The Opportunities in the Transport Sector in Ethiopia

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By Yoseph Getachew
With a population of 110 million people, Ethiopia has one of the most underdeveloped transport and logistic sectors in the world, according to the World Bank’s 2016 Logistics Performance Index (LPI) which ranked the country 126 out of 160. The sector faces many challenges in Ethiopia, including a historically very limited private sector involvement (foreign and local) and a lack of integration between government entities, especially the Ministry of Revenue and Ethiopian Shipping and Logistics Services Enterprise (ESLSE). Nevertheless, the sector has significant growth potential by virtue of expected growth in the wider private sector economy (from a low base), expected increase in demand from production sectors for professionalized logistics services, a growing middle class and continuing GDP growth.

Sector Growth Opportunities
Even though the sector has its challenges, it has significant growth opportunities driven by the following factors:
Liberation of the logistics sector The government initiative to allow foreign investors to participate in the sector is expected to create growth as foreign investors eye entry into the country. There are big international players ready to come to Ethiopia including Dubai ports giant, DP World, which is taking the lead after signing an MOU with the Ministry of Transport to invest $1B in an effort to create a trade and logistic corridor from Ethiopia to Berbera in Somaliland.
Expected growth of the agriculture sector The Ethiopian government is emphasizing the potential of the agriculture sector. Since 2019, 121,356 hectares of irrigation schemes have been developed in order to increase productivity and production. Similarly, different initiatives are being taken by the government to create growth opportunities for the transport and logistics sector as products will need to be transported from farmers to the market more efficiently.
Expected growth of the industrial sector Despite the related regional disputes, the country is finalizing the Great Ethiopian Renaissance Dam (GERD) which is expected to help resolve the power shortage in Ethiopia and support industrial growth. In conjunction with this, Ethiopia has also built 13 industrial parks throughout the country which require a modern logistics route to move raw materials and ship end products to customers.
The African Continental Free Trade Agreement (AfCFTA) In time, the agreement will open doors to the regional market as African countries move to open their borders for more trade within the continent.
A growing middle income, urbanization and food (inefficiency, price inflation, logistics chain) There is a large potential in the agricultural goods transport sector since the country is experiencing huge food inflation (22.3% in April 2021) and urban population growth of 4.78%. There is a growing need for efficient logistics services as the market in cities such as Addis struggles to get products efficiently, which could be one big step to solve part of the food inflation challenge the country struggles with. To provide some perspective, 100 kg. of teff is sold for an average price of ETB 5K in Addis Ababa and the same quality product can be bought for ETB 4.2K outside Addis from farmers directly.
Current State
Currently, the sector is dominated by the government with only a handful of private companies in freight forwarding and the logistics space. The sector lacks smooth integration (between government entities and between government entities and the private sector) and expertise which is causing significant inefficiency. For instance: it takes 40 days to clear inbound goods from seaports in Ethiopia, whereas middle-income countries clear within 3 days on average; and, Ethiopia’s total logistics cost compared to GDP stood at 26% but the middle-income average is between 10 to 15%, showing the country still has a long way to go.
The inefficiency in this sector is also affecting the competitiveness of other critical sectors such as exports. For instance, to transport a P20-foot container of garments from Ethiopia to Germany costs 247% more than from Vietnam and 72% more than from Bangladesh. Even when we compare Ethiopia with neighboring countries such as Uganda and Rwanda who are also landlocked, we see that Ethiopia is behind. In 2016, Ethiopia’s LPI was 2.38 and ranked 126 among 160 countries worldwide, whereas Uganda and Rwanda had 2.58 and 2.97 LPI scores and were ranked 58 and 62, respectively.
Government Plan and Regulatory Framework
Through the Homegrown Economic Reform agenda, the government aims to transform Ethiopia into an industrialized, lower-middle-income country by 2030. The private sector has a paramount role in making this a reality. The government has made significant changes specific to the transport and logistics sector under the new investment laws, which allows foreign investors to participate in packaging, forwarding and shipping agency services (which was previously reserved for domestic investors), railway transport, cable transport, cold-chain transport and freight transport with a capacity of more than 25 tons. But some areas are still closed for foreign investors. For example, per the new investment laws, international air transport service is only allowed in partnership with the government. In addition, foreign investors can only invest in domestic air transport service, cross country public transport service with a seating capacity of more than 45 passengers, and urban mass transit service in partnership with domestic investors without holding majority membership interest.
In addition to the improvements to the investment law, the government plans to mobilize ETB 3T ($73B) of investments into the sector over the next ten years in partnership with the private sector. This coupled with the improvements in the investment law will be integral to the growth of the sector for the next decade.
The Future of Logistics in Ethiopia
The sector is marked with challenges and lags behind other countries. But the government is determined (and has little choice) to enable the private sector to address the county’s rapidly changing demographic and logistical demands which is why the sector’s growth potential cannot be ignored.

You can reach the writer via jcgetachew@gmail.com