When considering new business in a different country it is important to fully understand the banking sector as mistakes or bad choices is costly.
The Ethiopian financial market is currently comprised of a central bank (The National Bank of Ethiopia or NBE), two government owned banks and sixteen private banks.
Economic growth isn’t slowing down in this country and new opportunities continue to attract FDI.
There are four business entities to choose from in Ethiopia, and the EIC (Ethiopian Investment Commission) recommend a different bank for each - LLC (United Bank), PLC (Bank of Abyssinia), Branch Office (Commercial Bank of Ethiopia) and Rep Office (Dashen Bank).
The Corporate Finance Institute list of all of these as leading institutions in the region which is comforting. Zemen Bank is also worth mentioning as their focus is high net worth individuals and institutional clients.
LLC is the preferred legal entity used by entrepreneurs when setting up in Ethiopia. Limited liability companies require a minimum capital expenditure of USD 200,000 for foreigners and USD 150,000 if in partnership with a domestic investor.
London-based Healy Consultants specialise in business set-up and have extensive information about this for most emerging economies.
The fee charged is USD 16,800 but there is no travel required and time to incorporate is only 5 weeks. Ethiopian taxes are high - corporate tax 30%, VAT 15%, witholding tax / capital gains tax up to 30% and individuals are subject to a higher income tax rate of 35%.
It is critical to have a good accountant on hand who knows the market and tax advisors as well - London firms such as Grant Thornton, Healy Consultants, Africa Practice and Africa Matters exist for this reason.
The National Bank of Ethiopia (NBE) is government owned and regulates the operations of all other banks, insurance companies and financial institutions.
Foreign investors need to make their first deposit here, and then transfer to another bank of their choice.
United Bank (UB) is the most popular for LLCs as they offer a range of commercial services such as internet banking, mobile banking, payroll facilities and a slick new platform to pay for flights, thanks to a partnership with Ethiopian Airlines.
UB have a 24/7 branch at the Hilton in Addis Ababa and can boast of the fastest money transfer service nationwide. This bank operates a network of 202 branches, 19 sub-branches and had a revenue of ETB 1.15 billion (USD 41 million) in 2017.
Location should also be taken into consideration and according to Grant Thornton, Commercial Bank of Ethiopia have the most divisions in Addis Ababa.
Foreign exchange (Forex) reserves are important to manage currency value and maintain liquidity. A healthy stash of dollars and euros also assures investors they are protected should there be a sudden loss of capital to the country.
Certain businesses, mainly importers, rely on Forex to carry out their work so Ethiopia’s poor track-record has negatively affected FDI in certain sectors recently.
Companies exporting to any country generally prefer to be paid in their own currency (USD / Euros etc) so a lack of it can be disastrous for those buying goods from abroad such as cars or raw materials. Similarly, as confidence in a country’s ability to function properly with importers falls, investors withdraw their deposits creating an even worse shortage in foreign currency.
When considering new business in an emerging economy with a lack of Forex it is important to seriously consider how it will affect your day to day operations.
Exchange rates, the speed at which an invoice is paid, and even whether it will be paid at all - are all affected by Forex reserves.
Over the past few months, the Forex situation in Ethiopia has improved thanks to an initiative by the government encouraging Ethiopians abroad to send cash back home.
The United Arab emirates also deposited a USD 1 billion lifeline into the NBE this June, part of a USD 3 billion aid and investment pledge.
It may take as long as 15 to 20 years for Ethiopia to truly improve its foreign exchange shortage and the private sector is a catalyst to make that happen.
Exporting more goods and focusing on the manufacturing / outsourcing sectors are good ways to build up foreign exchange. For instance, if the coffee was roasted, packaged and branded in Ethiopia itself, the country would have made $2.7 billion last year, not $866 million.
The business process outsourcing industry can also improve things here and create countless jobs to solve youth unemployment.
Any international trade involving the import of goods and services will increase Forex - over ambitious infrastructure projects and hedging are often blamed for low reserves.
Zemen Bank is a modern company with excellent customer service and useful add-on products. It was created by Ermyas Amelga in 2006 to improve Ethiopia’s financial sector and provide better funds for corporate clients.
Revenue in 2017 was ETB 671.55 million (USD 24 million) with a net income of ETB 264.58 million (USD 10 million). ROI for banks in Ethiopia is high and this particular brand came to market with a strong strategy in place to add value. Edward Robinson is Business Development Manager for Zemen and was involved in the selling of shares from day one.
With a team of 40 people, he was able to get the bank up and running successfully and there are now countless branches nationwide.
It offers multi-channel banking, profit repatriation for foreign companies, mobile banking, international banking and a very well designed, user friendly platform. The customer service from Zemen bank is fast, good for English speakers and they have one of the best Forex services in the country.
BY Ruari Phillips
