By Hayal Alemayehu

Information is a critical necessity in the efficient running of any business or in making decisions on how and where to invest. However, necessary and timely information as well as analyses of business trends is usually hard to come by in Ethiopia. This has lead Precise Consult International (PCI), a management consulting firm operating in the United States and Ethiopia, to publish the first of its type report on Ethiopian economy to be by compiled by a private company.

Precise Insights (the report), a publication of the research division of PCI, is an analysis on the Ethiopian economy and business environment produced on a quarterly basis, according to the firm. The company is scheduled to produce its maiden report after a week.

“Precise Insights is designed to assess the performance of the Ethiopian economy from the perspective of the business community” says Henok Assefa, managing partner of PCI. “Our mission is to help local, diaspora, and foreign investors to make better informed business decisions. Our analyses show that last year was a bit tough on the private business community. On the other hand, the environment for business appears to be much more positive this year.”

Last year was in many ways more difficult for businesses than the previous five years, according to the report. The global financial and economic crisis, insufficient and erratic kremt rains, foreign exchange rationing, power rationing, and a tight fiscal and monetary regimes have all combined to put a toll on the private sector, the report says. “However, despite these challenges, the Ethiopian economy has remained vigilant and will likely record a growth of around 8 percent, mainly on the back of an impressive services sector expansion,” the report reads. As predicted by the Economist Magazine earlier on, this should be just enough to carry the country forward in its bid to overtake Kenya as East Africa’s largest economy, asserts the report.

“The current Ethiopian budget year promises to be a better one for business overall. Inflation looks to be well under control, and given the government’s solid commitment, there is little chance that it will flare up again,” the report says. “The credit limit imposed on commercial banks by the National Bank of Ethiopia will progressively give way, providing the private sector with improving access to finance. Lower inflation itself will mean a much more predictable environment for investors. With the inauguration of three large scale hydropower plants, power rationing will not be a challenge to doing business this year.”

Exports have picked up significantly, perhaps by as much as 35% on the back of the recovery of coffee production, increased oilseeds volume, and further penetration of the markets of Asia, who are less affected by the global economic crisis, the report reads. It also notes that even against this surge, the trade deficit will remain in the red as imports register growth as well.

According to the report, this will in turn continue to pressure the birr, which will continue to lose ground to the dollar, albeit in a more gradual and managed manner. The overall balance of payments, however, should remain stable with significant inflows of net services, private and public transfers, and capital inflows expected to continue, the report inducates.

“The reserve position of the state shall also continue its recovery trend,” the report says. “Recent depreciation measures against the birr and continued graduation movement in the same direction appear to be a changing policy stance on exchange rates management. Precise Consult expects that the National Bank of Ethiopia will continue this approach for the upcoming year, with the goal to maintain export competitiveness of Ethiopia’s industries.”

Both monetary and fiscal policies are expected to stay tight during the year as the central government continues to fight inflation and inflationary expectations. This shall ensure price stability, the report indicates. “However, the danger will be the possibility of an overly conservative National Bank which may not loosen the Bank-by-Bank credit limit imposed on commercial banks fast enough to absorb the pent up demand for finance in the private sector,” the report says.

As the Government of Ethiopia puts its final touches on the next five year development plan, known as PASDEP II (Plan for Accelerated and Sustained Development to End Poverty), its policy is expected to turn more favorably toward the business sector, reads the report. One of the expected changes in strategy is towards the provision of greater support for import substituting industries, much in a similar fashion as the government currently supports export oriented sectors. It is also expected that the government will continue to promote the development of industry parks with an export bent. Overall, the government appears to be serious about putting a strong emphasis on ensuring that industry becomes the leading driver of economic growth in the coming five years. This should all spell good news to investors and the business community at large, the report says.

The firm also expects that the government would continue to roll out the red carpet for large scale investments in commercial farming, despite the controversy the topic seems to generate at the international level. “As a written major pillar of its economic development strategy is the commercialization of agriculture, the government appears determined to continue to support both local and foreign investors in the provision of land and other supportive services,” the report says.

“This year should also see a few important legislations come to pass,” the report goes on. “The independent power producers law, which has been under formulation and consultation with stakeholders, should be of major interest to investors. In its final iteration, the legislation is expected to make it possible for the private sector to participate in the Ethiopian power sector. A similar bill to make it more attractive to participate in the mining sector should also clear parliament. In the meantime, investment bankers should pay attention to an upcoming share market regulation proposed by the Ministry of Trade and Industry.”

Established in 2007 by diaspora returnees from U.S., PCI is a premiere management consulting firm specializing in the provision of business and investment advisory services to enterprises and private sector development and economic analysis to International Development Agencies and governments. It is global network providing insights and solutions based on global experience and local knowledge.

EthiopianReporter