Group 32 :

Mentor :
Puneet Kakkar
Avesh Singh
Rahul Taide
Rishabh Jain

STRATAGEM Ethiopia : An emerging

market opportunity?
 ABOUT ETHIOPIA
History and Culture

• Landlocked country in east Africa.

• Rich in religious and culture history.
• During 1974-1991, Ethiopia was ruled by Junta
Military.
• In 1991, a revolution took place and new
constitution was adopted in 1994.
• Privatization started in mid 1990s which
revolutionized the country.

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INDUSTRIAL POLICY AND MARKET
OPPORTUNITIES
Positives :
• Between 2003-2013, GDP grew from $8.6 billion to 47.5 billion.
• Government is investing heavily in infrastructure and public
investment accounts for 1/3rd of GDP.
• Income tax exemption to investors (up to 5 years) who establish
enterprise in manufacturing and agriculture.
• Custom exemption for capital goods such as plants, machinery
etc.
Negatives :
• Public Debt account for 23% of GDP.
• Complaints about unfair competition when dealing with state
owned and party affiliated businesses.
• Still suffers from frequent power cuts.
• Trade imbalance.
• 129 on ease of doing business out of 189. WOODGROVE 3
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CARECO
Personal Care Product Company

• Struggling to keep up with competition in in key markets in India , China in personal

care products.
• Historically entered market through independent local distributor to leverage local
knowledge and existing relationships which offer them low costs and low risks.
• But their revenue growth decreased over time due to inexperienced leadership.
• Consequently established their own subsidiary and built local manufacturing facility and
put its own people > capital high.
-        Very local distribution, face 30% more duty
-        Even with gross margin of 85% to 45%, its product line would be more expensive than the
local market share . perfect cost - $3 million
-        Local manufacturing subsidy : Lower retail price , expand reach and market share while
achieving average gross margin upto 10% .
-        High awareness of brand in Ethiopian market
-        Market was $125 million, growth will be at least 15%-20% in coming years.

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 SHOULD CARECO ENTER ETHIOPIA?
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total

Addressable 6.25 14.375 24.796 34.218 45.909 57.82 72.27

Market volume
(in millions)
Market Growth 15% 15% 15% 15% 15% 15% 15%
Projected Market 5% 10% 15% 18% 21% 23% 25%
share
Projected gross 3.75 8.912 15.86 22.58 30.75 39.32 50.589 171.76
margin (in
millions)
Projected Fixed 12 12 12 12 12 12 12 84
Cost (in
millions)

Conclusions :
• $55 million of capital cost and $84 million of running cost amounts to $82.5 million and
$103.84 million respectively, when inflation is assumed to be 7 % annually.
• Now total revenue generated in 7 years amounts to $171.76 million which is less than the
total cost incurred of $186.34 million
• Therefore, it is not advisable to invest in Ethiopia directly by setting a plant. WOODGROVE 5
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SHOECO
Shoe Company

• Founded in China in 1991, ShoeCo produced a wide range of casual and formal
leather footwear.
• Modest success in exporting shoes to Ethiopia through 3rd party distributor.
• Focus on efficiency.
• For expansion, shoe company had used 3rd party importer and local 3rd party.
• If appropriate condition , it could choose to establish a local manufacturing facility
wholly owned or joint venture.
• In Ethiopia, shoeco already imported its shoes through a local distributor .
• If a new factory is established, exports are forecasted to reach approx. $40mil.
• Shoe market in Ethiopia, already growing at 10% annually.
• In the low cost input Special Economic Zone established by the government , they
will be given 5 years exemption from corporate taxes.

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SHOULD SHOECO ENTER ETHIOPIA?
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Addressable 2.7 3.88 5.29 7.05 9.212 11.79 16.5

Market volume (in
millions)
Market Growth 8% 9% 10% 11% 12% 12% 12%
Projected Market 3% 4% 5% 6% 7% 8% 10%
share
Projected gross 1.62 2.37 3.28 4.37 5.80 7.42 10.72
margin
Projected Fixed 10 10 10 11 11 12 12
Cost (in millions)

Conclusions :
• $35 million of capital cost and $76 million of running respectively, even when
no inflation is assumed.
• Now total revenue generated in 7 years amounts to $35.58 million which is way
less then the total cost incurred of $111 million.
• Therefore, it is not advisable to invest in Ethiopia directly by setting a plant.
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MEDCO
Generic Pharmaceutical Company

• Founded in 1983 in the United Arab Emirates (UAE), they manufactured and sold
generic pharmaceuticals and over-the-counter medications in select markets in the
Middle East and North Africa (MENA).
• They are famous for accommodating small batches and short manufacturing runs
with great efficiency, enabling shorter delivery times
• The market covered by portfolio is $200 million and will grow by 15% -20%
annually in next decade.
• According to the research conducted by MedCo, retail pharmacy segment is
fragmented.
• Their initial discussion with Ethiopian investment agency had been promising .
• Industrial zone near Addis Ababa is available , MedCo could import capital
equipment duty free and enjoy up to 5 years of tax exemption .

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SHOULD MEDCO ENTER ETHIOPIA?
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Addressable 10 23 39.675 54.75 73.460 92.522 115.6

Market (in
millions)
Market Growth 15% 15% 15% 15% 15% 15% 15%

Projected Market 5% 10% 15% 18% 21% 23% 25%

share
Projected gross 7 16.33 28.56 39.96 54.36 69.39 86.73
margin (in
millions)
Projected Fixed 10 10 11 11 12 13 13
Cost (in millions)

Conclusions :
• $85 million of capital cost and $79 million of running cost amounts to $127.56 million
and $100.756 million respectively, when inflation is assumed to be 7 % annually.
• Now total revenue generated in 7 years amounts to $302.33 million which is way more
than the total cost incurred of $228.136 million.
• Therefore, it is advisable to invest in Ethiopia directly by setting a plant. WOODGROVE 9
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 WOODGROVE
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THANK YOU