Ethiopia: Emerging Market in the Horn of Africa

Solid economic foundation lays the groundwork for growth in construction and, in turn, the VT industry.

Ethiopia, the Horn of Africa country formerly known as Abyssinia, stands out among nations in the continent for not only having never been colonized — partly due to the bravery of its leaders and people — but also as a nation that produced legendary rulers such as Queen Sheba. That is not all that is remarkable about this country of 115 million people. In modern times, Ethiopia distinguishes itself as an economic giant with investments in industry and services that could substantially transform the skyline of its capital, Addis Ababa.

The country’s construction sector, driven largely by investments in industrial parks and infrastructure, has provided a major boost to vertical transportation (VT) equipment providers. Although Ethiopia’s skyline may not be rising as fast as those in neighboring Kenya, Rwanda, Tanzania and Uganda, the economic fundamentals necessary for growth of residential, industrial and commercial buildings are strong and remain the main drivers in the demand for VT equipment.

In recent months, Ethiopia has been experiencing a political and economic transformation that could generate economic growth of up to 7.2%, raising hopes of successful implementation of the country’s Growth and Transformation Plan (GTP), a government strategy for Ethiopia to become a lower-middle-income country by 2025 through an average annual real growth rate of 10-11%. “Measures to open key sectors to competition — notably transport, logistics, manufacturing and telecommunication — will attract private investment, catalyze high-value-added services and boost competitiveness,” observed the African Development Bank on the GTP.

The GTP is likely to drive growth of Ethiopia’s elevator and escalator market, especially due to anticipated construction of high-rise buildings to meet demand for industrial, commercial and retail space. Under the second phase of GTP, Ethiopia projects construction of nearly 2.5 million housing units, including 300,000 in Addis Ababa to meet growing demand from a ballooning urban population. The housing projection is based on the anticipation that urban population will grow to more than 22 million by 2025.

Addis Ababa has already attracted investments in high-end apartments, especially in prime locations such as Bole, Kazanchis and Old Airport, according to Knight Frank, a London-based real estate agency and consultancy. “The market has been buoyant, with high-end apartments mainly being sold. . . during their construction periods,” it said. Most plans have been relatively small, but some “decentralized mega-schemes,” such as Poli Lotus and Royal Garden, have been added to the market, the consultancy added. Both are from Chinese developers. The former project was built by Tsehay Real Estate and owned by CGC Overseas Construction (Ethiopia) Ltd. and Qian Xiao, while the latter, a US$194-million project, was developed by a joint venture of Sinomark Real Estate and Saba Engineering.

Despite the interest of foreign investors, especially the Chinese, the country’s investment regulations remain a major constraint that spills over to the demand for new VT equipment and maintenance.

Addis Ababa enjoys relatively strong demand for office space, and occupancy rates are generally high, according to Knight Frank. As a result, the government is under pressure to review investment code to allow more foreign participation in commercial, industrial and residential development. This, in turn, would create demand for VT equipment.

New Delhi, India-based market research firm and consultancy 6Wresearch said the Ethiopian VT market is projected to grow at a compound annual growth rate of 3.4% through 2025, supported by “upcoming large-scale industrial corridor projects such as the Kilinto Industrial Park and Arerti Industrial Park.” The projects, 6Wresearch observed, are expected to “positively influence the demand of cargo elevators in the country.”

The construction industry is expected to remain a key driver of the country’s economic growth, which the World Bank said will remain “strong and broad-based.” Despite foreign investment restrictions, global industrial players such as Diageo, Heineken, SAB Miller, Duet Group, Tiger Brands and Unilever support growth of the industrial sector (and, with it, demand for commercial space). These companies have set up shop in Addis Ababa, contributing to growth of the underdeveloped manufacturing sector.

However, new residential projects have the greatest potential to drive VT demand as more mixed-use buildings — many developed by foreign firms in joint ventures with local partners — emerge. For example, U.A.E.-based Eagle Hills is developing La Gare, French for the “The Station,” in partnership with the City of Addis Ababa. La Gare is a mixed-use building with 4,000 apartments in the heart of the city. The US$1.7-billion project, to be developed over seven years, will also boast three hotels, a mall and entertainment facilities. The first, a 21-story residential tower, ONE La Gare, launched in January, offering 187 residences.

Buildings that define Addis Ababa’s skyline include the Commercial Bank of Ethiopia, Africa Union headquarters, Nani Tower and Maritime Transit Shipping Enterprise. According to The Skyscraper Center, Ethiopia ranks 61st globally of countries with buildings taller than 150 m and sixth in Africa. At 198 m, the 46-story Commercial Bank of Ethiopia building is the only tower that rises above 150 m, with elevators installed and serviced by Addis Ababa-based GAD Electro-Mechanical Works Plc. The company has an exclusive contract for the supply of VT equipment from MacPuarsa, a multinational Spanish firm.

A large share of the Ethiopian VT market is in repair and maintenance of equipment in public infrastructure facilities, government offices and industrial operations. Although no accurate data is available on the dominant technology in Ethiopia’s VT sector, both traction and hydraulic lifts are present in the market, according to information gleaned from various elevator companies. With Ethiopia’s urban population growing to 21.7% of the country’s total population by 2020, demand for new elevator and escalator equipment and modernization of existing equipment is likely to dominate the market.

The market is also dominated by small local players, some of which have partnered with big OEMs like KONE and Schindler. Other players include Abretant Trading, Abyene Engineering, Africa Elevator & Escalator Systems, Elsam Impex, Equatorial Business Group, Tana Engineering, Sintec Ethiopia and MRL Engineering & Trading. Many distribute VT equipment manufactured by global players or handle the repair and maintenance segment, which is still growing, albeit slowly. Since 1998, Sintec Ethiopia Plc has partnered with KONE to distribute its products in the market. Schindler’s VT products are distributed by Tana Engineering Plc.