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Ethiopia pushes retail door ajar to foreigners

UNSUSTAINABLE COSTS

The International Monetary Fund has warned that huge state spending on roads, railways and power could derail economic growth – which is projected at 11 percent a year by the finance ministry but less by the IMF – if it keeps squeezing out private business.

Still, an emerging middle class is enjoying increasing buying power in a country that failed to feed itself just three decades ago. Ethiopia could still meet a target to become a middle-income nation by 2025, the IMF says.

Such prospects elsewhere in Africa – despite huge wealth disparities across the continent – have drawn big retail names to flashy shopping malls serving the middle class.

“Africa is brimming with potential for global retailers with its one billion people and growing economy,” consultancy A.T. Kearney said in its 2014 African Retail Index report. “It is easy to see why many retailers consider sub-Saharan Africa the next big thing.”

Big brands are prising open the door in some areas. Drinks giant Diageo bought a brewery and fashion retailer Hennes & Mauritz makes garments in Ethiopia. The Ethiopian Investment Agency told Reuters last year that Unilever and Nestle were both sniffing around.

But Ethiopia, whether on its own or with foreign firms, needs to improve its supply and distribution network if it is to keep a lid on costs. Inflation has come down from its 2011 peak, but has still hovered around 8 or 9 percent for months.

“Supply costs have a significant share (of import costs), going up to 50 percent of the overall cost,” said Mirko Warschun of A.T. Kearney’s Africa leadership team. “That is not sustainable.”

A.T. Kearney, which was hired as consultants to help set up Alle, and Ethiopian officials said the new cash-and-carry would be run as a private business, with some Ethiopians returning from the large diaspora to join the management team.

The officials say Alle will bring more competition to the powerful suppliers who dominate the market, thereby forcing down the prices passed on to retailers.[nextpage]

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