“They’ve spread everywhere…like a virus!”
My Ethiopian guide, Mas, was clearly not a fan of the three wheeled auto rickshaw. One nearly clipped us as we crossed a street in Bahir Dar.
Outside of Ethiopia’s capital city of Addis Ababa, these “bajajs” (which I continued to call “tuk-tuks”) were everywhere. If you weren’t in a car, truck, or on foot, this was your mode of transport.
Where were the motorbikes? Or even bicycles? And how did the use of this box-shaped vehicle synonymous with Southeast Asia and India spread throughout the small cities and rural areas of this landlocked African country?
In asking myself these questions, I was reminded of my friend Matt’s story, which started with his own observations in Ethiopia 10 years ago.
Around 2006, Matt was an American management consultant exploring East Africa. While the nuances of doing business in East Africa naturally challenged his American mindset, he was intrigued by the region’s untapped economic potential.
Matt couldn’t help but notice the interest and influence of Indian investors. A 1997 Ethiopian-Indian trade agreement birthed an economic relationship between the two countries. But by the mid-2000s, the partnership became visible.
There was the sugar cane plantation run by Indian businessmen. Ethiopia’s leading producer of soap and detergent was Indian-owned. There were Indian investor conferences held at the business hotels.
Which led Matt to ask the question:
“Why are all of the investors Indian?” And where are the Americans?”
That question would change the course of his life.
Matt returned to the U.S. and began researching what it would take to facilitate American investments in Ethiopia. He and his business partner (and wife) Laura planned their move to Addis Ababa. They founded the investment firm RENEW Strategies.
RENEW facilitates private investments in small to medium-sized Ethiopian companies on behalf of individual investors in the U.S.
RENEW manages the Impact Angel Network (IAN), the largest U.S. angel network for Africa.
I’m a member of RENEW’s IAN. And this was my first visit to Ethiopia.
It’s always fascinated me how investors outside the U.S. see opportunity and risk differently from those in the U.S.
I spent nearly a decade educating U.S. investors about the long-term investment opportunities in China and broader Asia, and helping them overcome “home country bias.”
It’s a natural investor tendency—we are most attracted to what is most familiar. The risk is we become overly confident about the familiar, and miss the most attractive opportunities because it feels less familiar.
This American investor bias applies to Asia, as well as Africa.
The parade of blue Ethiopian tuk-tuks was my visual reminder—unlike my fellow Americans, the Indians have been investing in Ethiopia for years!
While India’s engagement with Ethiopia has been quiet and subtle, China’s presence in Ethiopia (and across Africa) has been anything but subtle. Consider that:
- Chinese companies are building 70% of Ethiopia’s roads.
- Chinese engineers led the building of Addis Ababa’s newly opened light rail system– the first of its kind in Sub-Saharan Africa.
- China Railway Group is leading the building of the Ethio-Djibouti railway, connecting Ethiopia’s manufacturing districts to the Red Sea and the shipping lines connecting Africa, Asia, and Europe.
Even the most jetlagged visitor to Ethiopia couldn’t miss the huge Chinese-built industrial parks or residential housing developments that look similar to what you’d see in…well, China!
And then there was my Ethiopian friend who told me that the Chinese are so common that some confused Ethiopian children scream “China!” instead of the more common “Ferengi!” when seeing a foreigner.
And on my last day, while in a local market in Bahir Dar, I myself was deemed a “China.”
But China provides Ethiopia more than financing and workers. They offer Africa’s second most-populous country (90 million people) a development model.
Ethiopia is now several months into its second five-year plan. The Global Growth & Transformation Plan (GTP) guides their transition from an agricultural to a manufacturing economy. While Plan I focused on infrastructure and capacity building, Plan II is more explicit about increasing exports (and increasing manufacturing’s contribution to exports). It includes plans to privatize public entities and state-owned enterprises (key sectors like banking, insurance, telecom, and utilities will remain under Ethiopian government control).
To me, Ethiopia feels like China 20-30 years ago; or Vietnam 10-20 years ago. Government investment plans are in place. Cranes and scaffolding for the construction of new residential and commercial buildings dot every skyline. Overall standards of living are rising. Health and education for the population is improving. There’s increased openness in public discussions.
By American standards, the level of openness is still concerning. Political control is too heavy-handed. Ethiopia still ranks low on the corruption perception rankings.
Yes, the Ethiopia investment environment is far from perfect. But the improvement is dramatic.
And isn’t that what investing is about?
One of my former emerging market portfolio manager colleagues had a phrase that has always stayed with me.
“It’s not about investing in perfection. You want to invest in imperfection.”
Likely the American investors that Matt was looking for 10 years ago were looking for an Ethiopia that was further along in its economic progress.
They may want to check back today.
For more on my RENEW Econ-Tourism Trip, click here.
I currently serve as one of RENEW’s Impact Angel Network (IAN) board chairs. I am also a private investor in two of RENEW’s portfolio companies.