meles Zenawi and much patriotic and nationalistic fervour is expressed by Ethiopians, who with reason are proud of this gigantic project which is completed entirely with domestic funding as the World Bank and other donors refused to fund it.

As for the common problems with internet and phone lines, the Ethiopian telecom, a state-owned company, is explaining these with the immense expansion of the number of subscribers in the past ten years. IMF has often called for the privatisation of the telecom, but acknowledges that the Ethiopian government is not likely to let go of its cash cow that brings annually the government huge profits. The issues of faulty telephone and internet connections are debated hotly in the Ethiopian press, and form a part of the daily discussions among the inhabitants of Addis Ababa, almost like comments on weather in some other countries.

Conclusion

All in all, the highly impressive growth that Ethiopia has shown for the first time in its recent history and its heroic efforts to reach power self-sufficiency and lift the bulk of its growing population from the grips of debilitating poverty are beyond what many would have dared even to dream about just ten years ago. At the same time, the recent tragic events in the Oromo Region indicate that there is an undercurrent of dissatisfaction with the land issues and the rising cost of living in Ethiopia. Ethnic relations have according to many also soured during the past decades, and people belonging to the majority Oromo sometimes resent what they see as dominance by Tigrayans and Amhara, who historically have formed the upper strata of the Ethiopian society. On the other hand, intermarriages are very common and many interviewees also preferred to define themselves as Ethiopians rather than with any ethnic identity.

Although much remains to be done, especially in terms of income equality, access to land and freedom of speech, it seems that Ethiopia in many ways is on a fast track towards reaching its goal of becoming a middle-income country by 2025. The rapidly changing economic roles and status of women in urban Addis Ababa are a clear indication of this.

It is also obvious that whilst improved access to finance is the most pressing need of the entrepreneurs in Addis Ababa, also attitudinal changes, product variation and more skills training would be needed, both among the entrepreneurs as well as the authorities dealing with them.

Johanna Maula

The author is Post-doctoral Researcher at the Department of Social Research, University of Helsinki.

Contact: This email address is being protected from spambots. You need JavaScript enabled to view it.

Photos: Johanna Maula

Dr. Maula has previously worked several years in Africa and Europe in the service of the International Labour Organisation, ILO, World Food Programme, WFP, European Commission and the African Development Bank. She received in 2009 the President of the African Development Bank's Annual Excellence in Gender Award.

The writer thanks the Finnish Cultural Foundation for the research grant that enabled this study. Heartfelt gratitude is expressed to Ms Gizeshwork Tessema, CEO of the Gize Plc., Mrs Fasika Kebede, former president of the Enat Bank and Mr Eskinder Desta, Habesha Capital Services, for their invaluable help in identifying prominent Ethiopian business women, as well as all the women and men who kindly accepted to be interviewed.

 

Sources

Cheru, Fantu & Cyril Obi (eds.) (2010). The Rise of China and India in Africa. London: Zed Books.

EBR Top 10 (2014). Ethiopian Business Review, March 2014, 2.

Hailu, Samson (2014). Striking a Delicate Balance. Ethiopian Business Review, March 2014.

Hallward-Driemaier, Mary (2013). Enterprising Women: Expanding Economic Opportunities in Africa. Washington, D.C.: The World Bank.

IFC Country Report on Ethiopia (2011). Washington, D.C.: IFC.

Tadesse, Fasika (2014). Through the Roof. Fortune, 30th March 2014, 14 (726): 1–2.

Yewndwossen, Muluken (2014). Interview of IMF country representative Jan Mikkelsen. Capital, 6th April 2014: 1, 6.