potential opportunities for investors in mikelle, ethiopia
TRANSCRIPT
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
1/56
Mekelle, EthiopiaPotential opportunities or investors
June 2010
KPMG INTERNATIONAL
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
2/56
Terms o reerence
This report has been prepared by KPMG in Russia, a partnership registered in Russia and a member rm o KPMG International, a
Swiss cooperative. The inormation contained herein is o a general nature and is not intended to address the circumstances o any
particular individual or entity. Although we endeavour to provide accurate and timely inormation, there can be no guarantee that such
inormation is accurate as at the date it is received or that it will continue to be accurate in the uture.
In preparing this document we have relied upon and assumed, without independent verication, the accuracy and completeness o
various sources o inormation, including public sources.
Details o the sources we have used are given in our report. KPMG in Russia accepts no responsibility or liability to any party in
connection with such inormation or views.
Our core eldwork and research were perormed between September 2009 and December 2009. We have not undertaken to update
our report or events or circumstances arising ater that date.
Appropriate proessional advice should be sought to undertake a more specic examination o the particular circumstances applicable
to a potential investor. The contact details o KPMG proessionals who can assist in this regard are given at the end o this report.
Acknowledgments
KPMG in Russia would like to thank the Millennium Cities Initiative (MCI) or the opportunity to prepare this report to support its
valuable project. We would also like to thank the numerous enterprises and organisations which participated and acknowledge their
contribution to the preparation o this report (please see Appendix 1 or more details).
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
3/56
Mekelle, Ethiopia: Potential Opportunities or Investment
ForewordAs part o KPMGs Global Development
Initiative, which ocuses KPMG member
rms skills and resources on achieving
the United Nations Millennium
Development Goals (MDGs), KPMG in
Russia was asked by the Millennium
Cities Initiative (MCI) to undertake this
report in relation to potential investment
opportunities in Mekelle, Ethiopia.
The MCI is an urban counterpart to the
Millennium Villages Project and was set
up in association with the UN Millennium
Project by the Earth Institute at Columbia
University. The initiative is ocused
on helping a number o cities across
sub-Saharan Arica to achieve the MDGs
through economic development.This
report, which explores the investment
potential in Mekelle, is one o several
being produced by KPMGs Transaction
Services practice.
In our opinion, this report is an excellent
example o how KPMG member rms
and their people are committed to
making a dierence to the people in
sub-Saharan Arica.
Mekelle, the commercial hub in the
north o Ethiopia, is a good choice or
investment. The area is endowed with
natural resources ranging rom avourable
climatic conditions or honey production
to untapped mineral resources. Access
to export markets gives Mekelle an
advantage over other cities in Ethiopia.
Additionally, the expected rapid
economic growth and highly supportive
regional government has created an
investor-riendly environment with
immense potential or rapid growth in
new investments.
To this extent, we hope that this work
will lead to the sustainable eradication
o poverty and secure the uture o
many hundreds o people through work
and enterprise.
Lord Hastings of Scarisbrick CBE;
KPMG, International Global Head of
Citizenship and Diversity
Professor Jeffrey D. Sachs,
Director ofThe Earth Institute at
Columbia University
The Millennium Cities Initiative (MCI) is a project o the Earth Institute at Columbia University.Launched by the Institutes Director, Proessor Jerey D. Sachs in 2006. The MCI seeks toassist, through research and policy analysis, selected mid-sized cities across sub-SaharanArica to achieve the Millennium Development Goals. Guided by its Co-directors, Dr. SusanBlaustein and Dr. Karl P. Sauvant, the MCI, more specically, helps the cities involved to arriveat integrated City Development Strategies. Part o this eort is to demonstrate that moreinvestment, including oreign direct investment, can be attracted to these cities, with theresulting employment and economic growth eects.
The sta responsible or working with KPMG Russia and KPMG International on this report
were Karl P. Sauvant, Co-director o the MCI and Executive Director o the Vale ColumbiaCenter on Sustainable International Investment; and Jerg Simon, Senior Investment Advisoro the MCI.
http://mci.ei.columbia.edu/
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
4/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Executive summaryMekelle: An optimistic outlook
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
5/56
Mekelle, Ethiopia: Potential Opportunities or Investment
The Mekelle region presents attractive opportunities or
export-oriented investors.
The improving business
climate in Ethiopia provides
attractive opportunities or
investors capable o bringing
nancing, technologies andprocess management as well
as creating employment.
Ethiopia has showed impressive
economic growth and investment infow
in recent years, driven by political stability,
the low cost environment and supportive
state policies.
The government has established a
particularly investor-riendly environment
or export-oriented industries through
specic initiatives and administrative
procedures, such as exemptions rom
prot tax or two to ve years, carrying
orward o losses and duty ree import
o capital goods or up to 15 percent o
the value o capital goods imported or
investment purposes.
Financing, a qualied labour orce and
inrastructure remain the key constraints
aced by business in Ethiopia. However,
these constraints are partly manageable
in the short term by bringing own
nancing, technology and process
management to Ethiopia in order to
transer knowledge processes to the local
workorce. Inrastructure constraints are
not prohibitive in most cases and can be
managed through proper site selection.
The Mekelle region is
currently one o the most
encouraging investment
destinations in Ethiopia, driven
by the highly supportiveregional government,
abundant untapped natural
resources and good access to
export markets.
Due to its proximity to a ormer military
zone, Tigray State where Mekelle is
located, has historically underperormed
compared to other Ethiopian states in
terms o economic growth and infow o
private investments.
However, the military confict with Eritrea
ended in 2000 and is unlikely to be
repeated in the uture.
Supportive regional government policies,
the development o inrastructure and the
availability o land make the Mekelle region
an attractive investment destination.
Access to the Eritrean sea port may
establish an even stronger competitive
advantage or Mekelle but no evidence
was provided that this port would be
accessible in the immediate uture.
Power supply standards were signicantly
improved in 2009.
The Mekelle region presents
potentially advantageous
possibilities or investors
in export-oriented agro
processing, mining andtourism industries.
Favourable agro-climatic conditions, the
availability o appropriate land plots and
the proximity to export markets provide an
attractive opportunity or growing selected
varieties o ruit and vegetables or the
Middle East and European markets.
The Mekelle region provides a good
opportunity to export meat and leather
goods, driven by a large, high-quality
livestock population.
Abundant mineral resources in the
Mekelle region provide attractive
opportunities in relation to stones
and industrial minerals.
The Mekelle region provides potentially
good prospects or producing high-quality
honey to supply Sudan, Middle East, US
and European markets. The honey supply
shortage, currently the key constraint, is
likely to be overcome in the mid-term.
The variety o historic and natural sites
in Tigray State has attracted a growing
number o local and international tourists.
The lack o high-standard hotels on
major tourist routes creates the potential
or investment in quality lodges in the
Mekelle region.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
6/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Investment opportunitiesNine investment opportunities were
evaluated or investment purposes
against criteria such as domestic and
export demand, production and supply,
competition pricing and margin prole,
and regulatory barriers.
The opportunities are summarised
below. Tourism, meat production, honey
and leather processing, horticulture
and mining were ound to be the most
attractive or investment, and are
examined in greater detail in this report.
Industry
Tourism
Favourable factors
Moderate, dry climate
Easy access to the most interesting historic, religious and natural beauty sites
o Tigray and Aar States
Lack o adequate tourist acilities
Meat production
Large, good-quality livestock population
Special ox breed (Raya) which is more protable than other breeds due to its bigger size,
and more tender and tasty meat
Honey processing
Moderate climate avourable or honey production
Large bee population
Famous high-quality white honey with low moisture content
Leather processing
Largest livestock production in Arica
Special quality leather Cabretta and Bati
Horticulture
Favourable agro-climatic conditions
Availability o appropriate land plots
Proximity to export markets
Mining Abundant mineral resources provide attractive opportunities in relation to
dimensional stones and industrial minerals
Animal feed Large resource base
Milk processing
Large livestock population
Favourable climate or high-yield animal breeds
Floriculture
Availability o appropriate land plots with suitable water resources
Proximity to Europe, one o the largest foriculture markets globally
Tigray is one o the Ethiopian states suitable or growing the rare Rose Damascena,
due to appropriate climatic conditions and soil composition
Source: Tigray Investment Oce, 2009
KPMG in Ethiopia interview programme, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
7/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Key
Extremely attractive
Highly attractive
Moderately attractive
Signicant challenges
Not attractive
Challenges
Lack o well-trained workorce
Insucient marketing o region
Poor image o the North o Ethiopia due to the war with Eritrea
Insucient tourism inrastructure
Attractiveness
Instability o live animal supply
Meat quality certication required or export
Instability o demand in export markets
Honey supply shortage in the short term
Irregularity o supply
Quality o raw materials needs to be improved
Poor road and airport inrastructure
Deposits can be dicult to access
Quality o roads
Low crop productivity
Lack o demand or processed animal eed
Shortage o eed
Lack o exotic and crossbred dairy cows
High seasonal fuctuations in milk consumption caused by asting
No operational international airport
Road inrastructure is poor or the majority o foriculture land plots
around Mekelle
The absence o foriculture arms in Tigray State makes small to medium scale fower
production a high risk undertaking
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
8/56
8 Mekelle, Ethiopia: Potential Opportunities or Investment
Contents
IntroductiontoMCI 09
Politicalclimate 10
InvestmentclimateinEthiopia 11
Economic outlook 1
Investment trends 1
Key inhibitors 1
Mekelle,potentialopportunitiesorinvestment 1
Introduction to Mekelle 1
Investment climate 18
Infrastructure 1
SelectopportunitiesinMekelle
High quality lodge in the Mekelle environs
Meat production for export
High quality honey processing for export
Processed leather and leather goods for export 0
Out of season fruit grown for export
Dimensional stones and industrial minerals 8
Appendices
KPMG in Ethiopia interview programme
Secondary research
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
9/56
Mekelle, Ethiopia: Potential Opportunities or Investment 9
Introduction to MCIAiming at sustainable growth
The Millennium Cities
Initiative (MCI) aims
to acilitate Arican
countries in reaching
the MillenniumDevelopment Goals
(MDGs) by, among
other things, attracting
more oreign
direct investment.
The initiative is ocused on the capitals
o the regions where the Millennium
Villages Project (MVP) is enabling
armers to transition rom subsistence
arming to commercial agricultural and
non-agricultural activities.
The MCI aims to engender a climate in
which investment, especially oreign
direct investment, can thrive, thereby
creating employment, stimulating
enterprise development and ostering
economic growth.
As such, the MCI intends to accelerate the
attainment o some o the MDGs within
selected cities in sub-Saharan Arica.
The experience gained in attracting
investment and developing business in the
Millennium Cities is complementing needs
assessments carried out in a wide array o
social sectors. As a result o these eorts,
the Millennium Cities will be enabled to
generate Integrated City Development
Strategies that are explicitly predicated on
achieving the MDGs.
Korare the MVP located close to
Mekelle has already made considerable
progress in the area o agriculture
development. The MVP is exploring
dairy collection as an area or increased
commercialisation and interaction with
urban markets. It is also in the process
o instituting a large-scale honey and wax
production system across its 11 villages.
The ocus o the project is to incentivise
armers to consistently improve their yield
on agriculture production to generate
sustainable income or the village, thereby
making it a sel-sustaining economic unit.
The ollowing KPMG Investment guides
and publications eaturing the millennium
cities have been produced:
Investment guide: Kisumu, Kenya
Investment guide: Kumasi, Ghana
Working paper: Bamboo bicycles
in Kumasi, Ghana
Investment guide: Ondo state, Nigeria
Investment guide: Blantyre, Malawi
Working paper: Sugar in Kisumu, Kenya
For these reports and more inormation
on MCI please visit:
www.mci.ei.columbia.edu/
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
TheAricanMillenniumCities
NigeriaGhana
MaliEthiopiaKenya
Tanzania
Senegal
BlantyreTabora
Kisumu
AkureKaduna
Accra
BamakoSegou
Mekelle
KumasiLouga
Malawi
Source: Millennium Cities Initiative Report, October 2009
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
10/56
10 Mekelle, Ethiopia: Potential Opportunities or Investment
Political climate
Ethiopia is the largest country in East Arica. As a landlocked country,
Ethiopia shares boundaries with Eritrea to the north, Kenya to the
south, Somalia and Djibouti to the east and Sudan to the west. Its
growing population o nearly 74 million (2007) makes it the second
most populous country in Arica.The majority o the population
(85 percent) is rural and engaged in agricultural production.
Historically, Ethiopia has been isolated
politically and culturally rom its East
Arican neighbours. This has changed
in recent years as the government has
committed itsel to supporting regional
trade and broadening interactions among
Arican countries. Ethiopia is now a
member o the Common Market or
Eastern and Southern Arica (COMESA)
and home to the Arica Union.
Ethiopia is a ederal republic, which is
ruled by President Girma Woldegiorgis.
In 1995, Ethiopia adopted a new
constitution that ostered a multi-party
democracy and peaceul elections.
A two-and-a-hal-year border war with
Eritrea ended with the signing o a peace
treaty on 12 December 2000.
As one o only two countries in Arica
that have never been colonised (Liberia
being the other), Ethiopia maintains
a unique role in Aricas history. It has
long been looked to as a source o
pan-Arican culture and leadership. When
the Organisation o Arican Unity (OAU)
was established in 1963, Addis Ababa
was chosen as its headquarters. Addis
Ababa is also home to the United Nations
Economic Commission or Arica (ECA)
and is a major hub o Non Governmental
Organisation activity on the continent.
MapoEthiopiawithneighbouringcountries
Ethiopia
Kenya
Somalia
EritreaSudan
Egypt
Saudi Arabia
Yemen
Mekelle
Addis Abada
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
Source: Millennium Cities Initiative Report, 2009
Notes: One international airport Bole located in Addis Ababa
No sea ports
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
11/56
Mekelle, Ethiopia: Potential Opportunities or Investment 11
Investment climate
in Ethiopia
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
12/56
1 Mekelle, Ethiopia: Potential Opportunities or Investment
Economic outlook
The improving business climate in Ethiopia provides attractive
opportunities or investors capable o bringing own nancing,
technologies and process management in order to transer
knowledge to the local labour orce.
The relative political stability o
recent years, cheap labour and
supportive state policies have already
led to impressive growth in new
investments and corresponding
economic growth o Ethiopia.
Ethiopian GDP growth signicantly
outperormed the world average and
sub-Saharan Aricas average rom 2007
until 2009, and is likely to continue in
20102011.
RealGDPgrowthpercentage00011
percent
14%12%10%8%6%4%2%0%-2%-4%
Actual
11.6%11.1%
2007 2008 2009
Forecast
2010 2011
6.8%
4.5%
2.8%
5.0%
3.2%
3.2%
-1.2%
-1.6%
3.4%
4.5%
6.8% 7.0%
8.0%
KeyEthiopia
Sub-Saharan AfricaWorld
Source: Ethiopia: Economic Structure, Economist Intelligence Unit, 2009
GDPdistributionbysector0000
47%
15%06%
06%05%04%
17%
Agriculture
Trade, hotels and restaurnets
Transport and communicationsConstruction
Manfacturing
Government services
Other
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
13/56
Mekelle, Ethiopia: Potential Opportunities or Investment 1
Investmenttrends
The government
leads an investor-
riendly environment
or export-oriented
industries.
Gross capital
ormation and FDI
infows demonstrated
signicant growth in
2006 and 2008.
Unlike many other countries in
sub-Saharan Arica, Ethiopia now
shows relatively low military, criminal
and terror risks.
Ethiopiaisarelativelypeaceul
country.Itsdangeroustogooutin
thedarkinsomeAricancountriesand
youhavetoorderanofcialcar.Here
youcanpickupataxiinthenightand
shouldnotbearaidorlieandhealth.
An investor from Israel
Gotoalocalnightclubandyou
willunderstandeverything.Itsa
verystrongindicatorothecriminal
situationinthecountry.Many
Europeansvisitourdiscosand
theyaresuretheywillbesae.
Ministry of Industry andTrade
Ethiopia possesses a
relatively cheap and
educated labour orce.
Thelabourorceisverycheaphere.
Localpeoplehaveapropereducational
basisanditwasnotaproblemorus
toteachthembasicskillsrequiredor
ourbusiness.
Dutch investor in horticulture industry
According to the Doing business report
2010by the World Bank, Ethiopia has
a strong position in the areas o tax
administration and legal practice. This
saves investors in Ethiopia signicant time
and money compared to other countries
in sub-Saharan Arica. On average, it takes
around 30 percent less time to deal with
tax procedures, and the eective tax
rate as a percentage o prot in Ethiopia
is hal that o the sub-Saharan Arica
average. The average cost o enorcing
contracts is only 15 percent o the claim in
Ethiopia, vs. 2279 percent in comparable
countries in Arica.
The Ethiopian government takes specic
measures to urther acilitate new
investments. Since it was rst adopted
in 1992, the Investment Act has been
revised several times to remove obstacles
to oreign direct investment in Ethiopia.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
14/56
1 Mekelle, Ethiopia: Potential Opportunities or Investment
Privatisation has been ongoing since
the Republics ounding in 1995, and the
government has sold many mismanaged
and poorly perorming companies to
private investors.
The avourable climate or oreign
investment created by the overall
economic conditions o the country is
urther augmented by specic initiatives
and administrative procedures to
encourage investments. In common
with other developing countries, the
most important incentives consist o tax
concessions. These include:
Exemption rom prot tax or a
minimum period o two years, and
up to ve years depending on the
type and location o investment, with
provision or an additional exemption
o two to three years or investment in
existing enterprises.
The carrying orward o losses an
investor who has incurred loss within
the period o income tax exemption
shall be allowed to carry orward
his loss or hal o the income tax
exemption period ater the expiry o
such period.
Duty ree import o capital goods
an investor eligible or duty ree
importation o capital goods pursuant
to these regulation shall be given the
same privilege or spare parts whose
value is not greater than 15 percent o
the total value o the capital goods to
be imported.
FDIdistributioninEthiopiabysector,00009
Total number of
investment projects867 1488 1767 1203618
100
90 0.9
80
70
29.8
54.6
0.360
24.1
33.9
0.9
Birr.
billion
8.5
42.7
50
40
1.230
10.5
14.2
20 1.1
6.2
4.910
0
Key
SocialAgro-processingManfucaturing2005 2006 2007 2008 2009
Source: Foreign investment projects, July 92September 2009, Ethiopian Investment Oce
DoingbusinessinEthiopiaranking,010
KeyStarting a business Egypt, Arab Republic
Protecting investors
Ethiopia
India
Kenya
Paying taxes Getting credit
Source: Doing business, The World Bank Group, 2009
Note: The urther rom the centre the coloured line crosses the axis, the better perormance the country shows
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
15/56
Mekelle, Ethiopia: Potential Opportunities or Investment 1
Key inhibitors
Financing, technologies and process management are limited locally
and should be brought by new investors.
Financing, a qualied
labour orce and
inrastructure remain
the key constraintsaced by business
in Ethiopia.
However, these constraints are partly
manageable by bringing nancing,
technology and process management
to start up, then transerring skills and
knowledge to the local workorce.
Inrastructure constraints are not
prohibitive in most cases and can be
managed by proper site selection.
The Ethiopian Government continues to
make progress in relation to inrastructure
improvements, particularly with respect
to building roads and developing
hydropower. With the completion o
several high prole energy projects in
20112012, Ethiopia is expected to begin
exporting electricity to Sudan, Djibouti,
and Kenya.
Local businesses
require the
import o modern
technologies andprocess management
in order to improve
the eciency o
local personnel.
Foreign investments in the nancial sector
are still restricted by the government,
while local capabilities are limited.
Thelabourorceefciencyis
quitelow.Althoughthesalaryo
thelocalstaislowerthanin
China,Chinesestaneedless
timeorsewing.
Owner of a textile business with
distribution in Europe
Bureaucracy and
administrative
constraints can be
managed throughutilising local
experience.
Thelevelobureaucracyinthe
countryisnothigh.Ocourse,thereare
someproblemsconnectedwithdelays
inregistration,theunclearsystemo
localcooperationbetweendierent
authorities,butthelocalpartner
undertookalltheresponsibilities.
Dutch investor in horticulture industry
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
16/56
1 Mekelle, Ethiopia: Potential Opportunities or Investment
Mekelle, potential opportunitiesor investment
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
17/56
Mekelle, Ethiopia: Potential Opportunities or Investment 1
Introduction to Mekelle
The Mekelle region is currently one o the
most attractive investment destinations inEthiopia, driven by a highly supportive regional
government, abundant untapped natural
resources and good access to export markets.
Tigray State is the northernmost o the
nine ethnic regions (Kililoch) o Ethiopia,
with a population o 4.5 million in 2008.
Eighty percent o the population is rural
and 20 percent is urban.
Mekelle is the sixth largest city in Ethiopia
and the capital o Tigray State. It is located
approximately 780 km rom the capital,
Addis Ababa, in the Ethiopian highlands.
The Mekelle region enjoys a mild highland
climate with an average temperature o
25C. The rainy season in the Mekelle
region is rom June to September,
while the dry season is rom October
to May.The average annual rainall is
approximately 579mm.
The total population in the city o Mekelle
was estimated at 215,546 in 2008.
The annual population growth rate is
approximately 2.6 percent.
LocationoMekelle
MekelleMekelle region: 100 km around Mekelle
Ethiopia
Tigray
Addis Abada
Source: Millennium Cities Initiative Report, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
18/56
18 Mekelle, Ethiopia: Potential Opportunities or Investment
Investment climate
Due to its proximity
to a ormer military
zone, Tigray State has
underperormed in
terms o economic
growth and infow o
private investments
and is thereore ripe
or investment.
Ethiopia suered rom lack o investment
rom 1998 as it was at war with Eritrea.
The war took place rom May 1998 to
June 2000.
As we can see rom the graph o FDI
distribution, historically Tigray state
underperormed against most Ethiopian
regions in attracting FDI.
On 18 June 2000, the countries agreed to
a comprehensive peace agreement and
binding arbitration o their disputes under
the Algiers Agreement.
A 25-kilometre-wide Temporary Security
Zone was established within Eritrea,
patrolled by United Nations peacekeeping
orces. On 12 December 2000, a
peace agreement was signed by the
two governments.
The relationship between Ethiopia and
Eritrea is no longer antagonistic and
the political environment is peaceul.
Interview eedback indicates that there
are no premises or impairment o the
situation, although the border is unlikely to
be opened in the short term.
FDIbystate,00008
Birr, bn
8.00
6.00
4.00
2.001.87
2.28
1.61
0.870.330.09 0.18
0.00
7.08
4.74
2.04
1.23 1.02
3.82
0.950.53 0.56 0.46
1.26
2.55
2005/2006 2006/2007 2007/2008
0.520.40
Key
Oromia
Addis Ababa
Multi-regional projects
Amhara
SNNPRTigray
Others
Source: National Bank o Ethiopia, Annual Report, 2008
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
19/56
Mekelle, Ethiopia: Potential Opportunities or Investment 19
Supportive state
government policies,
inrastructure
development
and availability o
land makes the
Mekelle region an
attractive investment
destination.
Investment
promotion bodies
TheTigrayInvestmentOfce(TIO)
This operates as the ocial licensing
body or all domestic investment and
assists oreign investors once the
Federal Ethiopian Investment
Commission has issued an investment
licence. The investment oce acts as a
one-stop shop, providing both pre- and
post-approval investment services.
The oce provides inormation
required by investors, receives
investment applications, approves and
issues investment permits, provides
trade registration services and issues
business licences to newly incorporated
businesses. The oce has 18 branches
around Tigray State.
The main oce in Tigray State is in
Mekelle and was ound to be very helpul
and knowledgeable.
TheTigrayAgriculturalMarketing
PromotionAgency(TAMPA)
This was established in 2004. Its main
objective is to provide a rural development
strategy to increase crop volumes
and improve the eciency o arms
throughout the state. TAMPA is comprised
o three departments: Market Research
and Inormation; Market Inrastructure
and Promotion; and Contract Farming and
Farming Coordination.
TheTigrayBureauoRural
DevelopmentandAgriculture
This oversees cereal crop production,
livestock, and irrigation. It also maintains
a Natural Resource Development
Department that ocuses on soil
conservation and orestry, and an
Agriculture Input and Marketing
Department that supplies modern inputs
to promote urban-rural linkages and
agriculture-based cooperatives.
TheTigrayBureauoTrade
andIndustrySmallBusiness
InvestmentPromotion
This places an emphasis on improving
governance, service delivery and
inrastructure. It maintains 40 SME branch
oces throughout Tigray State.
The Trade and Industry oce also
provides loan acilitation that utilises
DECSI, a large Ethiopian micro-nance
bank, to administer ederal loans. These
loans are provided at an interest rate
that is three percent lower than or the
average private loan. Loans are approved
on the basis o submitted project proles.
TheTigrayDevelopmentAssociation
The association does not work primarily
in investment promotion, but coordinates
with an extensive network o Ethiopian
Diaspora members. While Diaspora
members are typically registered as
domestic investors, they are able to
access oreign capital and serve as an
important bridge to oreign communities.
http://www.tdaint.org/
TheMekelleChamberoCommerce
This is another conduit or investment
promotion. The Chamber receives support
rom the Friedrich Ebert Foundation, a
German development organisation. One
o the agencys major objectives is to
develop independent and standardised
review mechanisms or accessing credit
rom local banks.
The ollowing website has contact details
or many o the above organisations which
may be useul to prospective investors:
www.tigraionline.com/business.html
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
20/56
0 Mekelle, Ethiopia: Potential Opportunities or Investment
Incentives permitted
at state level
Tigray State has established industrial
zones supplied with basic inrastructure
at nine major towns, namely Mekelle,
Adigat, Adwa, Axum, Endaslasie, Alamata,
Maichew, Wukro and Humera. This
enables investors to obtain land at a lower
xed lease price per square metre or
each town.
For some strategic projects (livestock
production, dairy arming, manuacturing,
construction), land is provided at a
negotiable price within and adjacent to
industrial zones.
Rental o arming land is possible rom the
government and/or individual armers or
up to 50 and 20 years respectively. Based
on the type o project and investment
capital, a grace period o one to seven
years related to land lease is provided to
any company leasing urban land. A lease
price discount is awarded or real estate
developers, depending on the number o
housing units this can be anything rom
ve to 45 percent.
Labour orce
There is an abundant, easily trainable and
inexpensive labour orce in Tigray State.
The average salary is around USD20
per month.
Wepayabout0dollarspermonth,
whichismorethantheaveragesalary
intheregionanditmakesthesta
moremotivated.Ouremployeesdont
wanttolosetheirjob,notonlybecause
othesalary,butalsoduetosome
additionalbeneftswhichtheygetlike
Englishlessons,paidsickleaveetc.
Gheralta Lodge Hotel Manager
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
21/56
Mekelle, Ethiopia: Potential Opportunities or Investment 1
Inrastructure
The Mekelle region is already well connected
via road to other Ethiopian regions and key
export hubs; the quality o other inrastructure
is rapidly improving.
Road transport
The upgrading o the existing main road
that connects Mekelle with the port o
Djibouti, Addis Ababa and other regions is
underway. The government plans to nish
the construction by 2012.
InTigray State there is a total o 5,900 km
o roads, o which 1,420 km are Ethiopian
Road Authority administered ederal
roads, 1,130 km are Tigray State Road
Authority administered rural roads and
the remaining 3,350 km are dry weather
community roads. The road density is
47 km per 1,000 km o land. The average
road density in Ethiopia is 27 km per
1,000 km o land. Mekelle has 263 km
o roadways, o which 40 km are asphalt
roads, 63 km are gravel roads and the
remaining 160 km are unclassied dirt
roads. An additional 88 km o asphalt
roads are planned.
Djibouti port is the most convenient or
exporters due to its proximity to Mekelle.
Massawa port in Eritrea is currently
inaccessible or Ethiopian business.
There is a railway that connects Addis
Ababa to the port o Djibouti which plays
an important role in the transport o
goods to and rom the capital. Currently,
the railway is in a bad condition and
has limited accessibility although it is
undergoing repairs.
MaporoadconnectionsromMekelleto
mainports
Asab
Port Sudan
MassawaAsmara
Eritrea
Sudan
Ethiopia
Djibouti
Djibouti
Somalia
Dese
WeldiaMile
KombelchaAli Sabien
Mekelle
Source: Tigray Investment Oce, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
22/56
Mekelle, Ethiopia: Potential Opportunities or Investment
The number o dams in the Mekelle region
is increasing, providing better conditions
or agriculture.
RoadinrastructureinTigrayState
To Asmara To Asmara
To Gonder
To GonderTo Sokota
Alamata
Korem
Maychew
Adi Gudom
Adigat
AbiadiWukro
Adwa
Axum
Indasilassie
Humera Sheraro
Mekelle
To Addis Abada
Source: Tigray Investment Oce, 2009
Numberodamswithin100kmoMekelle
350300250200150100500
2010 2011
143
300
Source: Tigray Investment Oce, 2009
KPMG in Ethiopia interview programme, 2009
DistanceromEastAricanportstoMekelle
Hotel Port Sudan Massawa Assab Djibouti Berbera
Mekelle 1,339 km 1,579 km 391 km via 899 km 940 km via 837 km via 708 km via 680 km 1736 km
via Kasala, via Kasala, Asmara, via Eli Dar, Kombolcha, Mile, Chira, Semera, via Serdo, via Addis,
Humera Gedari, Adigrat Kombolcha, Weldia Alewha Yallo, Adera, Kombolcha,
(under Humera, (closed) Weldia (hal under Mekonni Shiket (under Weldia
construction) Shire-Enda (closed) construction) (under construction) (under
Slase (under construction) construction)
construction)
Addis Ababa 1,881 km via 1163 km via 869 km via 910 km via Gelaf 847 km via Dire Dawa 964 km via
Metema, Mekelle, Kombolcha Dire Dawa
Azezo, Weldia,
Anjibara Kombolcha
Source: Tigray Investment Oce, 2009
KPMG in Ethiopia interview programme, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
23/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Mekelle airport
Mekelle airport
(Alula Aba Nega)
has been upgraded
recently to comply
with international
standards. It connects
Mekelle with otherEthiopian destinations
(Addis Ababa (two to
three fights per day),
Bahir Dar, Aksum,
Lalibela and Shire).
Flights are operated
solely by Ethiopian
Airlines.
The Ethiopian government has a vision
or turning Mekelle airport into an
international airport in order to support
export rom the region.
Ethiopian Airlines supports export
activities, even at a loss. As an example,
one major local meat producer negotiated
with Ethiopian Airlines ree delivery rom
Mekelle to Addis Ababa or meat destined
or export to the Middle East.The nal
airreight rate is similar to that or Addis
Ababa exporters.
The Director o Ethiopian Cargo (a branch
o Ethiopian Airlines) stated that similar
arrangements are possible in the uture
with any export-oriented company o
sucient scale.
Direct cargo fights rom Mekelle to the
Middle East or the EU can be started
when there are at least 30-40 tonnes
o export cargo available per fight.
This would be available or any industry
and allows exports rom Mekelle to
be competitive.
Weaimatsettingacommonrateor
MekelleandAddis-Ababaexporters;
however,wewillhavehighercostsor
deliveringgoodsromMekelle.
Gebremichael Biwota, Director of
Ethiopian Cargo
Cooling terminal
The cooling terminal at Mekelle airport is
planned to be completed in early 2011.
The total planned capacity is over 400
tonnes: 50 tonnes or fowers, 150 tonnes
or ruit and vegetables and more than
200 tonnes or meat.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
24/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Select opportunities or
investment in Mekelle
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
25/56
Mekelle, Ethiopia: Potential Opportunities or Investment
High quality lodge in Mekelle region
There is an opportunity to build a high-quality lodge in the Mekelle
region. A well located, appropriately priced and equipped lodge in the
Hawzein or Asbi areas (within 60100 km rom Mekelle) could be an
attractive and immediate investment opportunity.
NumberotouristvisitorstoTigrayState
(000008)
Key
60,000Domestic visitors
Foreign visitors50,000
40,000
30,000
20,000
10,000
0
2002 2003 2004 2005 2006 2007 2008
37.1
20.3
15.7
13.9
20.5
17.7
18.6
15.7
12.6
13.97.87.8
14.1
10.0
Source: Tigray Investment Oce, 2009
The Mekelle region
has high potential as
a hub or ecotourism
due to pleasant
natural conditions,
easy access to the
most interesting
historic, religious and
natural beauty sites oTigray and Aar States.
The Mekelle region has a very convenient
climate, nature conditions and landscape
or the development o ecotourism.
Tigray State is home to Axum, a world-
amous UNESCO World Heritage Natural
Site, which is located 240 km rom
Mekelle. Mekelle and Axum have very
good asphalted road connections.
The rock-hewn churches are a distinctive
eature o Tigray State. They are similar to
the world-amous churches o Lalibela,
but predate them (711 Century in Tigray
versus 1116 Century in Lalibela). Most o
the churches are concentrated within
80150 km rom Mekelle.
Facilities or ecotourism in the Mekelle
area are underdeveloped; there is only
one high-quality lodge in the area.
Successulecotourismdevelopment
intheMekelleregionisnotpossible
withoutasufcientlodgechainwithin
thisarea.Wearereadytorecommend
ourguestsotherlodgesontheir
routesacrossTigray,butonlyon
conditionthattheselodgesareothe
properquality
Manager, high-quality lodge
in the Mekelle region
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
26/56
Mekelle, Ethiopia: Potential Opportunities or Investment
The number o visitorstoTigray state has
grown at an annual
rate o 24 percent per
annum over the period
2002 to 2008 and there
is signicant potential
or a urther increase.1
Tigray State received approximately
15,600 tourists in 2002 and 57,500 tourists
in 2008. Total receipts rom oreign visitors
reached 467 million Birr in 2007 (about
USD50 million).
Although Axum still accounts or the
majority o tourists coming to Tigray State,
there has been an increase in the average
number o days spent by oreign visitors
in Tigray (rom 1.7 days in 1994 to our
days in 2007) which indicates that tourists
include other Tigray attractions in their
trips particularly the world amous
rock-hewn churches.
Despite its high potential and ast
growth, the tourism industry in Tigray
State is underdeveloped. In 2007, the
state accounted or only seven percent
o the total number o oreign tourists
visiting Ethiopia2.
Customer prole
There are two main groups o oreign
tourists coming to Mekelle or
non-business purposes.
RetiredpeopleromEurope(mainly
German,ItalianandFrench)coming
withthepurposeoculturaltourism.
This group o visitors is very price
sensitive; the main purchasing criteria or
them are moderate accommodation cost
and high level o services provided.
Expatriatepopulationcomingrom
AddisAbabaorweekendorshort
vacations.The main purchasing
criteria or this customer group is an
appropriate level o services provided
and a wide range o additional services
at a reasonable price (car rental, guard
services, etc.).
There is potential demand rom
young visitors interested in adventure
tourism withinTigray State and the Aar
depression area. This group o tourists
demands low cost accommodation with
easy access to natural attractions.
Lack o quality lodgeaccommodation
There is only one high-quality lodge run
by an Italian investor currently operating
in Tigray State (Gheralta Lodge in
Hawzien). The lodge has 100 percent
occupancy in the high season (some o
the rooms are booked several months
in advance) which indicates a supply
shortage o quality lodge accommodation
in the Mekelle region.
There are a number o motel-style lodges
in the Mekelle region but the services
they provide are not in line with the
ecotourism concept. One investor rom
the UK has started preparatory work or
construction o a lodge in the Hawzien
area.TheTigray Investment Oce has
stated it has been contacted by our other
investors expressing interest in lodge
development in the Mekelle region.
There are plans or the construction o
ve tent lodges within the Millennium
Villages Ecotourism project aimed at
the development o community-based
ecotourism in Tigray State. The total
expected investments in the project
amount to USD1.5 million. Possible
activities at the sites include horse
riding, rock climbing, trekking and
cultural tourism3.
Source: 1. KPMG in Ethiopia interview programme, 2009
2. Tigray Investment Oce, 2009
3. Arica News, March 19, 2008
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
27/56
To Addis Abada
Mekelle, Ethiopia: Potential Opportunities or Investment
TouristattractionsintheMekelleregion
Mekelle
Abiadi
Axum
Adwa
Adi Gudom
Maychew
Korem
Alamata
To AsmaraSimien National Park To Asmara
SheraroHumera
AdigatIndasilassie
Wukro
To Sokota
Afar State
To Gonder
To Gonder
Simien National Park (UNESCO World Heritage Natural Site), which hasone of the most spectacular landscapes in the world, lies in northern Ethiopia,
740 km from Mekelle.
More than 120 rock-hewn churches and monasteries are located within80150 km of Mekelle. Most of them are almost a thousand years old but still
underexplored because they were only opened to the public in the 1960s.
The Afar Depression is the lowest point in Ethiopia (more than 100 metresbelow sea level). Several natural attractions are available in this area, such as
salt lakes and waterfalls. Visitors can also observe camel, mule and donkey
caravans. This area is populated with nomadic people.
Al Negashi mosque, the most important site for Islam in Africa, is locatedwithin 60 km of Mekelle.
The ancient city of Axum (UNESCO World Heritage Site) is situated about150 km from Mekelle. Axum is famous for its stella and ruins of palaces, and is
the spiritual centre of Orthodox Christianity in Ethiopia.
Source: Tigray Investment Oce, 2009
KPMG in Ethiopia interview programme, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
28/56
8 Mekelle, Ethiopia: Potential Opportunities or Investment
AreasidentifedbytheTigrayInvestment
Ofceorlodgedevelopment
Areas identified by theTigray Investment Officeas attractive for
lodge development
Axum
Mekelle
Wukro
Afar
State1
2
Source: Tigray Investment Oce, 2009
KPMG in Ethiopia interview programme, 2009
1
2
Hawzien area
Potentialactivities: Religious and cultural
tourism, hiking, climbing and horse riding.
Majorattractions: About 100 rock-
hewn churches; Gheralta mountains with
stunning panoramic views.
Roadavailability:High-quality asphalted
road rom Mekelle to Wukro (47 km), then
unpaved road rom Wukro to Hawzien
environs (50-80 km).
Utilities:Electricity is available in
this area; a water supply check should
be perormed beore starting land
plot development.
One lodge is already in operation in
Hawzien (Gheralta Lodge).
Asbi area
Potentialactivities:Adventure tourism;
religious and cultural tourism.
Majorattractions: Depression area o Aar
State (including salt lakes; salt-loaded camel
caravans; volcano; our amous rock-hewn
churches (Mikael Imba, Mikael Debreselam,
Mikael Barka, Ghergos Agebo).
Roadavailability: High-quality asphalted
road rom Mekelle to Wukro (47 km),
then unpaved road rom Wukro to Atsbi
environs (2330 km).
Utilities:Electricity is available in
this area; a water supply check should
be perormed beore starting land
plot development.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
29/56
Mekelle, Ethiopia: Potential Opportunities or Investment 9
There are a number o actors restraining the
development o tourism inTigray state, and
Mekelle region in particular.
The lack o a well-
trained workorce
is identied as the
main reason or thelack o services in the
tourism industry in
Tigray State.
There is no educational institution
providing training in tourism inTigray State.
The primary educational institution or the
tourism industry in Ethiopia is situated
in Amhara State, an average o only 15
students romTigray State are sent to this
institution per year. Most hotels overcome
this problem by running their own training
programmes or their employees.
Insucient marketing
o the state,
particularly at the
international level.
In 2009 the Tigray Investment Oce only
participated in one exhibition abroad.
According to representatives o the oce
this is not sucient; participation in at
least three oreign tourism exhibitions per
year is required or sucient promotion o
the state.
The poor image o
the north o Ethiopia,
primarily due to the
struggle with Eritreain the late 1990s.
Nevertheless, as the political situation has
improved, more overseas tour operators
are including this region in their tours
across Ethiopia and East Arica.
Insucient tourism
inrastructure.Although the quality o roads has been
improved signicantly in recent years,
the majority o roads to main tourist
attractions near Mekelle remain unpaved
(our-wheel drive vehicles required). There
are only ve tour operators in Mekelle
providing our-wheel drive car rental
services. Due to the shortage o transport
acilities in the area, these operators can
charge a high price or their cars (about
USD100120 per day).
Underdeveloped air
connectivity.
The absence o direct international fights
to Mekelle currently restricts the number
o oreign tourists.There is an international
standard airport in Mekelle, but currently it
only serves domestic fights. International
visitors can currently only reach Mekelle
by air via Addis Ababa, which increases
time and cost or potential tourists.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
30/56
0 Mekelle, Ethiopia: Potential Opportunities or Investment
Government policy
is directed at helping
investors overcome
current constraints.On the ederal level, the government
supports the international promotion o
the country (supplies marketing materials,
assists with international exhibitions,
covers the cost o the Ethiopian stand,
assists in obtaining visas and air ticket
discounts or tour operators participating
in exhibitions, etc.)
The state government is responsible
or promotion o the region. Regional
authorities are entitled to dene
land policy in the region, allowing
them to be fexible in relation to land
price depending on the specics o
the relevant investment project.
Currently a number o projects are being
implemented in the tourism industry:
EthiopianSustainableTourism
DevelopmentProject aimed at
boosting the countrys tourism.
A grant o USD35 million was provided
by the World Bank, USD2.4 million
o which is allocated to Axum or
rehabilitation o the heritage site,
enhancement o basic inrastructure
and attraction o visitors1.
ArtisanalCratsDevelopment
Project aimed at re-establishment
o ancient handcrat traditions
at Axum.
HarnessingDiversityorSustainable
DevelopmentandSocialChange
Project aimed at establishment
o ancient handcrat traditions in
Tigray (except Axum), setting-
up o crat centres, help in design
and marketing o crat products.
Source: 1. Ministry o Culture and Tourism, 2009
Process o acquiring
a licence or a lodge
inTigray State.
The investor completes a registration
orm in the Tigray Investment Oce.
The investor receives a
recommendation letter rom the
Tigray Investment Oce or
submission to the local authorities.
The investor identies a suitable
land plot with the assistance o
the local authorities.
The investor provides the Tigray
Investment Oce with the
investment project proposal.
The Tigray Investment Oce
supplies the investor with a
Temporary Investment Licence
(the type o licence depends on
the specic project).
Ater completion o construction
work, the investor applies to the
Trade and Industry Bureau or a
Permanent Investment Licence.
The Trade and Industry Bureau
inspects the compliance o the
lodge with the required standards
and provides the investor with a
Permanent Investment Licence.
Case study:
Gheralta Lodge
Opportunity
Opened in 2006 by an Italian investor,
the Gheralta Lodge oers several
comortable, well designed cottages
with terric views, built in the local
style and to high specications.
The average room price varies rom
USD35 70 per night.
The land plot was provided to
the investor or ree or 17 years.
The investor covered the cost
o resettling local people rom
this area.
During the rst year the lodge hosted
about 3,000 guests; in the last year
more than 4,000 people have visited
the lodge. On average guests stay in
the lodge or 1 2 days. The occupancy
rate varies rom around 100 percent
in high season (September March)
to about 30 percent in low season
(June July).
Challenges
Skill level o local labour orce (lack
o technical skills required or hotel
service, basic English).
Access to water.
Lack o construction skills available.
Meetingthechallenges
The lodge is run by highly experienced
management.
There is a strong selection process or
the local labour orce.
All lodge employees receive
intensive training.
Special remuneration schemes
are applied (bonus or learning o
English, pension scheme, sick leave
compensation, etc.). The salary o
lodge employees is 3 4 times higher
than the average salary in the area.
Two wells were drilled on the land plot
(one or drinking water, one or water
used or other purposes).
The local construction labour orce
worked under the supervision o
an Italian architect and experienced
supervisors hired in Addis Ababa.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
31/56
Mekelle, Ethiopia: Potential Opportunities or Investment 1
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
32/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Meat production or export
Mekelle presents an attractive opportunity or investment into the
export o Ethiopian meat, primarily to the Middle East and North Arica.
Indicativemarketsizeormeatandedible
meatoal,00
Mainly sheep and goat meat
Middle EastUSD2,737m
Regional
Mainly beef
USD550m
Source: 1. UN Comtrade, 20082. KPMG in Ethiopia interview programme, 2009
Note: a. Market size is based on import gures or
resh, chilled or rozen meat
b. Middle East market includes UAE, Saudi
Arabia, Yemen, Oman, Kuwait, Qatar, and
Jordan. Regional market includes Djibouti,
Sudan, Egypt, Tunisia, Morocco and Kenya
Mekelle provides
opportunities in
relation to meat
production due
to large livestock
resources available in
the area, the potential
or meat export to the
Middle East and
North Arica, and
weak competition.
The livestock population in Tigray State
accounts or seven percent o the total
livestock population in Ethiopia, which
is the largest in Arica.
Tigray is well known or its special ox
breed (Raya), which is more protable
than breeds rom other regions due to
its bigger size and more tender and
tasty meat.
There are only ve slaughterhouses
in Ethiopia exporting meat to
other countries. Up to three more
slaughterhouses are under construction.
As o December 2009, there were no
slaughterhouses inTigray State.The rst
modern export-oriented slaughterhouse
(Abergelle) will start operations in 2010.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
33/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Tradevalueoexportsomeatandedible
meatoalromEthiopia
30US$m
2520151050
28.20
8.29
2004 2008Source: 1. UN Comtrade, 2004, 2008
There are limited
opportunities or
the sale o meat in
the local market but
signicant potential
in the Middle Eastmarkets.
The local meat market is highly saturated.
Meat sold in the local market does not
require certication, entry barriers are
very low, and a lot o companies are
operating in this market.The price or raw
meat in the local market is approximately
15 percent lower than in export markets.
There are only ve companies in
Ethiopia which produce meat or
export (who thereore own cooling and
reezing acilities, and hold licences and
certication). All o these companies
are situated around Addis Ababa.These
companies exclusively serve export
markets, as oreign and local markets
require dierent types o meat.
Source: 1. UN Comtrade, 2004, 2008
2. Ministry o Agriculture
and Rural Development,
Agricultural Investment
Potential o Ethiopia,
March 2009
Ethiopian meat and
edible meat oal
export increased more
than three times in
the last ve years.
Currently, 98 percent o Ethiopian
meat exports are shipped to United
Arab Emirates (UAE) and Saudi Arabia.
Nevertheless, the share o Ethiopia in the
total import o meat into these countries
is insignicant (less than one percent)1.
These markets appear to have a high
potential or Ethiopian sheep and goat
meat, mainly due to the ast growth o
the expatriate population rom Asian and
Arican countries. These customers do
not seek top quality meat, their major
purchasing criteria is a reasonable price.
There are signicant opportunities or
Ethiopian meat in other Middle Eastern
countries such as Jordan, Oman, Qatar
and others, as well as in Northern Arica,
especially in Egypt, Tunisia and Morocco,
which remain under-explored.
Ethiopian meat is not permitted or sale
on European markets due to animal
health, which is not in compliance with
European quality standard requirements.
Livestock population in Tigray2
Number o
animals
Cattle
2,622,166
Sheep
813,546
Goats
2,399,808
Horses
1,894
Donkeys
387,389
Mules
7,901
Camels
32,777
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
34/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Meatproductionvaluechain,008
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
Live animals Fresh, chilled or frozen meat Processed meat
Price in the local market US$0.60.8 per kg US$3 per kg US$4.5 per kg
0 KTVolume of import 0 KT 0 KT
US$44.5 per kgPrice in the export market US$1.2 per kg US$3.5 per kg
Volume of export 43.4 KT 8 KT0 KT
The large amount ofinformal cross-border
trade considerably
hampers the legalmarket.
Export of chilled orfrozen meat yieldssignificantly higher
prices than live animals.Analysis of the valuechain indicates that
Low competitiveness inforeign markets due tohigher production costs
and lack of requiredlabour skills.
The governments priorityis to increase thevalue-added chain in themeat industry and shiftexport of livestockproducts from liveanimals to value-addedmeat products.
slaughtered animalspurchased from farmersor cooperatives atUS$0.8 per kg areexported at aboutUS$3.5 per kg.
Stiff competition fromother countries, such asAustralia, Brazil, Indiaand Pakistan.
Source: KPMG in Ethiopia interview prog
Note: KT thousand tonnes
Challenges
The instability o
live animal supply,
especially during the
rainy season (June
and July), is themajor constraint or
meat production.
The majority o households are situated
in remote areas connected with unpaved
roads which are washed away during the
rainy season, making it very dicult or
animal collectors to reach these areas.
In addition, private households have a
lot o eed available or their animals in
the rainy season and are less likely to
sell them as they are aware that a well-ed,
attened animal will etch a higher price.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
35/56
Mekelle, Ethiopia: Potential Opportunities or Investment
Meat quality
certication is a
pressing problem
when exporting to
other countries.
The low meat quality caused by poor
eed and animal diseases results in many
rejections o Ethiopian meat by export
markets. Ethiopian meat has been banned
rom Arabian countries several times. The
last ban lasted around three months rom
March 2009. Currently, producers do not
have the required certication to export to
Europe, but i implemented, the lucrative
market would be opened up.
The government has taken a number o
steps towards improving animal health,
such as setting up veterinary services
across the country.
Some market players, or example
the Abergelle Slaughterhouse, have
established European standard check
systems within their production lines to
control the quality o meat during the
production stage.
Investment overview
The indicative costs or setting up
a medium-sized slaughterhouse
are estimated in the range o
USD1.51.7 million1.
Investors should consider this
investment within the next 1.5 to 2 years.
Source: 1. KPMG in Ethiopia interview programme, 2009
Instability o demand
in export markets
poses a challenge or
meat exporters.
As the majority o consumers o Ethiopian
meat in the Middle East markets are
expatriates rom Asia and Arica, demand
or meat decreases by up to 2030
percent when this population returns to
their native countries or holidays. Market
participants could smooth the demand
volatility through market diversication.
Although there are
currently no direct
fights rom Mekelle
to target export
markets Ethiopian
Airlines has said they
would schedule direct
fights i there was
sucient demand.
Ethiopian Airlines has said that or smaller
export quantities they would consider
setting up an arrangement where they fy
exports via Addis Ababa and not charge
or the Mekelle to Addis Ababa leg.
Case study: Abergelle Slaughterhouse
Opportunity
The rst export oriented slaughterhouse in Tigray State is planned to start
operations in 2010. The slaughterhouse will produce meat exclusively or the
export market (mainly bee due to the large supply o oxen in the region). Target
export markets: Middle East and North Arica (primarily Egypt).
Challenges
The absence o direct fights rom Mekelle to target export markets has been
identied as the main constraint or the company. The volume projected or export
is not sucient to start direct fights abroad.
Meetingthechallenges
The slaughterhouse negotiated with Ethiopian Airlines ree cargo transportation
rom Mekelle to Addis Ababa or meat which is destined or export abroad. As a
result, the nal airreight rate or Abergelle will be similar to that or Addis Ababa
exporters. This arrangement is available or other exporters.
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
36/56
Mekelle, Ethiopia: Potential Opportunities or Investment
High-quality honey processingor export
The Mekelle region provides attractive opportunities or producing
high-quality honey or supply to Sudan, Middle East, and European
markets. The honey supply shortage, which is currently the key
constraint, is likely to be overcome in the mid term.
Indicativemarketsizeorhoney,00
Europe
US$353m
Regional
Middle East
US$52m
US$7m
Source: 1. UN Comtrade, 2008Note: a. Market size is based on import gures or
natural honey
b. Middle East market includes UAE, Saudi
Arabia, Yemen, Oman, Kuwait, Qatar, and
Jordan. Regional market includes Djibouti,
Sudan, Egypt,Tunisia, Morocco and Kenya
The large bee
population, superior
quality oTigray
honey and promising
opportunities or
export make honeyprocessing attractive
or investment.
Tigray has a moderate climate due to its
highland position, which is avourable or
honey production.
The Mekelle region has a large bee
population (about 37 thousand bee
colonies; 20 percent o the Tigray total).
Tigray is amous or its high-quality white
honey (made rom pollen rom white
fowers) with low moisture content, which
can enjoy a price premium. Tigray honey
has a special aroma that would provide a
competitive advantage in niche markets.
Compound Annual Growth Rate (CAGR) of
honey import for selected markets1
Country
United Kingdom
CAGR (20042008)
%
10
Yemen 28
Israel 37
UAE 9
France 15
Source: 1. KPMG in Ethiopia interview programme, 2009
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
37/56
Mekelle, Ethiopia: Potential Opportunities or Investment
There is high potential
or supply o Tigray
honey to Europe and
the Middle East.
In spite o its avourable natural conditions
and large bee population, up until 2007,
Ethiopia was a negligible supplier o
honey to international markets. Almost
the entire honey volume produced was
consumed locally (mainly or production
as a local wine). A very small amount o
honey was exported to Sudan and Middle
East markets.
Until 2008, the European market was
closed or Ethiopian honey producers.
As indicated in an interview with a
representative o the Honey and Beeswax
Producers and Exporters Association,
Ethiopia became an accredited country or
supplying honey to the EU in 2008.
In 2008, revenues rom honey export
rom Ethiopia to the EU amounted to
USD120 thousand (98 percent o which
was exported to the UK).
The EU, Yemen, Israel and UAE can be
considered as the major potential target
markets or Ethiopian honey.The import
o honey into these markets has been
increasing steadily over the last ve years
and is expected to continue to increase
within the next two to three years.
Beeswax production
and export can be
considered as a
potential opportunity
in the short term,
but does not appear
attractive in the mid
and long term.
Although Ethiopia is currently one o the
largest beeswax exporters in the world,
beeswax opportunities in Tigray State
appear to be limited in the mid and long
term due to the ongoing replacement o
traditional with modern hives.
Despite the act that modern hives can
produce 510 times more honey than
traditional ones, the wax yield rom modern
hives is 0.52 percent compared to 810
percent or traditional hives.
The local market or
honey also shows
signicant potential
or investors.
However, the
domestic market is
not as attractive or
processed honey as
oreign markets.
Local demand is mainly or raw honey,
not the value-add processed honey which
commands a higher price.
The majority o honey or local consumption
is distributed through traditional markets.
Ethiopianhoneyexportdynamicsandstructure,(00008)
400USD0.04m USD0.54m
Sudan
72%
15%12%1%
EU
Middle East
350
300
387
196
Other
250
KT
200
150
100
50
0
2005 2006 2007 2008
10
53
Source: 1. UN Comtrade, 20045-2008
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMGInternational provides no client services. No member rm has any authority to obligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member rm. All rights reserved.
-
7/30/2019 Potential opportunities for investors in Mikelle, Ethiopia
38/56
8 Mekelle, Ethiopia: Potential Opportunities or Investment
Case study: Millennium Villages Honey Project
Opportunity
The Millennium Villages Project (MVP) is implementing a large scale honey and
beeswax production system across its 11 villages in Tigray State. The major goal
o the projec