Via Emerging Markets Insights, a report on Ethiopia:

From Addis Ababa to Mekele, my latest trip to Ethiopia provided insights for the improving investment climate, in particular for consumer goods companies. Despite the absence of international food chains, American and European personal care and household products fill the shelves of small stores in the capital and other parts of the country. Johnnie Walker brand of Scotch Whiskey is seemingly ubiquitous in bars across the country. Diageo’s other important presence in the country, the recently acquired Meta Abo brand, competes with local beers that are supported by foreign companies like St. George’s (France-based BGI Group) and Dashen (British equity firm Duet Group). This is an important trend, because foreign interest in local breweries has acted as a leading indicator of foreign investment in other African countries.

Isuzu trucks and Volkswagen Beetles are among the cars of choice on Ethiopian roads, which is partly due to the wide availability of spare parts for both vehicles. A slowly improving roadway infrastructure connecting rural areas should be a welcome sign for the future investment opportunities. Foreign investment from big players, such as mining companies and the Chinese government, is already contributing to transportation upgrades in the northeast part of Ethiopia. Anecdotally, Caterpillar tractors played a prominent role in many of these road construction projects. The northern historical circuit, which is a prominent tourist route, should benefit from increasing popularity during the next several years.

Foreign multinational companies are already lining up to support the Ethiopian government’s ambitious initiatives to improve the agricultural sector, which accounts for 85% of employment. Public spending plans are focused on improving crop yields for small farmers. Despite investor interest in supporting these projects, the government has so far prioritized partnerships with multilaterals and NGOs rather than foreign companies. While not currently viewed as major partners, foreign companies are seen as current and future customers.

Overcoming famine in the mid-1980s and significant political transformation, Ethiopia is positioning to emerge as a critical destination for doing business in Africa during the next decade. The country’s population of 85 million people is second only to Nigeria’s among African countries. Foreign investment will be critical to help the government keep pace with population growth and to upgrade infrastructure in important sectors like agriculture, healthcare, tourism, and transportation.

Historically, doing business in Ethiopia has been heavily reliant on relationships with influential politicians and those well-connected to officials. A transition to a more liberal and open business climate will be a slow process (see After Prime Minister Meles Zenawi’s Death – What’s Next for Business in Ethiopia?). In the meantime, foreign companies should continue to seek ways to enter and expand to capitalize on opportunities despite lingering operational challenges. Perhaps senior executives could start by grabbing a stool at one of the Hilton or Sheraton hotel bars, where they will find many of Addis’ business elite relaxing and drinking a Johnnie Walker scotch or a St. George beer.