In Ethiopia, State Controls Hold Back Waking Giant

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ADDIS ABABA — When global drinks giant Diageo bought a brewery in Ethiopia, it paid a premium for a stake in a barely tapped African market that in the 1980s had spectacularly failed to feed its own population.

Diageo paid $225 million for state-owned Meta Abo, joining a list of firms seeking a foothold in Africa’s second most populous nation that was once run by communists and now has an emerging middle class after a decade of double-digit growth.

“We paid a premium of course and that was a deliberate decision … We knew the value of what we were buying,” Francis Agbonlahor, Diageo’s managing director at Meta Abo, told Reuters in a capital that boasts smart highways and new office blocks.

Ethiopia is now sub-Saharan Africa’s fifth biggest economy, leap-frogging next door Kenya and wooing investors from Sweden, Britain and China, as other emerging markets lose some of their shine.

Few nations can better tell the story of “Africa Rising,” the narrative of a hopelessly mismanaged and violent continent now prized for strong growth and, in many cases, the kind of political stability scarcely imaginable a decade or two ago.

Yet like other African nations, Ethiopia must now work out how to maintain economic momentum as the U.S. Federal Reserve starts to turn off the taps of easy money that drove investors to more adventurous markets, and when China’s economy and those of other emerging powers start to shift down a gear.

That means another tricky transition for Ethiopia, which has until now relied on the state to run its economy, but which has seen growth rates slip to 7-8 percent, short of the level needed for its goal of middle income status by 2025.

“When you are starting from a very low base with a lot of donor support, it is easy enough to grow in a strong, robust way,” said Razia Khan, head of Africa research for Standard Chartered bank. “As the economy matures … it is going to become a lot more difficult.”

Dilemma

Opening up the economy, as many businesses at home and abroad want, could draw in new investment but may also loosen the controls that can be exerted by a government made up of ethnic and regional parties that has carefully managed development and kept a lid on rivalries.