Ethiopia's reforms spark ray of hope for struggling businesses
NAIROBI — A wave of economic reforms in Ethiopia since prime minister Abiy Ahmed came to office nearly a year ago has sparked hope among social businesses struggling to grow under the east African nation's heavily regulated economy, industry experts said.
Since April, Abiy's government has announced shake-ups across industries, including plans to open up the once closely guarded telecommunications and power monopolies.
Ethiopia has also loosened government control of the economy by opening its logistics sector to foreign finance, and finalising reforms in its underdeveloped mining and oil sectors to encourage more foreign investors.
Matthew Davis, CEO of Renew Strategies, an impact investment firm which finances Ethiopian social start-ups, said there was untapped potential with a market of 100 million people – many of whom needed products and services that social firms could meet.
“The challenges in Ethiopia are big, but the opportunities are also big. Ethiopia is the second-largest population in Africa … and now it's slowly opening up,” Davis told delegates at the Sankalp Africa Forum, an event in Nairobi bringing together investors, social businesses and policymakers.
“We are still waiting for things to change, but we've all seen what's happened over the last year with the new prime minister, who is very progressive, and we are very excited about that.”
Businesses designed to both turn a profit and help people in need have mushroomed in Ethiopia in recent years, with women and young people playing a prominent role as social entrepreneurs.
There are over 50 000 companies in Ethiopia pioneering solutions aimed at improving services from water and sanitation to health, education and housing for the country's most needy, according to a survey by the British Council.
Yet, they are struggling to scale up and expand – largely due to a lack of access to finance, said the report.
“Almost 40% of the social enterprises surveyed have not received any form of external funding or financing, either from non-repayable or repayable capital,” said Wubet Girma, deputy director of the British Council in Ethiopia.
She said the limited supply of capital was the top financial constraint, cited by more than a quarter of the firms surveyed.
But recent reforms signalled a more friendly environment for foreign investors interested in financing social enterprises, she added.
As well as opening up the sector to foreign investment, social entrepreneurs said they hoped authorities would create a regulatory framework for social businesses, and new policies to promote the sector.
“Government officials don't really understand the private sector, and exactly what social enterprises are,” said Kibret Abebe, president of Tebeta, Ethiopia's first private ambulance service.
“So, we need to work hard to make people understand the impact that we can make. Ethiopia also needs a policy for social enterprises, which includes tax incentives and access to credit.”
Despite its large population and status as one of Africa's fastest-growing economies, Ethiopia has been at the periphery of social enterprise or impact investing in the eastern Africa region – compared to neighbours such as Kenya and Uganda.
– Thomson Reuters Foundation