Ethiopia listed as one of the ten “Emerging Markets of the Future”

Mesle A

BMI Research, a Fitch Group company (which is one of the top three rating agencies in the world) has put out a report titled “Ten Emerging Markets of the Future” that looks at the 10 countries set to become the next major emerging markets.

The research firm has previously put out a top ten listing of “the new drivers of economic growth in the next decade” which included Ethiopia. The new list forecast the 10 countries will transition into key emerging markets in the next decade. Bangladesh, Egypt, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, Philippines and Vietnam are the nine countries included in the list.

The research have identified the key sectors set to drive growth in the economies, leveraging off its comprehensive industry sector analysis.

With regards to Ethiopia, the research forecasted:

“Construction to meet rapid urbanization and ambitious state infrastructure targets will be the main driver of economic growth in Ethiopia. The government's Growth and Transformation Plan aims to invest substantially in the development of physical infrastructure to improve logistics channels and the agricultural and manufacturing sector. Ethiopia's construction industry will record the highest growth in Sub-Saharan Africa, averaging real annual growth of 10.7% between 2016 and 2025. We estimate almost half of the country's USD 30.0bn infrastructure projects pipeline will be dedicated to energy and utilities, with a further third going towards transport.

Meanwhile, we also expect nascent foreign investment into the manufacturing sector. As a result of these trends, manufacturing exports will increase, albeit from a low base, as they comprised only 2.0% of total exports in 2015. Electricity exports will grow more immediately, with the Gibe III hydroelectric power plant beginning to export electricity to Kenya from 2018, as part of government plans to establish the country as an electricity export hub in East Africa.

Ethiopia will see rapid growth in retail trade as the economy grows rapidly from a low base. However, still relatively low purchasing power throughout the next decade will constrain opportunities for investment in these sectors. Moreover, the increase in spending will be driven more by a rising population rather than higher GDP per capita, limiting the development of higher-value consumer industries.”

Ethiopia is using a range of incentives to woo investors to the country. Already, US private equity groups KKR and Blackstone have announced their interest in the country's infrastructure and floriculture sectors.

Dangote Cement has set up shop in the country too and one of India's largest paint-makers, Asian Paints, has entered the market through the acquisition of a local manufacturer last year. Unilever is building a factory there too, while Chinese shoemaker Huajian Group set up shop in the country four years ago.

Last year, the World Economic Forum through the Global Competitiveness Report ranked the country 55 in security, which is above most of its regional peers such as Kenya, ranked 131.

Ernst & Young forecasts FDI into Ethiopia will average $1.5 billion each year for the next three years and predicts the country will be a leading manufacturing hub in sub-Saharan Africa in the next decade. This year, it is looking at an FDI of $1.7 billion, up from last year's $1.5 billion, compared with Kenya's $1.1 billion. Last year, Uganda had FDI of $856 million, Tanzania $1.4 billion and Rwanda $449 million.

In its assessment it forecasted that economic growth in Ethiopia will remain upbeat over the next 18 months despite adverse weather and social unrest presenting modest headwinds to growth. “The government’s commitment to the second phase of its Growth and Transformation Plan will see continued state infrastructure investment buoy growth”, it stated.

If all goes as planned, Ethiopia will establish 10 industrial parks within five years they are expected to facilitate the situation for the planned transition to industry led economy. Up on going operational, the parks will help attract more foreign direct investment, stimulate export trade and create jobs for 10 million citizens. They are also expected to return their construction cost within 20 years.

The world's 10 leading textiles and garment companies including PVH, Vanity Fair and the Raymond Group have secured at Ethiopia’s industrial Parks. While, one of these companies, Hirdaramani, Sri Lanka's top apparel manufacturer has already started operations.

In addition to country-specific dynamics, it identified five overarching trends. The research forecasted:

Extractive industries will play a far smaller role in driving growth compared to the past 15 years. As we expect a 'lost decade' for commodity prices out to 2020, whereby prices remain comfortably below their 2008-2011 peaks, mining and oil and gas industries will see slower growth than over 2000-2011…Instead, secondary (eg, construction, manufacturing) and tertiary industries (eg, retail, consumer and business services) will be the key drivers of EM growth.

New manufacturing hubs will emerge in Bangladesh, Myanmar and Pakistan. These countries will see particularly strong growth in export-orientated manufacturing industries. Competitive labour costs, particularly compared to rising wage levels in China, and rapidly improving infrastructure will continue to encourage both foreign and domestic investment into manufacturing industries including textiles and autos. As a result, these countries will follow Vietnam and Indonesia in becoming the next major manufacturing hubs after China.

Construction industry growth will be widespread and aimed at building housing and infrastructure for two main goals: facilitating vast increases in urban populations, and supporting the development of targeted sectors such as new manufacturing zones.

The service sector will be a key growth driver across the board, particularly financial services and retail. Large domestic markets, rising per capita incomes and current low penetration for these industries will foster fast growth from a low base.

In the largest economies considered, growth will be spread across many sectors. Indonesia, Philippines, Vietnam and Nigeria have reached a sufficient level of development and have large enough internal markets to enjoy strong growth across a range of sectors in the coming decade.