Baseline Survey On Competition and Markets in Ethiopia PDF

Baseline Survey on Competition
and Markets in Ethiopia
Research Team
Mr. Roberto Zavatta, MA in Applied Economics, University of Michigan,USA
Mr.Samuel Feyissa, Post Graduate Diploma in Industrial Project Management,
Research Institute for Management Science, the Netherlands
June 2009
Produced and distributed by

the Addis Ababa Chamber of Commerce and
Sectoral Associations with �inancial support from
the Swedish Agency for
International Development Cooperation, Sida Sida
© Private Sector Development Hub/Addis Ababa Chamber of Commerce and Sectoral
Associations, 2009
P. O. Box 2458, Mexico Square, Addis Ababa, Ethiopia

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No part of the publication may be produced or transmitted in any form or by any means without the
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excerpts in a review.
Disclaimer:- The views expressed in the study do not necessarily reflect the views of PSDHub or Addis
Ababa Chamber of Commerce and Sectoral Associations or Sida. They are solely the responsibilities of
the authors.
CONTENTS
Introduction 9
Part I – Overview of Sectors and Markets 15
Chapter 1: Profiles of Markets in Agriculture 17
Chapter 2: Profiles of Markets in Industry 21
Chapter 3: Profiles of Markets in Services 31
Part II – Analysis of Selected Markets 33
Introduction 35
Chapter 4: Food and Beverages 37
Chapter 5: Agricultural Products and Inputs 53
Chapter 6: Manufactured Goods 61
Chapter 7: Financial Services 69
Chapter 8: Transport Services 83
Part III – Findings and Recommendations 91
Chapter 9: Summary of Findings 93
Chapter 10: Recommendations – Policy, Institutional and

Legal Aspects 99
Chapter 11: Recommendations – Operational and

Technical Aspects 105
References 109
List of Tables
Table 1 : Ranking Markets in Terms of Distortions of Competition — An Illustration 13

Table 2 : Results of a Quick Scan of Markets of Agricultural Products 18
Table 3 : Results of a Quick Scan of Markets of Industrial Products 22
Table 4 : Results of a Quick Scan of Markets in Services 31
Table 5 : Key Indicators for the Flour Industry 37
Table 6 : Basic Features of Ethiopian Breweries 40
Table 7 : Basic Features of Leading Mineral Water/Soft Drinks Companies 43
Table 8 : Basic Features of Sugar Factories/Projects 46
Table 9 : Basic Features of Leading Ethiopian Edible Oil Producers 48
Table 10 : Prices for Domestic and Imported Edible Oil 51
Table 11 : Key Indicators for the Textiles and Apparel Industry 62
Table 12 : Basic Features of Cement Producers 65
Table 13 : Basic Features of Ethiopian Banks 69
Table 14 : Relative Importance of Categories of Banks 72
Table 15 : Market Concentrations — Ethiopia vs. Kenya 73
Table 16 : Distribution of Outstanding Loans by Type of Borrower (2008) 74
Table 17 : Regional Presence of MFI 76
Table 18 : Concentration of Regional Markets 77
Table 19 : Key Indicators for the Insurance Business — Ethiopia vs. Kenya 78
Table 20 : Basic Features of Insurance Companies 79
Table 21 : Market Concentrations — Ethiopia vs. Kenya 81
Table 22 : Basic Features of Ethiopian Freight Transport Operators 84
Table 23 : Market Concentration — Dry and Liquid Cargo 86
Table 24 : Basic Features of Selected Passenger Transport Operators 88
Table 25 : Summary of Factors Impacting on Competitive Conditions 93
Table 26 : Ranking of Markets 95
List of Figures
Figure 1 : Category of Ethiopian Product Markets 10

Figure 2 : Broad Components of the Ethiopian Markets 11
Figure 3 : Overview of Markets in Agriculture 17
Figure 4 : Overview of Markets in Industry 21
Figure 5 : Prices of Maize and Wheat in Selected Urban Markets 56
Figure 6 : Relative Importance of Various Categories of Imports 59
Figure 7 : Market Shares Held by Leading Cement Sellers – Ethiopia vs. Kenya 66
Figure 8 : Composition of Banking Assets Overtime 72
Figure 9 : Asymmetry in Size among Banks — Ethiopia vs. Kenya 73
Figure 10 : Asymmetry in Size among Banks — Ethiopia vs. Kenya 81
Acronyms
AACCSA Addis Ababa Chamber of Commerce and Sectoral Associations
ACSI Amhara Credit and Savings Institution
AEMFI Association of Ethiopian Microfinance Institutions
AISE Agricultural Input Supply Enterprise
CBE Commercial Bank of Ethiopia
CSA Central Statistical Agency
DAP Di-ammonium phosphate
DBE Development Bank of Ethiopia
DECM Derba East Coal Mining
EAB East African Bottling
EAHG East African Holdings Group
EAL Ethiopia Amalgamated Limited
EAPC East Africa Portland Cement
ECX Ethiopia Commodity Exchange
EFTC Ethiopian Freight Transport Corporation
EGTE Ethiopian Grain Trade Enterprise
EIC Ethiopian Insurance Corporation
ESDA Ethiopian Sugar Development Agency
FAO Food and Agriculture Organization
FFPPA Flour and Flour Products Producers Association
GDP Gross Domestic Products
GoE Government of Ethiopia
MEWIT Merchandise Wholesale and Import Trade Enterprise
MFI Microfinance Institutions
MoFED Ministry of Finance and Economic Development
MoTAC Ministry of Transport and Communications
MoTI Ministry of Trade and Industry
NBE National Bank of Ethiopia
NGO Non-governmental Organization
PASDEP Plan for Accelerated and Sustained Development to End Poverty
PPESA Privatization and Public Enterprise Supervising Authority
PSD Private Sector Development
QSAE Quality and Standards Authority of Ethiopia
Sida Swedish Agency for International Development Cooperation
TA Transport Authority
ToR Terms of Reference
TPC Trade Practices Commission
USD United States Dollar
INTRODUCTION
This report was prepared in response to the Terms of Reference (ToR) for a Baseline
Survey on Competition and Markets in Ethiopia. The objective of the assignment
is to provide an assessment of the level of competition prevailing in the Ethiopian
economy. More specifically, it is intended to provide indications of the costs borne
by the private sector and/or by the population at large as a result of monopolistic
positions held by certain operators, and especially government intervention, in the
form of restrictive regulations and/or of other policies de facto limiting the emergence
of competitive market conditions.
The report presents the results of the work carried out in line with the ToR and the
inception report submitted on 19 December 2008. A draft version of the report was
presented at a workshop held in Addis Ababa on 20 May 2009. The workshop was
attended by over thirty representatives of chambers of commerce, private operators,
government bodies and financial institutions. The comments forwarded during the
workshop are incorporated in this final report.
Part I of the report provides an overview of the status of competition in the

Ethiopian economy, and Part II analyzes in detail the competitive conditions in
selected markets, while the final part summarizes the main findings and forwards
some recommendations regarding policy, institutional, legal and technical aspects.
The information in this report are drawn from a variety of primary and secondary
sources, including official statistics and documents, sector and market studies,
research papers as well as articles published in learned journals. Useful information
was also collected through a series of interviews held with representatives of private
sector associations and public institutions. Finally, in order to present an updated
situation, heavy reliance was made on articles published in the Ethiopian economic
press. While the most recent statistics used for the report normally refer to the
2006-07 year, information on market developments, enterprises in operations and
competitive practices are usually updated to February – March 2009.
Methodology
The study was undertaken by adopting a three-stage approach:
• The first involved a quick scan of all product markets (goods and services), in
order to get an initial assessment of the degree and types of market distortions
caused by uncompetitive practices.
• The second step involved the analysis of selected markets so as to gain a
better understanding of prevailing competitive conditions along certain key
9
“dimensions” (level of concentration, importance of economic and regulatory
barriers to entry, etc.
• The third step entailed the consolidated analysis of findings, including a
ranking of markets, in accordance with the degree of competition, and the
provision of illustrative examples of anticompetitive behavior.
The salient features of each of the above steps are illustrated in the following
paragraphs.
Step 1 - Matrix of Markets/Initial Scanning

At a very general level markets can be classified into factor and product markets. On
factor markets, inputs of production are traded --- usually, capital, labor and land
are distinguished. Competition policy usually focuses on product markets. However
the criteria for measuring competition (or the distortion/lack thereof ) can also be
applied to factor markets. Nevertheless, due to the specific features of property and
labor markets (not only in Ethiopia) – such as the long term nature or the importance
of information asymmetries – these two markets would each deserve a study of their
own. Conversely capital markets are within the scope of the study as the provision of
finance is also a product, and its market lacks the peculiarities of labor and property
markets.
Ethiopian product markets can be grouped into three broad categories, i.e. those for
agricultural products, industrial/manufactured products and services. These markets
are served with products originating from domestic and import sources. Domestic
production covers the bulk of agricultural products as well as simple manufactured
goods and “non-tradable” services. Imports concern some primary commodities,
but mostly consist of capital goods, sophisticated manufactured goods and energy
products.
Figure 1 Category of Ethiopian Product Markets
10
The three broad market categories are further classified into different components.
Details of the components under each category are illustrated in the figure below.
Figure 2 Broad Components of the Ethiopian Markets
The above classification formed the basis for the initial quick scanning of
competition conditions in Ethiopian markets. A total of 17 lines of business/
markets were taken into account and reviewed according to a standard format,
using available secondary sources. The results of this exercise are presented in detail
in the following consecutive chapters.
Step 2 - Analysis of Selected Markets

The analysis of markets focused primarily on structural aspects which, based both
on practical experience and scholarly research, appear to have a greater impact on
competitive conditions. Six themes/dimensions have in particular been identified to
assess the degree of competition.
1. The market share held by leading operators (i.e. held by, say, the first
four companies).
2. The level of asymmetry in size (i.e. whether there is a major
disequilibrium among the key players).
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3. The presence of state-owned or endowment enterprises (who, de
jure or de facto often enjoy a preferential treatment whenever dealing
with government authorities)
4. The presence of vertically integrated operators (e.g. a construction
company which also owns a cement factory is in a completely
different situation compared with a non-integrated competitor).
5. The “height” of economic and technical entry barriers (which
depends on the amount of money and level of complexity required
by a new entrant).
6. The presence of regulatory barriers to entry (i.e. the prohibition of
foreign investment presence in some sectors).
Here two aspects especially deserve to be commented upon:
(a) In the case of western economies, the analysis of competition usually does not
pay much attention to the ownership of enterprises, as in most cases private
and public companies are expected to operate under the same rules (e.g. the
French automaker Renault – which was under state ownership for more than
40 years, used to compete on an equal footing with private companies, such as
Peugeot). However, this is normally not the case in emerging economies where
state-owned enterprises often enjoy a preferential treatment. This justifies the
inclusion of the presence of public/endowment companies among the key
variables to be analyzed.
(b) The market shares held by leading suppliers and the asymmetry in size among
enterprises are two aspects of the same phenomenon, i.e. concentration. In
principle, the two aspects could be analyzed simultaneously and, indeed,
anti-trust authorities often make reference to all encompassing indicators of
concentration1. Unfortunately, the calculation of these indicators requires very
detailed information, which is not available in the case of this study. Therefore,
for analytical purposes, the two aspects are dealt with separately.
The analysis conducted under Step 2 covered a set of markets representing a wide
range of market conditions (from fairly competitive to monopolistic markets). At
the same time, the analysis concentrated on markets/lines of business which display
a significant contribution to the national economy.
Step 3 – Consolidated Analysis of Findings

This stage involved the review of the evidence collected and an overall assessment of
the degree of competition, including a ranking of the markets analyzed under step 2,
and the identification and review of typologies of markets.
1
This is the case, notably, of the so called Herﬁndahl-Hirschman Index (HHI). The HHI is used by anti-
trust authorities both in the US and in the EU, especially to determine the degree of market power in the
case of mergers.
12
Regarding the ranking of the markets analyzed, the exercise took into account
the six dimensions mentioned previously (market shares, asymmetry in size, entry
barriers, etc.). For each variable, the level of distortion of competition was assessed
and a score assigned on a 1 to 5 scale, broadly corresponding to levels such as very
low, low, average, high, very high distortion. The overall score of the degree of
competition distortion was obtained by calculating the (un-weighted) average scores
of all the dimensions. The markets getting the highest scores are obviously those
where competition is most limited or absent.
An illustration of the approach is provided in Table 1 below, which refers to two

hypothetical markets (Market X and Market Y). For each of the two markets, a
score of 1 to 5 is assigned for each of the six criteria retained. The “total score”
column presents the calculated average score of distortion of competition, and the
final column the rank of the market among all markets surveyed. In the example
provided, Market Y has a significantly higher score, indicating that competition is
more distorted than in Market X.
Table 1 Ranking Markets in Terms of Distortions of Competition – An Illustration

Dimensions of competition distortion *
Presence of
Presence Vertically Economic Distorted
Market Market Asymmetry Presence of Competition
of State Integrated & Technical TOTAL
Share of among Regulatory Rank
-Endowment Operators/ Entry Score
Leading Operators Obstacles
Operators Privileged Barriers
Operators
Relations
Market X 2 2 1 1 1 1 8 9
Market Y 5 4 5 4 4 2 24 2
* Level of competition assessed on a scale of 1 to 5 where 1 is very low, 2 low, 3 average, 4 high and 5 very high.
13
PART I
OVERVIEW OF SECTORS
AND MARKETS
15
CHAPTER ONE
Profiles of Markets in Agriculture
Agriculture is Ethiopia’s most important sector accounting for almost half of its
GDP (46 percent in 2006-07).It provides employment to more than 80 percent of
the labor force. Over the last few years, the agricultural sector displayed a positive
performance, with growth rates in excess of 10 percent per annum. At the same
time, the prices of many agricultural commodities recorded impressive increase,
reflecting both international and domestic factors. Production is overwhelmingly
of a subsistence nature, although the existences of significant imbalances among the
various regions generate considerable flows of domestic trade. A selected number
of products, including coffee (Ethiopia’s largest foreign exchange earner), pulses,
oilseeds, cut flowers and horticultural products are exported. An overall presentation
of markets in the agricultural sector is provided in the figure below.
Figure 3 Overview of Markets in Agriculture
17
Table 2 Results of a Quick Scan of Markets of Agricultural Products
Market/Product Characteristics Description
1. Grain ,Crops Product market All cereals produced are targeted to the domestic markets. There were few cases
(Cereals, pulses destination of export in the past, but the government has now temporarily suspended
and oilseeds) the export of cereals to stabilize domestic prices of cereals. Similarly, pulses
produced are mostly absorbed by the domestic market. Low volumes are
exported. Oilseeds are equally important grains targeted both to domestic and
export markets. They are used as input in food manufacturing industries.
Economic Cereals in general make up the staple food of the country. Much of the
importance production comes from small peasant holdings and is consumed at farm level.
“Marketable surpluses” are released to urban consumers and export market
through grain dealers. According to the Central Statistical Agency (CSA),
cereals represent the lion’s share of grain production. Some 86% of the grain
production in 2005/06 was attributed to cereals. Pulses ranked second.
Production of pulses in 2005/06 was estimated at 15.8 million quintals,
representing 11% of the country’s grain production (CSA). The contribution
of oilseeds to the country’s foreign exchange earnings is not negligible. The
country exported oilseeds worth USD 188 million in 2006/07, representing
about 24% of the foreign exchange earnings from agricultural product exports
(MoTI).
Operational Intermittent drought occasionally affects production of small holding farmers.

problems Excessive rainfall in some areas of the country is also a problem. Inadequate
extension package and fertilizer and improved seed shortages are also issues
farmers usually raise.
Marketing Lack of adequate infrastructural facilities such as rural road networks,

problems warehousing etc., are among the factors that prohibit efficient marketing.
Key players in There are sizable numbers of grain dealers in the major cities and towns of the
the market country, including one giant state-owned grain dealer --- the Ethiopian Grain
Enterprise (EGE). Farmer cooperatives and unions also began to emerge in
large numbers as grain dealers and as agricultural input suppliers to farmers,
and the government plays a key role in strengthening and promoting them.
Level of Free market competition seems to prevail in the market. However, there are
competition cases where the government intervenes to regulate the market to protect the
welfare of consumers. The future, however, seems to lead to monopolistic
competition among cooperatives and their umbrella organizations, if the
government continues to support and promote them. The government plans to
raise their market share of agricultural products to 60% by end of the PASDEP
period in 2009/10.The market is open for exit and entry.
Anticompetition - Existence and abuse of dominance as a result of the existence of EGE.

issues/concerns - Impacts on competition of price regulation and control by the government.
requiring further - Refusal to supply.
investigation - Vertical integration practice.
- Existence of cross-subsidization by firms handling slow moving grain as
well.
- Existence of tying and bundling practices.
- Other factors substantially lessening competition and excluding
competitors.
18
2. Spices: Product market Spices are marketed both in the domestic and export markets. Flavoring
(Pepper, destination Ethiopian dishes with different types of spices is very common, thus having a
coriander seed, firm ground in the domestic market.
ginger etc.)
Economic The country earned a foreign exchange of USD 10.8 million from the export
importance of spices in 2006/07 (Ministry of Trade and Industry). Earning fluctuates from
year to year, mainly due to global market price fluctuation and pressure of
domestic demand.
Operational Exporters complain of supply problems. Local regional governments fail to

problems provide land for commercialization of spice production.
Marketing Problems mentioned under grain and crops market apply here as well. In
problems addition, operators developed a tendency of hoarding in this particular
agricultural product market, creating artificial shortages to maximize profits.
For instance, the price of pepper, which was varying between Birr 250 to 400
per 17 kg in the recent past, suddenly jumped above Birr 1000.00 due to the
effect of hoarding and remained in that range for sometime before showing any
decline. It dropped by a substantial amount after the government intervened.
Key players in Domestic retailers and exporters of spices are the major operating forces in the
the market spice market.
Level of Free market competition is assumed to prevail. However, in some specific
competition spice markets such as pepper, operators tend to collude and agree in an official
manner to distort the market in their favor.
Anticompetition - The practice of collusion in the spice market.

issues/concerns - Refusal to supply.
requiring further - Abuse of dominance etc.
investigation
3. Fruits and Product market Fruits and vegetables are catered for both the domestic and export markets.
vegetables: destination
(Banana,
papaya, Economic Fruits and vegetables are produced in commercial volumes by state owned
oranges, importance farms and few private commercial farms. Small holding farmers also produce
tomato, potato, them side by side with staple food crops, though not in commercial volume.
onions etc.)
Operational The problems under grain and crops apply to small holding farmers. The
problems commercial farms, although producing on irrigable lands, are very likely to be
affected by natural calamities.
Marketing Fruits and vegetables are easily perishable agricultural products. The market in
problems general is constrained by lack of adequate preservation facilities.
Key players in A large number of small retailers operate in the market. There are also six
the market enterprises playing prominent roles in fruit and vegetable marketing. Three of
them are state owned and the rest are private.
Level of At retail level competition appears to be free of anticompetitive behavior. The

competition involvement of state enterprises and dominant large private enterprises are
suspects of free market competition abuse.
Anticompetition - Abuse of dominance.

issues/concerns - Impact of state dominance in the market.
requiring further
investigation
19
4. Cash crops: Product market The target markets for cash crops are the domestic and export markets.
(Coffee, destination
cotton, tea
etc.) Economic Among the agricultural products coffee holds a prominent position in the
importance economy of the country. Its share in the country’s total merchandise export
earnings in 2006/07 stood at about 36%, showing an increase of 19.7%
compared to the year before (MOFED).
Operational Problems of general nature have not been documented in the cash crop sector,
problems apart the obvious problems stated under grain and crop. The Ethiopian Coffee
Inspection and Auction Centre identified a series of operational problems
related to coffee auctioning, inspection etc. Immediate solutions are sometimes
at hand and pending issues are corrected by involving all stakeholders.
Marketing The Ethiopian Coffee Inspection and Auction Centre reported cases of
problems fraudulent practices among coffee exporters. These are believed to affect the
principle of free market operation.
Key players in Coffee exporters are the key operators in the coffee market. There are over 35
the market registered exporters in the country.
Level of The government has liberalized the cash crop market and encouraged the
competition private sector to be involved in cash crop marketing. Coffee, the major cash
crop, is now sold to exporters by auction, the bid price of which is decided on
the basis of global coffee price trends.
Anticompetition - Impacts of operational and marketing problems on competition.

issues/concerns - Transparency of auctioning procedures.
requiring further - Market dominance and abuse of dominance etc.
investigation
5. Livestock : Product market Livestock consisting of cattle, sheep, goats, camels, etc. are by and large
(Cattle, sheep, destination destined for the domestic markets. Thousands are slaughtered in residential
goats etc.) backyards and abattoirs for domestic consumption. Some are exported live to
the Middle East and neighboring countries.
Economic The country has one of the largest livestock inventories in Africa with livestock
importance ownership supporting and sustaining the livelihood of the rural poor (FAO).
Cattle provide traction power for 95% of grain production in the highlands
of the country.
Operational Small holding farmers and the pastoral population of the country suffer
problems from shortages of grazing lands and water points, mainly due to intermittent
drought and increasing livestock density.
Marketing Information on marketing problems not available.

problems
Key players in Livestock traders and exporters.
the market
Level of Free market competition prevails.

competition
Anticompetition - Existence of market dominance.
issues/concerns
requiring further
investigation
20
CHAPTER TWO
Profiles of Markets in Industry
The industrial sector registered an average annual growth rate of 10.6 percent over
the last four years, covering the period 2003/04-2006/07 (MoFED). About 13.4
percent of the country’s GDP in 2006/07 has been contributed by the industrial
sector. The export performance of the manufacturing industries still remains low.
Their products are mainly targeted to the domestic market, mainly due to their
low competitive position in the global market. In 2006/07 the domestic market
contributed 93 percent of their total sales, while only 7 percent of it came from
the export market. The average capacity utilization of the manufacturing industries
remained low. For instance, in the fourth quarter of 2006/07 the average utilized
capacity stood at about 55 percent (CSA). Raw material shortages, lack of markets
and power and water supply interruptions were reported as the major reasons for
under capacity utilization of the manufacturing industries. An overall presentation
of markets in the industrial sector is provided in Figure 4.
Figure 4 Overview of Markets in Industry
21
Table 3 Results of a Quick Scan of Markets of Industrial Products

1. Food and Product Market The local manufacturing industries mainly target their products to the domestic
beverage destination market. Imported food products also compete in the domestic market.
Products:
(Sugar, bakery
Economic The value of production of the domestic food manufacturing industries stood
& pastry importance at Birr 5,403.8 million in 2005/06, of which 48% corresponded to value
products; of production in the private sector and 52% to state-owned food industries
macaroni & (CSA). The country also imported food items worth USD 246.6 million
spaghetti; and 204.4 million in 2005/06 and 2006/07, respectively (Macroeconomic
beer, Development Reports - MoFED).
wine and
other spirits; Operational Some 95% of the domestic food manufacturing industries reported operational
soft drinks problems problems in 2005/06. The major operational problems include shortage of raw
& mineral material supplies, absence of market demand and lack of working capital in
water; edible that order of importance (CSA). These are major reasons that contributed to
oil, under capacity utilization in most domestic food industries.
flour etc.)
Marketing About 27% of the domestic food industries reported marketing problems
problems (CSA). Their products are slow moving in the food market, perhaps due to
inferior quality or high price compared to other competing products.
Key players in The key players in the food market are better described by specific food
the market products. All the four sugar factories, currently existing and operational in
the country, are owned by the state. There are no private sugar factories. Out
of the six breweries in operations, three are state-owned, one is endowment
affiliated and two are in private hands. In the case of soft drinks, there are only
two brands being sold in the country. All in all out of a total of 373 medium
and large food manufacturing industries, 43 are under state control, while
the remaining are in private hands of different forms of ownership. From the
ownership point of view of individual food products such as those mentioned
above, the key players are easily recognizable.
Level of Monopoly market structure applies to some food products. The sugar market,
competition for instance, falls under this structure. The state-owned Sugar Support Project
Office has the upper hand to decide on selling prices of sugar and the factories
are price receivers. The current selling price of sugar stands much higher than
the price the factories otherwise charge with reasonable rate of profit margin.
Although free market competition seems to prevail in the beer market,
competing breweries are suspected of forming collusions to increase prices of
beer. The uniformity of the recent price increase on bottled and draft beers of
different brands justifies this statement.
Anticompetition - Existence of dominant position in selected food markets.

issues/concerns - Existence of collusion practices.
requiring - Abuse of dominance.
further - Existence of tying and bundling practices in the food market.
investigation - Refusal to sell or supply.
- Existence of entry barriers or exit barriers etc.
- Lack of fair competition. Locally produced food items fail to compete with
imported food items. Food items obtained through donation are directly
or indirectly monetized and distort market competition.
- Level of state involvement.
22
2. Textiles Product market The textile industries produce cotton and nylon fabrics both for the domestic
and textile destination and export markets. Woolen fabrics and apparels made from different textile
products: fabrics are also imported into the country.
(Textile fabrics
and wearing
apparel made Economic A total of 73 medium and large textile fabrics and related products and wearing
from textiles importance apparel production facilities currently exist in the country. Their combined
etc.) gross value of production during the year 2005/06 was estimated at Birr 998.9
million (CSA). About 89% of this amount has been a contribution from the
spinning, weaving and finishing facilities. The textile industry is the largest
employment opportunity creator among the group of medium and large
manufacturing establishments, absorbing about 26,200 persons in 2005/06.
Operational The textile industries also reported similar operational problems as the
problems food industries, though the degree varies. About 36% of the existing textile
industries reported shortage of supply of raw materials as their major problem
(CSA). Only 24%, including the wearing apparel manufacturing enterprise, of
them reported lack of demand for their products in the domestic market. Most
of the textile industries operate using outdated machineries and equipment.
Marketing The domestic wearing apparel manufacturers’ seem to have marketing

problems problems. According to CSA, in 2005/06 out of the existing 29 medium and
large wearing apparel manufacturers, 12 reported absence of market demand
for their products. Is the marketing problem associated with antcompetition
practices among competing enterprises or something else? This shall be verified
during the field assessment if this market is selected.
Key players in Substantial involvement of the state exists in the textile market as well. Out of
the market the total 42 medium and large spinning, weaving and textile finishing facilities
in 2005/06, 15 were under state control and one belonged to an endowment
affiliated enterprise and the rest fell under private hands with different forms
of ownership. Large number of wearing apparel wholesalers and retailers also
operate in the textile market and there are probably dominant groups in the
market.
Level of The textile fabric market is state dominated, suggesting that free market
competition competition remains at stake. In a market where there is state dominance, it
is unlikely for a free market competition to exist. The wearing apparel market,
on the other hand, operates under a free market competition environment.
Anticompetition - State dominance and abuse of dominance.

issues/concerns - Entry barriers, probably due to high cost of investment and/or limited
requiring alternative source of finance.
further - Tying and bundling practice.
investigation - Cross subsidization practice.
- Exclusionary and predatory pricing practice etc.
23
3. Leather Product market Leather and leather products are targeted both to the domestic and export
and leather destination markets. The domestic market for leather and leather products is one of the
products: biggest in the country. Much of the produce such as leather shoes, garment,
(Finished and bags are absorbed in the domestic market. Export markets for finished
leather, leather leather and leather products are less attractive to exporters, mainly due to their
garments, low competitive position in terms of price and quality. However, they have a
leather shoes strong position in the export market for semi-processed hides and skins.
etc.)
Economic The leather and leather products manufacturing establishments are important
importance economic areas of investment. These are areas that enjoy a comparative
advantage in terms of their major input requirement-hides and skins, which
are locally available in potential volume. The numbers of medium and large
establishments operating in the leather industry were estimated to be 63 in
2005/06, comprising 18 leather tanning and dressing and 45 leather footwear
manufacturing establishments, their combined gross value of production in
2005/06 was estimated at Birr 1,022.7 million. They created employment
opportunities for about 8, 000 persons in 2005/06.
Operational The leather industry also faced some operational problems. About 91% of
problems the companies reported facing operational problems in 2005/06. The major
ones include raw material supply problem and absence of market demand for
their products. About 39% of the reporting establishments faced raw material
shortages, while 32% reported lack of market demand for their products.
These problems were more manifested in the leather footwear manufacturing
establishments.
Marketing The footwear industry offers footwear made from leather, plastic rubber,
problems canvas etc. These product mixes are not close substitutes in all categories of
consumers. Their substitution impact varies according to the income category
of consumers. In the recent past leather footwear manufacturing plants filed
complaints on imported footwear from China. Importers handling cheap
products usually develop a tendency to misguide retailers and retailers in
turn to misinform consumers to gain competitive advantage over domestic
products. In the case of the footwear market consumers finally realized that
imported footwear from China was not leather footwear and gradually shifted
to local shoes. However, there are still a large number of consumers exposed to
this kind of misinformation throughout the country.
Key players in The number of large and medium manufacturing establishments in the leather
the market industry comprised those still remaining under the ownership of the state,
and different forms of private ownership. Out of the total 63 establishments
in 2005/06, four were under the state ownership, 17 under individual
ownership, 32 established under private limited company status and the rest
owned in partnership and share companies. These were the major players in
the leather industry. There are also quite a large number of small scale footwear
manufacturing plants operating throughout the country.
Level of The leather and leather products market seem to operate in a free market
competition competition environment, with some enterprises, probably having some upper
hand in their product quality, price and other factors.
Anticompetition - The role of the Quality, Standards and Authority of Ethiopia in

issues/concerns ensuring quality benchmark for products marketed.
requiring - Existence of abuse of dominance.
further - Existence of collusion.
investigation - Misuse of information to weaken competitors.
- Existence of exit and entry barriers.
24
4. Paper Product market Paper and paper products are produced for the domestic market. Publishing
and allied destination and printing houses also provide printing services and publish books and
products: magazines for the domestic market as well. The domestic market is also served
(Paper, paper with imported paper and paper products.
products,
publishing and
printing etc.)
Economic The number of medium and large paper industries increased from 82 in
importance 2004/05 to 87 in 2005/06 (CSA), corresponding to a growth rate of 6%. The
gross value of production of the industry was estimated at Birr 795.9 million
in 2005/06, contributing 5% of the value generated by medium and large
industries as a whole. The market as mentioned above was supplemented by
imports worth Birr 746.8 in 2006/07.
Operational About 93% of the establishments reported operational problems which

problems they faced in 2005/06. Absence of market demand for their products was
mentioned as a major problem followed by shortages of raw material supply
--- 32% reporting the former and 23% the later problem.
Marketing Out of a total of 68 medium and large domestic paper industries that
problems reported their reasons for not operating at full capacity, 32 underscored the
absence of market demand for their products (CSA). Absence of demand
for products usually arise when an enterprise fails to become competitive in
quality and price. There are other factors as well. It is possible, however, that
the marketing problems that the industries faced to arise out of mal practice
against competition.
Key players in There are large enterprises that still remained under the ownership of the state
the market in the paper and paper products industries. According to CSA survey report
of 2005/06, there are 4 paper and paper products making establishments and
9 publishing and printing houses in the country run under state ownership.
Among those under private ownership, 29 fall under individual ownership,
while 35 were registered as private limited companies. The remaining fall
under different forms of ownership such as partnership, cooperatives and share
companies. Importers of paper and paper products and the retail outlets for
stationery items also play a key role in paper transaction.
Level of Free market competition seems to prevail. However, state- owned enterprises
competition may have an upper hand in the market.
Anticompetition - Existence of transaction costs that reduce competition.

issues/concerns - Existence of dominance and how it is practiced in the paper industry.
requiring - Abuse of dominance.
further
investigation
25
5. Chemicals Product market The chemical and chemical products markets of the country are served with
and chemical destination the output of the local industries and a substantial volume of imports. Exports
products: from the local industries to the rest of the world are negligible.
(Fertilizer, Economic The chemical industry provides essential input for economic and social growth
paints, importance in the agricultural and health sectors. For example, fertilizer is an output of the
pharmaceutical chemical industry that is used as an input in the agricultural sector to increase
products, soap the output of the farmer. Similarly, the health sector and other economic
and detergent, sectors of the country benefit from the outputs of the chemical industries. The
etc.) domestic industries supplied to the market different types of chemical and
chemical products worth Birr 595.8 million, while import dominating the
market with products worth Birr 4,225 million in 2005/06. The lion’s share
was held by fertilizer and pharmaceutical products, each holding a share of
27% and 33% in terms of value, respectively.
Operational The domestic chemical and chemical products industries also encounter
problems some operational problems in a given year. In 2005/06 out of a total of 48
reporting medium and large manufacturing industries, 19 reported shortages
of raw material supply and 12 as having less demand for their products in the
domestic market.
Marketing Absence of market demand might have been caused either by production and
problems marketing structural set up of the industries being affected or anti competition
practices by competing industries. State owned enterprises are both engaged
in domestic production of chemicals and chemical products and imports of the
same. For instance the bulk of local production of pharmaceutical products
and importation of fertilizers are handled by state owned, endowment affiliated
enterprises and farmers’ cooperatives and unions in the case of fertilizer. Their
presence and involvement in market transaction could have induced some
elements of anticompetition practices to dominate the market.
Key players in Among the domestic medium and large industries, 11 out of a total of 53
the market establishments operating in the market during the year 2005/06 were under
state ownership and the rest under private hands in different forms of
ownership. State enterprises also have a prominent stake in import transactions
of selected chemical products. For instance, the bulk of fertilizer imports has
been undertaken by one state owned enterprise and farmers’ cooperatives and/
or unions.
Level of Free market competition seems to dominate in most chemical and chemical
competition products markets, but in the case of fertilizer and pharmaceutical products the
level of competition may have diminished as a result of the presence of state
owned and endowment affiliated enterprises. The reality on the ground shall
be investigated if the markets are selected for further diagnosis.
Anticompetition - The degree of market dominance and existence of abuse of dominance.

issues/concerns - The degree of collusion.
requiring - Existence of entry and exit barriers etc.
further
investigation
26
6. Rubber Product market Rubber and plastic products are catered solely for the domestic market. Local
and Plastic destination manufacturing establishments and import are the major sources of supply.
Products:
(Tires, inner Economic The gross value of production of rubber and plastic products in domestic
tubes, plastic importance medium and large industries was estimated at Birr 983.1 million, while the
dishes, plastic value of imports stood at Birr 1,780.7 million during the year 2005/06.
crates, etc.) Imports grew to Birr 1,922.8 million in the following year. Out of a total
of 63 establishments only one is engaged in manufacturing rubber and
rubber products, while all the rest are plastic products manufacturers. In five
years time the number of establishments grew from 39 in 2001/02 to 63
in 2005/06, suggesting that the market is attractive to new investors. The
rubber manufacturing plant is a joint venture between the government and
Czech interests and there are also 5 establishments in the plastic sector under
government control, while the rest are under private ownerships of different
forms.
Operational Raw material supply shortages and absence of demand are the two major
problems operational problems reported by 20 and 19 establishments, respectively. The
rubber and plastic products manufacturing establishments largely depend on
imported raw materials. Shortage of foreign exchange could be one possible
factor that created raw material shortages in most industries that depend on
imported raw materials.
Marketing As indicated earlier in other product markets there could be several factors
problems affecting demand for a product. Quality and prices are the main factors
contributing to absence of market demand for rubber and plastic products.
Locally manufactured plastic products are not comparable in quality with the
imported ones. Absence of market demand, as reported by the establishments,
could have been due to their inability to stand competition. It may require
further investigation to check whether anticompetition practices contribute
to the problem
Key players in There is only one state-owned domestic manufacturer of tires and inner tubes
the market in the country. The enterprise competes with private wholesalers and retailers
of imported tires and inner tubes. Similarly the domestic plastic products
manufacturers are facing fierce competitions with importers.
Level of Free market competition exists in the rubber and plastic products market. The
competition existence of the state owned rubber products manufacturer may have some
impact on the operation of the market.
Anticompetition - Existence of market power and its impact on market competition.

issues/concerns - Entry barrier.
requiring
further
investigation
27
7. Non-metallic Product market Most products under non-metallic group are highly demanded in the domestic
products: destination market. Much of the supply to the market comes from domestic industries.
(Cement, lime, Import and export are not significant in volume.
gravel, marble,
Economic Most of the products under the non-metallic product group are related to
ceramic floor
importance the activities in the construction sector. Construction activities in the country
tiles, cement
are fast growing, demanding huge volumes of products such as cement and
blocks and
cement products, ceramic products etc., from the non-metallic group.
tubes etc.)
Operational A total of 152 medium and large manufacturing establishments are
problems engaged in non-metallic products production (CSA). Nearly 44% of them
reported shortages of raw material supply. The main raw material for most
of the establishments is cement, which is also highly demanded by the
construction sector. Other operational problems reported by a good number
of establishments include lack of working capital, frequent machinery failure,
absence of market demand etc.
Marketing Demands for most products in the non-metallic group are met from domestic
problems sources. Prices are invariably sky rocketing. Most activities in the construction
sector have been temporarily suspended as a result.
Key players in Currently there are two cement production facilities in the country one owned
the market by the state the other by an endowment affiliated enterprise. In general out of
the 152 establishments operating in the non-metallic product group, 22 are
owned and run by the state. The state seems to have a high stake.
Level of The involvement of the state brings some doubts about the existence of fair
competition trade in the non-metallic product group. The cement market operates under a
monopolistic market. Prices are jointly decided by the two enterprises.
Anticompetition
issues/concerns - Existence of dominance and abuse thereof.
requiring - Existence of collusion.
further
investigation
8. Iron and steel Product market The end use market for products under this group is mainly the construction
products: destination sector and households. Products are retailed in building materials and hardware
(Iron bars, stores and retail outlets.
wires, nails,
Economic Products under this group are used as major inputs in the construction sector.
iron sheets,
importance The gross value of iron production alone was estimated to reach Birr 1,374.1
metallic door
million during the year 2005/06. Nearly twice as much in terms of value was
and window
imported to fill the demand gap during the same year.
etc.)
Operational Very few cases of raw material supply shortage among the medium and large
problems manufacturing establishments were reported during 2005/06.
Marketing Current prices of basic iron and steel are beyond the affordability level of most
problems buyers. The temporary suspension of some construction activities emerged
partly due to expensiveness of construction materials such as iron bars.
Key players in State-owned and private enterprises are currently serving the market. Although
the market the state owned establishments are few in number, currently 3 out of a total
of 18, the size of their capacity would put them in a leading position in one
way or another.
Level of Free market competition may exist in most products of iron and steel. However,
competition in those products where the state has high stake or market share, it is unlikely
that competing players have equal standing or fair ground for competition.
Anticompetition - Existence of collusion practices.

issues/concerns - Abuse of dominance.
requiring - Exit and entry barriers
further
investigation
28
9. Construction Product market Construction market exists in all economic and social sectors of the country.
markets: destination
(Road
construction, Economic The construction sector contributed 5% to the GDP of the country during
building importance 2005/06, corresponding to a value of Birr 4,525.9 million at constant prices.
construction, Its employment creation capacity is huge; though it is generally temporary.
construction
of dams and
bridges etc.) Operational Timely completion of construction projects appears to be a problem of
problems universal nature, especially in developing countries. Delay complaints are
common virtually in all types of construction activities. Delay in timely release
of funds as per the contractual agreement, unexpected and sudden rise of prices
of construction materials etc., could be reasons for delay of project completion.
Marketing No information is currently available on marketing problems contractors are

problems facing. Lack of transparency in bidding process or practice of favoritism in
awarding contracts often exists in some instances.
Key players in There are quite a large number of different categories of private contractors
the market operating in the construction market. The Government also has a construction
wing that is engaged in public construction works. The sector is open to
foreign contractors as well. Chinese contractors in the road sector are having
a dominant position.
Level of Competition in general follows the principles of free market competition.

competition However, market dominance by virtue of work quality and price is expected
to prevail.
Anticompetition - Abuse of dominance.

issues/concerns - Offering exclusive right of engagement in a contract.
requiring - The extent of transparency in bidding construction activities.
further
investigation
10. Electricity Economic Electricity and water are considered as natural monopolies in the country. The
and water importance Ethiopian Electric Power Corporation, which is under state ownership, has
and Level of been the sole supplier of electric power throughout the country. The supply
competition and distribution of water is also monopolized by the state. However, in
some remote rural areas, communities have access to potable water through
WASH (water, sanitation and hygiene) projects undertaken by some local and
international non-government organizations (NGO).
The country has a total installed generating capacity of 819,333 KW, of which
81.6% has been installed in hydropower stations, while the balance comprised
thermal and geothermal stations. The installed capacity grew nearly twice
as much in 2005/06 compared to what was available some ten years back.
Similarly actual production of electricity exhibited tremendous growth starting
from year 2002/03 and now stands at 2,896,595 thousand KWH per year. The
price of electricity varies according to the type of customers. The Ethiopian
Electric Power Corporation applies four different tariff rates to charge its
customers for the use of its product. The highest charge fall in the industrial
tariff rate, while the lowest is the domestic tariff rate. A similar approach is
applied in selling water. This is worth considering in the light of the experience
of other countries.
29
CHAPTER THREE
Profile of Markets in Services
According to the macroeconomic development report of the Ministry of Finance
and Economic Development for the year 2006/7, the contribution of the service
sector to the overall GDP product has been constantly increasing, its average share
amounting to 40.3 percent during the period 2003/4 – 2006/7; while its contribution
in 2006/7 stood at 41.2% trying to balance with the share of agriculture. The growth
of the service sector was attributed to fast developments registered in real estate and
business, hotels and restaurants activities; financial, education and health services.
Table 4 Results of a Quick Scan of Markets in Services
1. Transport and Economic This is the most vital market on which all other markets entirely
communication importance depend for efficiency and survival. The Ethiopian transport market
market consists of road and air transports. Both markets are divided into two
major markets, namely, passenger and freight transportation. The
(Road transport, communication market consists of mainly telephone, postal and radio
air transport, communication.
fixed line
communication,
Key players in the Ethiopian Airlines, being owned by the state, entirely dominates the
mobile
market domestic flight and the international flight in competition with airlines
communication,
of different countries permitted to operate in Ethiopia such as Lufthansa
postal
of Germany, KLM of the Netherlands etc. There are few private
communication,
airlines operating small aircrafts. The Ethiopian Telecommunications
radio
Corporation and the Ethiopian Postal Service are the only state
communication
bodies providing communication and postal services. Road transport
etc.)
services, on the other hand, are delivered in the majority of the cases
by private transport providers. However, there are also endowment
affiliated enterprises operating both in passenger and freight transport
services. Many of the transport providers are organized in the form
of associations. There is only one railway, Ethio-Djibouti Railway,
engaged in passenger and cargo transport services along the railway line
connecting Djibouti with Ethiopia.
Level of competition No competition whatsoever exists in air and railway transport, and
telecommunication and postal communication services. They are all
owned by the state and are probably considered as natural monopoly.
Further investigation or analysis is worth doing to verify their
qualification to be a natural monopoly. In the road transport sector
a free market competition is believed to prevail but some assessment
on modality and transparency of operation such as route assignment,
departure and arrival procedures to be followed etc., needs to be carried
out to see how the market functions.
Anticompetition - State monopoly.

issues/concerns - Abuse of dominance.
requiring further - Justification for a natural monopoly.
investigation - Collusion practices etc.
31
2. Financial and Economic Market operators, investors, individuals in every walk of life etc., often
insurance importance require financial services and some form of insurance coverage. The
markets : present government has made all encouraging transformation in the
(Commercial financial and insurance sector. Banking and insurance services are now
banks, micro- open for the private sector. They are now operating alongside state
finance owned commercial banks and insurance companies. In regional states
institutions, microfinance institutions have been also established by the regional
insurance service governments with the aim of expanding service to grass root level.
etc.)
Key players in the Commercial Bank of Ethiopia, the largest bank, has been operating
market for long under state ownership. The state also owns two other banks –
Construction and Business Bank and Development Bank of Ethiopia.
Private commercial banks are increasing; the current number stands at
8 and others are still under formation. Public banks had a total branch
network of 255 throughout in 2006/07 (CSA), while private banks
had only 185 branches. In the insurance market there are altogether,
including one state owned insurance company, 9 insurance companies
providing insurance services. They have a total of 146 branch
throughout the country.
Level of competition There is no variation among the banks on interest rate on deposits and
short and long-term loans. These are subject to government regulation
through the National Bank of Ethiopia. The banking sector is not open
to foreign investors. Free market competition seems to prevail in the
financial and insurance service markets with government control and
supervision in the banks.
Anticompetition - The degrees of involvement of the National Bank Ethiopia

issues/concerns in comparison to the experience of other countries either in
requiring further promoting or retarding competitions.
investigation
32
PART II
ANALYSIS OF SELECTED
MARKETS
33
INTRODUCTION
This part of the report is devoted to the detailed analysis of competition conditions
in selected markets. The markets to be analyzed were selected taking into account
three main criteria: their socio-economic importance (in terms of contribution to
GDP formation, exports, etc.), the nature of the markets in geographical terms
(from national to regional/local markets) as well as in product terms (homogeneous
and differentiated products), and the presence of varied competitive conditions
(from monopoly or quasi-monopoly to workable competition). In total, the exercise
covered 14 markets subdivided into five sectors. These are:
i) Consumer Goods
• Flour Milling
• Beer
• Soft Drinks and Mineral Water
• Sugar
• Edible Oil
ii) Agriculture and Agricultural Inputs
• Cereals
• Fertilizers
iii) Manufactured Goods
• Textiles and Apparel
• Cement
iv) Financial Services
• Banking
• Microfinance
• Insurance
v) Transport Services
• Road Freight Transport
• Road Passenger Transport
The analysis follows a standard format, including a presentation of the salient

features, including the identification of the key operators; a definition of the “relevant
market” in geographical and product terms; a review of the factors impacting upon
the competitive conditions; and an analysis of anticompetitive practices.
The analysis was based on a variety of sources ranging from sector studies and market
reports to statistics on production and sales. The use of “official” sources was largely
complemented with information drawn from the Ethiopian economic press, which
also allowed for an updating of events up to approximately March/April 2009.
Whenever possible, comparative elements were added in order to put the analysis of
Ethiopian markets in the right perspective. For that purpose, reference was normally
made to the situation in Kenya.
35
CHAPTER FOUR
Food and Beverages
The food and beverages sector is one of the main components of Ethiopia’s
manufacturing sector. Based on official industrial statistics, total employment can
be estimated at some 53,000 while the value of sales is almost 7 billion Birr. Value
added generated by the sector is in the order of Birr 3 billion, equivalent to little less
than 2% of the GDP. The sector includes a wide variety of activities, mostly linked to
the transformation of domestically produced agricultural products. In certain cases,
reliance is made on imported products. For the purposes of this study, the attention
was focused on five sub-sectors, namely: flour milling; beer, soft drinks and mineral
water, sugar and edible oil. The salient features of these sub sectors are illustrated
below.
Flour Milling
Salient Features
The total value of domestic flour production is about Birr 1-1.1 billion. As imports
and exports are negligible, the value of production basically coincides with that
of total sales in the market. Flour milling is obviously affected by developments
in the grain market and, over the last couple of years, there have been significant
fluctuations in the availability of wheat, with major repercussions on prices2.
The flour industry consists of some 20,000 micro-operators (artisans) providing grain
milling services directly to households, and about 80 more structured “industrial”
operations. Artisans employ a much larger share of people (over 60,000) than
“industrial” operators (some 4,000), whereas the value of production is more or less
evenly split between the two components. Key indicators on the structure of the
industry are provided in the following table.
Table 5 Key Indicators for the Flour Industry

Indicator Artisans Industrial Operations Total
Number of plants 19,744 84 19,828
Number of employees 61,250 3,697 64,947
Value of sales (In million Birr) 508 518 1,026
Value added (In million Birr) 184 67 251
Source: Central Statistical Agency
2
For a review of developments in the cereals sector, please refer to the next chapter.
37
Market Definition
Flour is by definition a homogenous product. Although there might be differences
in the quality provided by various operators, there is no real differentiation and,
therefore, no segmentation along product lines. In contrast, the flour market is
highly segmented in geographical terms. Micro-grain millers are merely proximity
businesses, serving the population at the village or “kebele” level. “Industrial”
operations have larger radius of operations, but they also operate in local markets, at
the sub-regional/regional level.
Competition-related Aspects
Presence of state-owned enterprises: Overall, state-owned enterprises play a
moderate role in the flour business. In 2007, the four plants indicated as state-
owned by CSA accounted for about 12 percent of total production. However, when
only the value of industrial operations is taken into account, the share of state-
owned operators increases to around 25 percent. According to information provided
by PPESA, all public flour mills are slated for privatization in the near future.
However, at times the finalization of privatization transactions may pose problems.
For instance, Yerer Flour Factory was put on tender in 2007 but the transaction
reportedly failed because the winning bidder refused to take over the company after
a closer inspection of existing liabilities.
Concentration and asymmetry in size among operators: Detailed data on the size
of flour companies are not available. In general, based on CSA data, the 26 largest
flour mills, meaning those employing more than 50 people, accounted for some 30
percent of the total value of production. Given the geographically fragmented nature
of the flour market, it is possible that some companies do enjoy a dominant position
in some rural areas and smaller towns, whereas the situation is more competitive in
urban centers. Given the average size of the largest mills (85 employees), differences
in size among main operators do not seem to be marked.
Vertical integration: Several operators are downward integrated into the production
of flour-based products, such as pasta and baked goods (bread and biscuits), in order
to add value to the output of milling operations. An example is provided by Anbassa,
part of the East African Holdings Group, which uses about 60 percent of its flour
output to produce pasta. Downward integration is a logical way of adding value on
flour: while it may affect competition in downstream activities, it does not impact
directly on competition in the flour industry. The most problematic issue faced by
flour mills is access to raw materials. Over the last two years, flour producers have
often been facing difficulties in securing a stable supply of wheat, with a negative
impact on production levels and, in certain cases, even with the closing down of
activities. The problem is so severe, that members of the Flour and Flour Products
38
Producers Association (FFPPA) have envisaged the establishment of a joint company,
specifically tasked with the import and distribution of wheat. If implemented, this
initiative would increase the degree of vertical integration in the industry. However,
as the initiative seems to be supported by a significant number of flour mills, this
would not alter significantly competitive conditions.
Entry barriers: Investment outlays vary enormously, depending upon the size and
sophistication of operations. Domestic grain milling machines sometimes used by
artisans sell for very small amounts (sometimes, even less than 100 USD). Small-
scale commercial mills are in the USD 2,000 to USD 20,000 range. Industrial mills
are obviously much more expensive, but major differences can be found among
producers (i.e. Swiss made Buhler equipment sells at a multiple price compared
with Turkish and Indian made mills) and good opportunities can be found in the
second- hand market. Overall, economic entry barriers cannot be regarded as a
major deterrent, and this explains the relatively large number of players even at the
industrial and semi-industrial level. As for regulatory barriers, flour milling is one
of the activities reserved for domestic operators only. However, given the nature of
the business, this does not appear to be a major constraint to competition.
Alleged Anticompetitive Practices

The scarcity of raw materials has sometimes generated significant increases in prices.
For instance, during 2008 increases of up to 50 percent (from Birr 550 to 850/
quintal) were recorded, sometimes in a matter of a few weeks. These price increases
prompted the usual allegations of profiteering from government circles, although
in certain cases it was ascertained that the price hike was actually initiated by some
state-owned enterprises. Irrespective of the private or public nature of the “culprits”,
these price increases appear to have been the initiative of individual companies and
do not seem to be the result of a concerted action, which is made scarcely feasible by
the relatively large number of operators in the market.
Beer
Salient Features
Overview: Western beer, as opposed to the traditional tella beer, was introduced in
Ethiopia in the early 20th century, and the first brewery, St. George, was established
in the early 1920s. Over time, beer has become an increasingly popular beverage and
consumption is currently estimated at about 3-3.5 million hectoliters (hl)/year, with
a remarkable increase over the hl one million consumed in the late 1990s. The beer
market is predominantly supplied by local producers, with only limited quantities
of special beers imported. Exports are also very limited, with small quantities sold to
39
North America and European countries, where sometimes Ethiopian beer is available
in ethnic restaurants. The total market is worth probably around USD 200 million.
Main Operators: At present, there are 6 breweries in Ethiopia. They are controlled
by 5 companies, of which three are state-owned, one is owned by an endowment
fund and one fully private and controlled by foreign interests (the French Castel
group, known locally as BGI). Almost all the companies have recently implemented
or announced expansion programs to keep up with growing demand. In the recent
past, plans for the establishment of additional breweries were also announced (e.g.,
by the Star Business Group in Adama), but have not been implemented. The salient
features of the current operators are summarized in Table 6 below.
Table 6 Basic Features of Ethiopian Breweries
Companies Establishment Ownership Brands Comments
Two plants, in Addis Ababa

BGI 1998 Private St. George, Bati, and Castel (privatized in 1998) and Kombolcha
(greenfield operation).
Bedele 1993 State-owned Bedele
Nationalized during the Derg period

Meta Abo 1963 State-owned Meta
and modernized in the 1990s
Endowment enterprise, owned by
Dashen Late 1990s Private Dashen, Royal Beer
ENDEAVOUR
Harar, Hakim Stout and
Harar 1980s State-owned
Harar Sofi
Source: Company websites and press reports.
Market Definition
In geographical terms, the market for beers can be regarded as having a national
character, as the various brands are generally distributed across the whole country.
An exception is represented by Harar Sofi, a non-alcoholic beer sold predominantly
in eastern parts of the country. Also, for logistical reasons, draft beer is sold primarily
in local markets, i.e., in areas close to breweries. In terms of product lines, the main
distinction is between bottled/canned beer and draft beer, the latter being consumed
only in bars and restaurants. Apart from that, each brand has its own distinctive
features, owing to both objective and subjective characteristics (e.g., Hakim Stout
and Royal Beer have a higher alcoholic content, Meta is sometimes perceived as
sweet, etc.). But they can all be considered in competition with each other. Taken
40
together, industrial beers are in competition with traditional beer, which is often
homemade or produced by small scale artisan-like operations3.
Presence of state-owned and endowment enterprises: As indicated above, three
of the five breweries currently in operations are state-owned. It should be noted
that in the past several tenders were launched for the sale of these companies to
private investors. In some cases, offers were formulated by prospective investors (in
2003 both South African Breweries and BGI bid for the three companies, offering
respectively, USD 65 and USD 55 million) and in some cases negotiations were
started (in 2006, East African Breweries was in negotiations for the purchase of
Meta Abo). However, none of these transactions was eventually finalized. According
to the information provided by PPESA, a renewed round of privatization tenders
will be launched in 2009/10. As for endowment enterprises, Dashen is controlled
by ENDEAVOUR, an endowment fund of the Amhara National Democratic
Movement. Initially, Dashen was partly owned by BGI, which had a 40 percent
shareholding, but the foreign partner left after a few years, reportedly because of
disagreements regarding expansion plans.
Concentration and asymmetry among operators: With a capacity well in excess of

hl 1 million/year, BGI is by far the leading player, with an estimated overall market
share of about 50 percent. BGI’s position is even stronger in the case of draft beer,
as its St. George brand is considered to account for 70-75 percent of draft beer sales
in Addis Ababa. Competitors are much smaller, with capacities ranging from hl
250,000 (Bedele) to hl 500,000 (Meta Abo). Overall, BGI seems capable of exerting
a strong influence on market developments, although the rapidly growing market
and the existence of consumer loyalty has so far left enough room for maneuver to its
competitors. It should be noted that high concentration is a common feature of the
beer market in developing countries, especially in Africa. For instance, in other East
African countries, like Kenya, Uganda and Tanzania, the beer market is divided up
between two main players, East African Breweries and SABMiller, with the leading
company typically holding between 60 percent and 90 percent.
Vertical integration: Malt and hops are the main raw materials used by the brewing
industry. Since the mid 2000s, Ethiopia’s only producer of malt (Assela) has been
unable to supply breweries in the required quantities (currently, about 50,000 tons)
3
To some extent, beers can also be considered to be competing with other beverages, such as wine, soft drinks and even
mineral water. The degree of substitutability varies, depending upon the context in which beverages are consumed
(during meals, in bars, etc.) and the inherent motivations for consumption (thirst quenching, social drinking, etc.).
According to this approach, relevant markets are not defined along “simple” product and geographical lines but
rather taking into account consumers’ behavior in different occasions and even in different seasons (e.g. icy soft drinks
are more likely to be a substitute for beers or mineral water and vice versa during the hot season). This analytical
approach was adopted in important antitrust cases in the EU and the US, mostly involving Coca Cola and other
leading sellers/distributors of carbonated drinks. 41
and significant amounts of malt had to be imported, at increasingly high prices. In
turn, this negatively impacted on the price of beer. In early 2009, Dashen announced
plans to establish a second malt factory, with estimated investment costs of Birr 150
million. The project seems to have a combination of economic and social motivations
(i.e. providing a new source of income to farmers in areas close to brewery) and, if
implemented, could give Dashen a significant leverage vis-à-vis competitors.
Entry barriers: Brewing is a quite capital intensive business. The greenfield

operation established by BGI in Kombolcha in the late 1990s required an investment
of some USD 23 million. A similar figure (Birr 200 million) was mentioned for the hl
300,000 project proposed by the Star Business Group in Adama, while the expansion
plans implemented or announced by nearly all breweries over the last few years were
in the order of USD 10-12 million. Operations are also technically complex and
recourse to expatriate beer masters is fairly common. Under these conditions, only
large operators, with significant experience in the sector, could conceivably consider
entering the market.

Over the last few years, there were a few instances in which the proper functioning
of the market appeared to be at risk. In particular, at the end of 2007/beginning
of 2008, a generalized increase in selling prices was recorded. The price increase
was certainly triggered by the higher costs faced by breweries for the purchase of
imported malt. However, the fact that prices were raised virtually simultaneously
and by similar margins by most of the companies, irrespective of their individual
operating and cost conditions, inevitably raised the suspicion of a concerted move.
Also, at the end of 2006, Meta Abo accused BGI of adopting predatory practices,
consisting mainly in the refusal to sell St. George beer to bars carrying Meta’s draft
beer. Within the framework of this study it was not possible to investigate in detail
the evidence related to these specific cases, but it is clear that the prevailing market
structure does create an environment conducive for restrictive practices, thereby
requiring enhanced surveillance from antitrust authorities.
Mineral Water and Soft Drinks

Salient Features
Overview: Thanks to its rich hydrological resources, Ethiopia has a long tradition
in mineral waters, the first bottling plant having been established back in the 1930s.
Soft drinks are a more recent phenomenon, with the first operations dating from
the 1950s. Since the fall of the previous regime, the demand for both mineral water
and soft drinks has been on the rise, with a particularly marked increase during the
last few years. At present, the Ethiopian market for mineral water can be estimated
42
at some 45-50 million liters, while sales of soft drinks are in the order of 40 million
crates of 24 bottles each. The combined value of mineral water and soft drinks sales
appears to be in the order of USD 70-80 million per year. Both mineral waters and
soft drinks are mostly produced locally for the domestic market, and both imports
and exports are negligible.
Main Operators: At present, there are 10-15 firms active in mineral water and/
or soft drinks, of which four play a major role. All enterprises are fully or majority
controlled by private operators and there is a significant presence of foreign investors.
The salient features of the leading operators are summarized below.
Table 7 Basic Features of Leading Mineral Water/Soft Drinks Companies

Companies Establishment Ownership Products/Brands Comments
Ambo Mineral 1938 Private (privatized Mineral water Nationalized in the
Water in 2007) (Ambo) 1970s and modernized
in the early 1990s
Babile Mineral 1953 Private (privatized Mineral water Nationalized in the

Water in 2007) (Babile) 1970s and modernized
in the early 1990s
East African 1995 Private Soft drinks (Coca Two plants, in Addis
Bottling (EAB) Cola, Sprite, Fanta) Ababa (privatized in
and mineral water 1998) and Dire Dawa
(Crystal) (greenfield operation).
Moha Soft 1997 Private Soft drinks (Pepsi Part of the MIDROC
Drinks Cola, 7Up, Mirinda Group. Three plants,
Orange & Tonic) and in Addis Ababa, Bure
mineral & purified (privatized in 2004)
water (Kool) and Hawassa
Market Definition
From the viewpoint of consumers, mineral water and soft drinks are different
products, displaying a limited degree of substitutability. However, on the supply
side, the two lines of business share a number of features (same distribution channels,
same or similar equipment, etc.). Therefore, for the purpose of this study, they can
be treated as a single market. In geographical terms, the big brands are fairly evenly
distributed across the country, whereas small and medium sized operators tend to
have local or regional markets (e.g., Babile Mineral Water, based near Harar, is selling
primarily in eastern regions).
43
Presence of state-owned enterprises: The state has almost completely withdrawn
from the mineral water and soft drinks business. After several unsuccessful attempts,
the last two companies in state hands, Ambo and Babile, were eventually privatized
in 2007. At present, the state, through PPESA, only retains a minority shareholding
(32 percent) in Ambo Mineral Water.
Concentration and asymmetry among operators: The soft drinks business is

largely dominated by two heavyweights, namely East Africa Bottling, the Coca Cola
franchiser and subsidiary of the homonymous group operating across the whole
of East Africa, and Moha Soft Drinks, the Pepsi franchiser, part of the MIDROC
Group. While precise data are not available, Moha is generally accredited with the
leading position, accounting perhaps for 60 percent of the market4. However, EAB
recently completed an expansion program that raised production capacity from 14
to 18-19 million crates, and this may alter the situation. Likewise, the arrival in the
Ethiopian market of the beer and soft drinks giant SABMiller (now a shareholder in
Ambo along with South West Development) may also lead to changes in the market.
In the mineral water market, Ambo is by far the leader, usually accredited with
a market share of 85 percent, with the rest subdivided among the two soft drinks
producers and other, smaller, players. But also in this sector the leading company’s
position might be threatened by new entrants. In particular, Moha is currently
building a new mineral water plant in Hawassa, which is expected to produce an
average of 18 million liters per year.
Vertical integration and entry barriers: A direct access to water sources is a must for
mineral water producers and highly recommended for soft drink producers. However,
there is no scarcity of natural springs in Ethiopia and access to water resources is
not a significant constraint. As a matter of fact, the government appears to have
issued a number of permits that exceeds the number of enterprises in operations,
indicating a fairly liberal attitude on the matter. In the soft drinks business, the
main barrier is obviously represented by the possibility of becoming a franchisee
of one of the leading brands. This is why in most countries the industry tends to
become a duopoly, centered on the Coke and Pepsi franchisees, with producers of
local brands operating at the fringes. The amounts required for initial investments
vary, depending upon the nature of operations. A small scale water bottling plant
aimed at serving the local/regional market can be set up with modest investments,
even less than USD 1 million if reliance is made on second-hand equipment (these
4
According to press sources, there could be an indirect linkage between EAB and Moha. In 2008, an associate of Sheik
Mohammed Al-Amoudi (owner of MIDROC and, hence, of Moha) reportedly bought a minority shareholding in
one of the companies who control EAB (see “Coca Cola hits the brake affected by foreign currency shortage”, The
Reporter, 14 March 2009). However, the traditional rivalry between the two world brands does not seem to allow
for any type of concerted action.
44
days, second-hand bottling lines and filtering equipment can be bought at rock-
bottom prices from many EU suppliers). Instead, the establishments of large scale
operations, including the logistics to distribute products nationwide, are much more
expensive. For instance, the modernization plan recently implemented by EAB
involved an investment of some USD 12 million.

Soft drinks companies tend to impose exclusivity agreements upon resellers of their
products, thereby limiting opportunities for new entrants. The issue of exclusivity
has been debated in a number of antitrust cases (including the famous settlement
agreement between the European Commission and Coca Cola) and, in general,
a tendency towards the prohibition of exclusivity agreements has emerged. In
Ethiopia, the enforcement of such a prohibition is made more difficult by the very
nature of some players, namely the fact of Moha being part of a conglomerate with
interests also in some distribution trades (and, in fact, Coca Cola is not available at
Sheraton Hotel). In late February to early March 2009, signs of a severe shortage in
the soft drinks market started to emerge, and press reports indicated that in some
cases this had led to a considerable increase in prices at the retail level. The fact that
the shortage affected both Moha and EAB more or less at the same time inevitably
raised the suspicion of an agreement among the two competitors in order to be able
to increase prices. However, as it became abundantly clear in the subsequent weeks,
the shortage was largely due to technical reasons (shortage of corks), combined
with difficulties in importing raw materials because of the unavailability of foreign
exchange, with the exclusion of any type of anticompetitive behavior5.
Sugar
Salient Features
Overview: In Ethiopia, honey has long been the preferred sweetener and per capita
consumption of sugar is rather low, at about kg 5 per person compared with an
African average of about kg 15. Nonetheless, with the progressive westernization
of dietary habits and, especially, the growth in population, total consumption has
grown to the respectable figure of 400,000 - 450,000 tons. In monetary terms, at
wholesale prices the sugar market can be estimated at Birr 3 billion. Domestic
production covers approximately two thirds of consumption and the rest is imported.
While posting an overall deficit, Ethiopia is also exporting small quantities of sugar,
taking advantage of privileged access to the EU market, where prices are higher than
in the international market. The export quota reserved by the EU to Ethiopia has
gradually increased from 11,000 tons in 2001 tons to 24,000 tons in 2008. The
sugar industry is also important for its by-products, molasses (often used in the
5
“Forex Crunch Deepens Soft Drinks Shortage”, Addis Fortune, 8 March 2009.
45
production of feedstock) and, especially, ethanol, increasingly used as an alternative
fuel in motor vehicles. Ethiopia currently produces some 8 million liters of ethanol,
which is blended locally with gasoline, while molasses is exported.
Operators: In Ethiopia, production of sugar started in the 1950s, when the Dutch
company HVA built the first sugarcane plantation and processing plant in Wonji.
In 1968 a second plant was built by HVA in Metahara, while a third plant was built
by the government in Finchaa at the end of the 1990s. These three plants are still
in operation and have a combined processing capacity of approximately 280,000
tons. The industry is currently undergoing a major expansion, involving an increase
in the processing capacity of existing plants as well as the building of a new plant in
Tendaho (expected to reach a processing capacity of 600,000 tons). The expansion
plan also covers ethanol, whose production is expected to increase significantly to
well over 100 million liters. The salient features of sugar companies are summarized
in the following table.
Table 8 Basic Features of Sugar Factories/Projects

Companies Establishment Ownership Products & By-products Comments
Wonji/Shoa 1960 State-owned Sugar, molasses Nationalized in the 1970s. Expansion

program ongoing.
Metahara 1968 State-owned Sugar, ethanol Nationalized in the 1970s. Expansion

program just completed
Finchaa 1997 State-owned Sugar, molasses Major expansion program ongoing.

Tendaho 2013 (expected) State-owned Sugar, ethanol Under construction.
Source: ESDA and press reports
Market Definition
Sugar is a typical commodity, widely traded internationally, and in this sense Ethiopia’s
sugar sector can be regarded just as a component of the broader world sugar industry.
At the same time, the functioning of the international market is affected by a variety
of restrictions (import quotas and duties, subsidies to domestic producers), which
effectively contribute to segment the market along regional/national lines. For the
purpose of this study, the relevant market basically coincides with the country.
Presence of state-owned enterprises and concentration: For all practical purposes,
Ethiopia’s sugar industry can be regarded as state monopoly. Not only the three
factories in operations (as well as the Tendaho project) are fully state owned,
but overall industry developments are presided over by a government body, the
Ethiopian Sugar Development Agency (ESDA). In particular, ESDA is responsible
46
for overseeing developments at the plant level (including the management of
tenders for the ongoing expansion plans) and for importing sugar and reselling it
to private merchants through tenders, with the purpose of stabilizing prices. Part
of the distribution is also done through the state-owned wholesaling enterprise,
Merchandise Wholesale and Import Trade Enterprise (MEWIT).
Vertical integration: In Ethiopia, sugar mills are vertically integrated into sugar
cane production. This contributes to increase in investment costs but, at the same
time, provides an easier access to raw materials than in the case of plants relying on
sugar cane obtained through out-grower schemes (as in Kenya). As all plants are
state-owned and vertically integrated, this aspect does not impact appreciably on
market conditions.
Entry barriers: The sugar industry is heavily capital intensive. The cost of the ongoing
expansion plan is in the order of Birr 15 billion, of which 8 billion for the greenfield
Tendaho project alone. These are considerable amounts also for the government
budget, and indeed in order to finance the expansion plan the Government had to
secure a supplier credit package of some 640 million USD from India’s EXIM Bank.
The major investment outlays required inevitably limit the number of potential
entrants into the industry. Some projects are reportedly being developed by large
foreign investors (India’s Chandra Group in Oromia Regional State) but the current
status of these initiatives is not known. As for regulatory barriers, the main issue
relates to the fact that import trade (which plays an important role in sugar) is one
of the activities explicitly reserved to domestic operators, with explicit exclusion of
foreign investors.

In late 2008 and early 2009, a major price hike was recorded, with retail prices
increasing by 20 percent and more. Seemingly triggered by fears of scarcity generated
by technical problems at the Metahara plant (whose production capacity declined to
less than one third), the price hike induced the usual sequel of accusations vis-à-vis
traders. This also prompted ESDA’s reaction, with the mobilization of reserves to
stabilize the price.
Edible Oil
Salient Features
Overview: Precise data are not available on oil seeds consumption in Ethiopia, but
the market can be grossly estimated at 70 to 100,000 tons. Considering an average
retail price of Birr 15 per liter, total market value is in the order of 1.1-1.7 billion
birr. In Ethiopia, edible oil comes in the form of refined oil (mostly sold in urban
47
areas) and crude oil, which dominates in rural areas and smaller centers. Ethiopia
is a major producer of oil seeds. An estimated 3 million farmers are involved in
growing sesame, “neug”, linseed and other oil seeds, with an area under cultivation
of about 800,000 hectares and a production of some 500-600,000 tons6. However,
an increasingly large share of oil seeds output is exported and domestic production
of edible oil accounts for only part of domestic consumption. Therefore, the market
relies heavily on imported oil, mostly refined palm oil originating from other
developing countries (Madagascar, South East Asia) and soybeans oil, purchased
from Europe. In years of drought, commercial imports are supplemented by edible
oil imported as food aid.
Operators: Three categories of operators are active in the edible oil market: industrial
producers, micro enterprises, and importers of refined oil. Currently, there are 12-
15 industrial enterprises active in the production of refined oil. Their production
capacity is estimated at some 72,000 tons (2005 data), but due to the lack of raw
materials, capacity utilization is in the order of 30-40 percent. Crude oil is produced
by a multitude of micro enterprises operating small presses, mostly of Chinese or
Indian origin. Depending upon the sources, their number is variously estimated at
anywhere between 500 and 1,000. Importers include general trading companies as
well as specialized branches of large conglomerates, such as East African Holdings
Group. Some information on key players is provided in Table 9 below.
Table 9 Basic Features of Leading Ethiopian Edible Oil Producers
Companies Location Ownership Comments

Addis Modjo Edible Addis Ababa & Private (privatized in 2008) Processing capacity of about
Oil Complex Modjo 16,000 tons
Mulat Abegaz Plc Addis Ababa Private Processing capacity of about
9,000 tons
Dil Edible Oil Addis Ababa Private (restituted in 1999) Processing capacity of about
5,000 tons
Hamaressa Edible Harar Private (privatized in 2008) Processing capacity of about

Oil 4,500 tons
Bahir Dar Edible Bahir Dar Private (privatized in 2008) Processing capacity of about
Oil 4,500 tons
East African Addis Ababa Private Involved in import and

Holdings Group wholesaling. Reportedly
considering the setting up of a
palm oil plant
Source: Various reports and press articles.
6
J. Wijnands and others, Oilseeds business opportunities in Ethiopia, Ministry of Agriculture and Rural Develop-
ment, Food and Quality, The Hague, May 2007.
48
Market Definition
The market for edible oil displays a certain degree of product differentiation. Each
type of cooking oil (sesame, rapeseed, etc.) has its own peculiar characteristics in
terms of flavor and taste, but the main distinction is between refined oil and crude
oil. Refined oil is clearly a superior product, although in certain circumstances it can
be substituted with crude oil. In geographical terms, the market shows the same type
of territorial segmentation found for other food products, with cottage operations
selling in local markets and industrial enterprises operating at the regional level. The
Addis Ababa market is supplied by some 200 operators, located within a radius of
some 100 kilometers.
Presence of state-owned and endowment enterprises: The state has almost
completely withdrawn from the production of edible oil. Indeed, edible oil
enterprises were among the first to be privatized, with half a dozen companies (Dil,
Edget, Dire Dawa, Tigray, Teramaj, Akaki) being returned to their former owners or
sold through commercial tenders in the second half of the 1990s. In 2008, the last
state-owned enterprises, Addis Modjo Edible Oil Complex and Bahir Dar Edible
Oil, were also privatized. The state remains active in the distribution of edible oil,
through MEWIT. In particular, at the beginning of 2009, MEWIT was requested
by the GoE to import significant quantities of edible oil (1.7 million liters), in an
attempt to stabilize market prices. Imported oil handled by MEWIT is intended for
direct sale to consumers, bypassing wholesale and retail traders. No information is
available on enterprises controlled by endowment funds.
Concentration and asymmetry among operators: Data on market shares held

by various operators are not available, but the market seems to display a relatively
modest level of concentration. With reference to data on production capacity from
2005, Addis Modjo accounts for about 22 percent of total capacity, Mulat Abegaz
for 13 percent, and Dil, Hamaressa and Bahir Dar for approximately 6-7percent
each.
Vertical integration: In principle, the erratic supply of oil seeds provides a powerful
incentive into vertical integration for edible oil producers. However, so far, only
Addis Modjo appears to have established significant backward linkages. In fact, at
privatization the company was bought by Amibara Agricultural Development Plc, an
agro-industrial complex also active in commercial farming, including the cultivation
of cotton seed. The move has been reportedly resented by some competitors of Addis
Modjo, who complain about increasing difficulties in securing raw materials for
their operations.
49
Entry barriers — Investment outlays and technical aspects: Investment outlays
vary, depending upon the size and sophistication of operations. The Hamaressa plant
was built at the end of the 1990s at a cost of Birr 55 million, while the much larger
Addis Modjo was recently privatized for almost 74 million Birr. In contrast, the
cost of small scale plants is in the order of 5 to 7 million Birr. This is an amount
within reach for many potential investors, and helps in explaining the large number
of crude oil producers. Similar considerations apply for technical and managerial
aspects. Crude oil cottage operations are very simple and do not require special
skills, whereas industrial plants, required to fulfill higher qualitative and hygienic
standards, require specialized personnel.
Entry barriers — Government regulations: Edible oil is one of the sectors

reserved for domestic operators. Apart from that, the industry is not subject to
restrictive government regulations. Because of obvious health considerations, the
GoE is promoting an improvement in quality standards. The problem is serious,
as in mid-2008 there was a major incident with poisonous edible oil in Lideta and
Kolfe Sub-cities, with the death of 8 people and the hospitalization of another 94.
Unfortunately, only a tiny minority of edible oil plants currently in operations appear
to meet adequate standards. Only 17 oil producers hold a license from the Quality
and Standards Authority of Ethiopia (QSAE), while operations in the myriad of
cottage operations are often carried out in dubious hygienic conditions, with a high
risk of contamination.

In recent times, the price of edible oil has been displaying a marked upward trend,
and this has prompted the usual allegations of hoarding, profiteering and the like. In
reality, this appears as an inevitable consequence of the growing imbalance between
demand and supply. On the one hand, demand of edible oil has been increasing, due
to improved living conditions (and expansionary monetary policy). On the other
hand, growers of oil seeds find it more convenient to export their produce rather
than supplying it to the oil processing industry. The shortage has prompted the
reaction of the GoE, which first (in 2008) removed import duties on cooking oil
imports7, and then (in early 2009), decided to call upon MEWIT to import and
distribute large quantities of edible oil8.
Domestic producers often complain about unfair competition from imports and
these complaints have become more vociferous since the GoE decided to remove
duties on imported palm oil. It is a fact that imported oil has become increasingly
more competitive in the Ethiopian market. As shown in Table 10 below, the price
ratio between locally produced and imported cooking oil dramatically shifted in
7
“Government Lifts Sur Tax on Edible Oil, Soap”, ENA, 29 March 2008.
8
“Edible oil price relief on its way”, Capital, 9 February 2009
50
favor of the latter in virtually all major markets, with imported products displaying
a price advantage sometimes in the order of 25-30 percent. However, it is fairly
obvious that importers are also in the business of making money and, therefore,
their more competitive prices are not the result of unfair competition but, simply, of
a higher level of competitiveness. It is true that in the edible oil market contraband
and other illegal practices (namely, under invoicing) have been quite common, and
it is certainly possible that in certain cases this may have allowed importers to sell at
more competitive prices. However, if anything, the abolishment of import duties on
edible oil imports has reduced (if not eliminated altogether) the incentives for these
illegal practices, contributing to create a level-playing field.
Table 10 Prices for Domestic and Imported Edible Oil
Tigray Amhara Oromia SNNP Addis Ababa

Period Type of Oil
Unit Price (Birr per liter)
August 2005 Imported 12.12 11.9 12.51 12.89 12.89

Domestic 11,59 12.05 11.25 11.20 11.78
September 2006 Imported 11.81 12.40 12.79 13.67 13.45
Domestic 13.89 12.83 11.48 11.65 13.23
August 2007 Imported 16.73 17.07 17.22 17.77 17.30
Domestic 19.30 21.09 18.66 17.87 22.21
Price Ratio (domestic/imported)
August 2005 96% 101% 90% 87% 91%
September 2006 118% 103% 90% 85% 98%
August 2007 115% 124% 108% 101% 128%
In the past, a factor that greatly contributed to distort the proper functioning of the
edible oil market was the presence of significant imports as food aid. The problem was
particularly severe in the 1990s and early 2000s, when significant amounts of edible
oil were distributed for free to the population. This negatively impacted on domestic
producers, to the point that some were even forced out of business9. However, the
problem was solved in recent years, when it was decided that the bulk of cooking oil
funded by donors would be “monetized”, i.e. would be sold for distribution in the
local market through an auction mechanism. The mechanism is supervised by the
Ministry of Trade and Industry and, precisely in order to avoid unfair competition
with local producers, the auction starting price is set equal to the import parity price,
inclusive of port handling charges, inland transport and profit margins.
9
“How Ethiopia’s cooking-oil industry got burned by USAID”, Christian Science Monitor, 6 January 2004
51
CAPTER FIVE
Agricultural Products and Inputs
In Ethiopia, the functioning of agricultural markets has a major impact on the rest
of the economy. At the same time, farming activities are heavily dependent upon
developments in the markets for agricultural inputs, such as seeds and fertilizers. For
the purpose of this study, attention was focused on cereals, by far the main staple
crop, and on fertilizers. The competitive conditions prevailing in these two markets
are illustrated below.
Cereals
Salient Features
Cereals (teff, wheat, maize, etc.) are the main component of Ethiopia’s agricultural
production. The volume of production is subject to variations due to various factors
(weather conditions, availability of inputs, etc.). But in recent years a positive trend
has been recorded, with total output growing from 10 million tons in 2004 to 15.5
million in 200810. Only one third of total production is marketed, the remainder
being devoted to auto consumption at the farm level. Domestic production is
supplemented by imports, in the form of food aid and, lately, commercial purchases
made by the GoE.
Cereals are predominantly a smallholder crop: small farmers account for an estimated
95 percent of total output, the balance being provided by a small number of state-
owned and private commercial farms. A significant share of commercial output
(perhaps up to 50 percent) is sold directly by farmers to consumers and retailers,
while the rest is marketed through cooperatives or sold to market intermediaries.
The number of cooperatives has been increasing over the last decade and they are
now estimated to be in operation in 35 percent of Ethiopia’s districts, with a much
stronger presence in Tigray Regional State, where cooperatives are found in almost
all kebeles11. Regarding traders and other intermediaries, precise figures are not
available. Yet earlier studies indicate the presence of some 2,500 traders countrywide,
supplemented by brokers operating in Addis Ababa’s grain market. A certain role
is also played by the state-owned Ethiopian Grain Trade Enterprise (EGTE), the
successor of the agricultural marketing board which used to monopolize the market
during the tenure of the previous regime.
10
USAID – WFP, Ethiopia Food Security Update, February 2009.
11
Tanguy Bernard et alius, Smallholders’ Commercialization through Cooperatives - A Diagnostic for Ethiopia, IFPRI
Discussion Paper 00722, October 2007.
53
Market Definition
Cereals are obviously a heterogeneous category, encompassing different crops, as
well as different varieties within each crop (e.g., durum wheat, bread wheat). The
market is also segmented along geographical lines, given the high share of cereals
commercialized in local or regional markets. Strictly speaking, all these differences
give rise to separate “relevant markets”, in which competitive conditions should be
assessed separately. However, the various cereals share important features, especially
the structure of commercialization channels, and price movements for most crops
and local markets are highly correlated. Therefore, for the purpose of this study, these
similarities allow for a unified treatment.
Concentration and entry barriers: As indicated above, cereals are predominantly
smallholder crops, with only a fraction of total production generated by large scale
farming operations. Therefore, at the production level, concentration is negligible.
Similar considerations apply at the wholesale trade level. Recent figures are not
available, but early studies found that the market share held by the four leading
traders was below 33 percent for most local markets and crops12. Low concentration
combines with modest entry barriers. Cereal traders are typically small sized
operators, requiring only limited initial investment, typically to buy a warehouse,
more rarely to purchase a vehicle. If anything, entry in the cereals trade business
is comparatively more constrained by non-financial aspects, namely the access to a
wide network of contacts and the build-up of a good reputation, both of which are
the result of long involvement in the trade and/or of family connections. Reputation
is of an overriding importance in the case of brokers, who act as intermediaries
between traders located in different (and typically distant) markets.
The Growing Role of Cooperatives: The role of agricultural cooperatives, as pointed

out earlier, is expanding and the GoE is actively supporting this trend. The impact
of agricultural cooperatives on market concentration is still little documented,
but some observers suggest that in some cases cooperatives may have acquired a
dominant position. The issue was raised during the workshop for the presentation
of this report, when representatives of some local chambers of commerce suggested
that private traders are being increasingly bypassed by state-supported cooperatives.
The point deserves to be analyzed in more detail in the framework of follow up work.
Presence of state-owned and endowment enterprises: State-owned farms play a

minimal role in cereals production and trade, as the share of all commercial farming
operations, including both private and public operations, is estimated to account
for not more than 5 percent of total output. The same applies at the wholesale
12
Eleni Z. Gebre-Madhin, Market Institutions, Transaction Costs, and Social Capital in the Ethiopian Grain Market,
54 IFPRI Research Report 124, 2001.
trade level. In normal times EGTE is handling less than 5 percent of domestic grain
trade, although its role can be greater at times of crisis. The influence of endowment
enterprises is difficult to assess, due to lack of data.
Regulatory aspects and public policy: The government liberalized the grain market
in 1990, lifting all restrictions on private inter-regional trade, removing official
pricing and quotas, and eliminating the monopoly status of the marketing board.
At present, the main remaining restriction concerns the ban on exports, introduced
in 2006 in order to address the issue of raising prices and food insecurity. Apart
from that, the government plays primarily a promotional role on the supply side,
namely through the distribution of fertilizers and seeds, as well as a stabilizing role in
moments of crisis, through the import and distribution of cereals by EGTE. A major
innovation in public policy towards cereals (and, indeed, the whole agricultural
sector) is the recent establishment of the Ethiopia Commodity Exchange (ECX).
Inaugurated in 2008, ECX is the first attempt in Ethiopia’s history to create a
unified market mechanism, capable of bringing together operators from all parts
of the country. Consisting of a trading floor in Addis Ababa, six warehouse delivery
locations, and 20 electronic price tickers in major market towns, ECX is designed
to provide a reliable system for handling, grading, and storing agricultural products,
thereby reducing considerably the transaction costs that have traditionally hampered
the proper functioning of agricultural markets. At present, ECX is involved only in
spot trading of white maize (as well as of a number of coffee varieties), but operations
are expected to expand gradually to other cereals.

The issue of anticompetitive practices in the cereals market has come to public
attention in connection with the recent hike in prices. Starting in the late 2006,
prices of cereals (as well as those of other food items) showed a marked upward trend.
Prices reached a peak between the summer and the beginning of the 2008 meher
season, with maize and wheat selling at well above Birr 600/quintal. Prices declined
towards the end of 2008, as a result of the new crop and of stabilization efforts by the
GoE, which imported significant quantities of wheat, but at the beginning of 2009
a new upward trend was discernible in some cases. An overview of price movements
for wheat and maize in selected urban markets is provided in the following figure.
55
Figure 5 Prices of Maize and Wheat in Selected Urban Markets
Source: Reproduced from USAID – WFP, Ethiopia Food Security Update, February 2009.
The dramatic increase in cereal prices is the result of a variety of factors, including
many of an exogenous nature (such as the generalized increase in international
commodity prices recorded until mid-2008 and the parallel increase in some key
agricultural inputs, such as fertilizers). However, in certain cases the speculative
behavior of market operators, especially traders, has also been called into question.
For instance, in 2007 government authorities pressed charges against some traders
accused of hoarding (as well as of illegal export) before the Trade Practices Commission
(TPC). In 2008, a tendency by cereal traders and farmers’ cooperatives to withhold
stocks was also noted in certain areas by international observers monitoring the food
security situation, although an increase in the competition among intermediaries
was found in other areas. While there is little doubt that expectations of further
price increases have provided a powerful incentive to withhold stocks, the available
evidence regarding the alleged abuses is sometimes inconclusive, as reflected also in
the verdicts issued by the TPC (some defendants were acquitted and other received
relatively mild fines).
56
Fertilizers
Salient Features
Fertilizers were first introduced into Ethiopia in the late 1960s, within the framework
of a FAO project. Fertilizers’ utilization remained at very low levels for many years,
but started picking up in the mid-1990s. In 2006-07 total consumption reached
400,000 tons, further progressing to more than 450,000 tons in 2007-08. Fertilizers
are applied to about 40 percent of farmland under crop production, and usage is
heavily concentrated on a few cereals, namely wheat, “teff” and maize. Another 15
percent of cultivated area receives natural fertilizers. Fertilizers are not produced in
Ethiopia and the country relies entirely on imports, primarily from Gulf countries.
In 2007-08, the total value of fertilizer imports was about USD 267 million.
A more widespread use of fertilizers has been a centerpiece of the GoE’s strategy
aimed at reducing food insecurity through increased cereal productivity. This
involved the mobilization of significant financial resources as well as a major re-
design of the distribution system (see below), but results appear to be mixed. In fact,
while total use of fertilizers has increased at a fast pace, unit application rates have
remained largely unchanged, at some 35 kg/ha of commercial product. Also, the
adoption of largely centralized import and distribution system contributed to reduce
the cost of fertilizers, but this was coupled with serious inefficiencies in distribution,
with frequent complaints from farmers about late deliveries. Overall, the situation
remains far from being satisfactory and, according to some analyses, the increase in
agricultural output recorded in recent years is only marginally attributable to the use
of fertilizers13.
Market Definition
Two types of fertilizers are currently sold in Ethiopia, urea and di-ammonium
phosphate (DAP). While each product has its own peculiarities, commercialization
channels are essentially the same. From a geographical point of view, fertilizers being
an internationally traded commodity, the Ethiopian market can be seen as simply one
component of the international market. Within Ethiopia, different prices are found
in various locations, but these differences only reflect differences in transportation
and distribution costs, and do not suggest the existence of separate markets.
Concentration and presence of state-owned and endowment enterprises: The
market for fertilizers is highly concentrated and the government exerts a pervasive
influence at all levels. The import business is de facto monopolized by the state-
13
For a detailed review of these aspects, see Byerlee D. et alius, Policies to Promote Cereal Intensification in Ethiopia:
A Review of Evidence and Experience, IFPRI Discussion Paper 00707, June 2007. 57
owned Agricultural Input Supply Enterprise (AISE), the successor of the parastatal
that monopolized the fertilizers business during the previous government’s period.
In recent times, AISE was the only participant in tenders for the allocation of foreign
exchange to be used for the import of fertilizers, and given the expected large size
of import lots, all indications are that the situation will not change in the future.
Wholesale distribution is also largely handled by AISE, while the last stage is mainly
left to agricultural cooperatives (largely government sponsored) and, in certain areas,
to agents of extension services (also controlled by the government). The fertilizers
business also sees the presence of several endowment trading enterprises, such as
Ambassel, Guna, Dinsho and Wondo. Together with AISE, these enterprises displaced
the private operators that played a significant role in the mid-1990s. However, in
recent times endowment enterprises appear to have lost significant ground in favor
of cooperative unions.
Entry barriers and vertical integration: The fertilizer business was liberalized in
two steps: in 1993, when private operators were allowed to enter what had been a
strict state monopoly, and in 1996, when pricing was liberalized and state subsidies
abolished. Formally, the regulatory regime has not significantly changed, and
remains prima facie quite liberal. However, in practice things have moved in the
opposite direction. Regarding the import of fertilizers, the significant size of import
lots (25,000 tons) and the mechanism devised to allocate the necessary foreign
exchange puts private operators at a disadvantage vis-à-vis AISE and endowment
enterprises, which can count on privileged relationships with the banking sector.
As for subsidies, they have been replaced by a credit guarantee scheme funded by
regional governments. Under this scheme, fertilizers are delivered on credit at below-
market rates, with an implicit subsidy element. In addition, to ensure repayment
of credit, for some time reliance was made on extension agents with the powerful
backing of local authorities, a fairly effective recovery mechanism, which, however,
was never available to private operators. Taken together, these elements certainly do
not contribute positively to the emergence of a level-playing field in which various
operators can freely compete on merit.

The current market structure is quite different from the situation that prevailed in
the early – mid 1990s, immediately after the liberalization of the fertilizers market.
At that time, the role of AISE in the import business was much more limited and
the company was in competition with some sizeable private competitors, which in
some years managed to snatch a market share of up to 30%. A similar situation
was found in distribution, with the presence of no less than 67 private wholesalers
and 2,300 retailers. The situation started to change in the late 1990s, with the
58
entry of endowment enterprises into the fertilizer import business. In parallel, some
discriminatory measures were adopted by the government regarding the calculation
of price (essentially, AISE was allowed to include cost calculation items such as
overheads, interest and transportation whereas private operators were denied this
possibility) and conflicts started to emerge between AISE and private operators.
Particularly serious was the conflict opposing AISE and the then leading private
competitor, Ethiopia Amalgamated Limited (EAL), which repeatedly complained
about a number of abuses, ranging from denial to access market places to the forced
closure of facilities and the threatening of clients. The matter was even investigated by
some representatives of the donor community, and this led to recommendations that
further “adjustments [were] in order to allow a level playing field for involvement of
private wholesalers”14. The end result was that the main private competitors (EAL
and Fertiline) eventually left the market [EAL was finished off a bit later on, when
the state-owned Commercial Bank of Ethiopia put on auction its assets15] and the
private players were replaced by endowment enterprises and, later on, by agricultural
cooperatives. The dramatic change in the market shares held by various market
participants is vividly illustrated by the data shown in Figure 6.
Figure 6 Relative Importance of Various Categories of Importers
500
400
Coops
300
Private
'000 t
Endow ment
200
AISE
100
0
1995 1996 1997 1998 1999 2000 2001 2004 2005
Source: Reproduced from Byerlee D. and others, Policies to Promote Cereal Intensification in Ethiopia: A
Review of Evidence and Experience, IFPRI Discussion Paper 00707, June 2007.
14
UNDP, 1996 Fertilizer Situation: Progress, Problems and Programs, September 1996. Accessible through http://
www.africa.upenn.edu/eue_web/fertlz96.htm.
15
“Ethiopian Amalgamated appeals against auctioned properties”, Capital, 25 November 2003.
59
CHAPTER SIX
Manufactured Goods
Manufacturing plays a crucial role in supporting economic development. Leaving
aside the industries already analyzed in the previous chapters (food and beverages,
sugar), manufacturing accounts for a total employment of over 145,000, while the
value of sales is about Birr 13.5 billion. Value added generated by the sector is in the
order of Birr 5 billion, equivalent to more than 3 percent of GDP. The manufacturing
sector includes a wide variety of activities, ranging from basic consumer goods to
furniture and from construction materials to pharmaceuticals. For the purposes of
this study, attention was focused on two sub-sectors, namely textiles and apparel,
and cement. The salient features of these sub-sectors are illustrated below.
Textiles and Apparel

Salient Features
Overview: Ethiopia’s first modern textiles plant was established in 1939, during
the Italian occupation16. In the post war period, the sector developed rapidly, with
renewed impetus during the previous government’s period, when a number of
factories were established with state funds. Today, the textiles and apparel industry
is one of the largest employers in manufacturing, with a total workforce of some
38,000. Domestic production is estimated at 1.4 billion Birr, of which 1.1 billion
is for textiles and 0.3 billion for apparel. Domestic production is supplemented by
substantial imports, especially of apparel, which in 2007 reached the level of Birr 2.4
billion (USD 266 million), while exports (mostly cotton fabrics) were much more
modest, at some 140 million Birr (USD 15 million). The GoE places great hopes in
the development of textiles and garment exports, and an ambitious target of USD
500 worth of exports has been set for the year 201117.
Main Operators: According to available statistics, the sub-sector consists of some

70 medium sized and large industrial plants, of which 39 are in textiles and 31
in apparel production. The bulk of production is performed by 47 plants with more
than 50 workers each, which account for about 90 percent of total output and for
75 percent of total employment. These include a combination of public and private
enterprises, the latter being newly established, greenfield operations or the result
of privatization. At the opposite end of the spectrum, there are over 4,000 small
and micro- enterprises, mostly involved in the artisan manufacture of garments.
16
Embassy of Ethiopia in the US, Investing in Ethiopia: Textiles, s.d. For an overview of recent developments,
see also Rahel Abebe, AGOA: The Case of the Ethiopian Textile Sub-Sector, May 2007.
17
“Cotton projected to spin $ 500m from 2011”, Capital, 19 August 2008.
61
Cumulatively, these micro- operators account for 23 percent of employment and for
5 percent of sales. Key indicators on the structure of the industry are provided in the
table below.
Table 11 Key Indicators for the Textiles and Apparel Industry
Indicator Textiles Apparel Total

Number of plants Medium & Large 39 31 70
Small 419 3,936 4,355
Total 458 3,967 4,425
Value of sales (In Medium & Large 1,098 273 1,371
million Birr) Small 18 62 80
Total 1,116 335 1,451
Source: Central Statistical Agency.
Market Definition
The sub-sector includes a wide range of markets. The first obvious distinction is
between textiles and apparel. In turn, each broad category of products includes a
wide variety of items with their peculiar features, that give origin to separate markets
(men’s jackets are obviously quite different – and cannot be substituted for ----
women’s skirts, and the same applies for virtually each type of garment). Even within
each product group, there may be major variations, due to qualitative factors and
brand considerations: top quality products sold in boutiques are quite different from
what can be bought from street merchants, and they effectively constitute a separate
market. From the geographical point of view, the main distinction is between urban
centers, where a wider range of products is available, and rural areas, where often
only basic items are available. In sum, the textiles and apparel industry can be seen as
encompassing a large number of separate markets, each one having its own peculiar
features. This inevitably limits the significance of the aggregate analysis carried out
in the study.
Presence of state-owned and endowment enterprises: The state has effectively
exited the production of apparel but still plays an important role in textiles, where
a dozen mills are still in state hands. Starting from the late 1990s, several plants
active in various lines of business have been privatized (e.g., Gondar Ginnery, Akaki
Blanket Factory, Addis Garments, etc.) through commercial tenders, while others
were leased under management contracts. In general, the GoE has displayed an
open attitude towards private investors, including foreign ones, but in certain cases
privatization has proved difficult to achieve and/or there have been some reversals.
For instance, in early 2009, the GoE had to take back Arbaminch, which had
62
previously been leased to a Turkish company18. Similar problems were encountered
in the past with the Chinese company managing Nazareth Garments. The state is
also active in the growing of cotton, one of the main input for the textiles industry.
Significant tracts of land have been transferred to private commercial farmers, whose
cotton output has been increasing. However, the GoE is still investing heavily in
some cotton growing schemes (e.g., Upper Awash Valley, Abebo, etc.), in order to
support the anticipated expansion of textiles sales in export markets. The presence
of endowment organizations appears to be limited to Almeda, which is controlled
by EFFORT.
Concentration and asymmetry in size among operators: Detailed data on the

size of firms operating in the various relevant markets are not available. Obviously,
there are market leaders (e.g. Almeda in cotton fabric, MAA in casual wear, KK
in blankets, etc.). But overall the level of concentration appears to be moderate to
low. This is especially the case in the garments industry, where domestic producers
account for only a minority, possibly less than one third, of the total market.
Vertical integration: The only fully integrated company is Almeda, which includes
a spinning mill, a weaving mill, a dyeing department, etc. This certainly confers a
cost advantage, but it does not unduly impact on the level of competition in the
relevant markets.
Entry barriers – Capital intensity and technical aspects: Investment outlays vary
enormously, depending upon the line of business and the size of operations. Textiles
is a fairly capital intensive business. Almeda’s fully integrated plant reportedly cost
nearly USD 100 million. Textiles projects approved by the Ethiopian Investment
Agency (EIA) were typically in the 500 - 550 million Birr range. Due to scale
economies, larger plants tend to enjoy a significant cost advantage over smaller
operations. Apparel manufacture is much less capital expensive: based on EIA data,
investments for “industrial” operations typically fall in the 10 to 50 million Birr
range, while “cottage” operations can be started with as little as 150,000 Birr. Even
in the case of industrial operations, the entry ticket can be considerably lower in the
case of privatization deals. For instance, SABCo reportedly privatized the Nazareth
Garment Factory for 8.5 million Birr. Apparel manufacture is also relatively simple
from the technical point of view, whereas textiles mills are complex operations,
requiring high level of skills.
Entry barriers – Regulatory aspects: Entry in the textiles and apparel business is
open to all operators, including foreign investors, and there are no particular barriers.
On the contrary, the sector enjoys a high level of protection, with import duties in
the order of 35 percent.
18
“State Takes Back Textile Co. from Turkish Firm”, Addis Fortune, 22 March 2009. 63
No significant instances of anticompetitive behavior have been noted in the markets
for textiles and apparel products. There are cases of under invoicing of imports, but
these fall in the category of frauds rather than of anticompetitive behavior, as in the
case of the Chinese businessman recently sentenced to 15 years for customs fraud
and bribery19. In line with the emphasis placed by the GoE on the development of
textiles and garment exports, some operators appear to have had a comparatively
easier access to funding from state-owned banks. But this seems to apply to both
public and private companies, including foreign-owned or operated (e.g., the
Turkish-managed Hawassa getting 150 million Birr loan from DBE), without any
serious discrimination.
Cement
Salient Features
Overview: The cement industry is a crucially important component of Ethiopia’s
industrial sector, as it supplies an essential input to support much needed
infrastructure development. Over the last few years, the demand for cement has
increased at a fast pace, due to massive investment in public works and a spectacular
growth in real estate development. Currently, the total market is estimated to be in
the order of 4-4.5 million tons, with expectations to reach 6 millions in a few years.
Domestic production is also increasing, with several major projects underway, but
current output is still around 2 million tons. The structural gap between demand
and domestic supply has been filled with imports, although occasionally there have
been cases of shortage. Inevitably, this reverberated on the price level, which has
shown a generally increasing trend.
Main Operators: The bulk of output comes from three main producers, namely
Messebo (Mekelle), Mugher (near Addis Ababa), and National Cement (Dire
Dawa). Starting from the mid- 2000s, several new players have entered the market,
with the revitalization of some old plants (e.g. Addis Ababa’s old plant, now leased
to an Israeli company) or the establishment of some greenfield operations. However,
new entrants are typically small to medium scale operations, involved in grinding
and packing and relying on clinker bought from the leading producers or imported.
Also, some of the new operations are “captive”, in the sense that they are intended to
serve the needs of specific, large scale infrastructure projects. Much more important
are the expansion projects currently underway at Mugher (installation of a third
production line) and National Cement (construction of a greenfield plant, after the
revamping of an old one). Even more significant is the project for a new cement
factory launched by Derba MIDROC, part of the MIDROC group, which is
64 “Federal Court Hands Chinese 15 Yrs Sentence for Customs Fraud”, Addis Fortune, 9 April 2009.
19
expected to produce in excess of 2 million tons/year. Other giant projects have
been announced by several players, such as the Nigerian tycoon Dangote20, France’s
Lafarge (which has a leading position in neighboring Kenya)21, and the US North
Holding Investments. However, it is not clear if these projects, much discussed in
the press, will actually see the light. The salient features of leading current and future
cement producers are presented in the following table.
Table 12 Basic Features of Cement Producers
Companies Establishment Ownership Capacity Comments

Mugher 1984 State-owned 800 – 900,000 A major investment with the intent of adding
Cement tons/year another production line is ongoing. Capacity is
expected to reach 1.4 million tons/year.
Messebo 2000 Private 600 - 700,000 Owned by EFFORT. An energy efficiency

tons/year program (conversion from fuel to coal) is
ongoing.
National 1936 Private 80% 200 – 250,000 Data refer to an old plant recently revamped.
Cement State 20% tons/year A new plant with a 750,000 tons/year capacity
is to be erected.
Derba 2010 Private 2- 2.5 million A small line (135,000 tons/year) is already
MIDROC (expected) tons/year operational, while the main plant is under
construction.
Given the major imbalance between domestic production and demand, an important
role is also played by importers. These include both construction companies, who
import cement to be used in their own projects (e.g. Eney, which also has a project
for building a factory), and commercial importers, such as Jaz Trading, Ecostar
Trading, Jema, etc.
Market Definition
Cement is a fairly homogeneous product. In Ethiopia, the two main types are
Ordinary Portland Cement and Pozzolana Portland Cement. Although each type has
its own peculiarities and preferred uses, on the whole they belong to the same product
market. From a geographical point of view, the market for cement is typically highly
fragmented, because the unfavorable ratio between weight and value discourages
transportation over long distances. While this is certainly true in developed countries,
geographical segmentation is less pronounced in developing countries experiencing
shortages, as is the case of Ethiopia, because the comparatively higher price typically
compensates for transportation costs.
20
“Dangote To Invest $250 Million Into Ethiopian Cement Industry”, The Times of Nigeria, 9 September 2008.
21
“Lafarge setting up cement plant in Ethiopia”, ENA, 20 October 2008.
65
Presence of state-owned and endowment enterprises: The state still plays an
important role, but its influence appears to be on a declining trend. While the
largest producer, Mugher, has been owned by the state since 2005 the control over
National Cement (formerly, Dire Dawa Cement) is effectively conferred to a private
company, East Africa Holdings Group. Even more important, all the new entrants
in the market, including those promoting large scale investments, are private
operators. When the role of importers is taken into account, the private sector is
already accounting for the majority of the cement used in the Ethiopian market and
it is reasonable to expect that private operators will also account for the majority of
domestic output in the near future. The endowment fund-owned Messebo also plays
an important role, being the second largest producer. However, with the coming
into play of new plants, its role is likely to be increasingly confined to the northern
part of the country.
Concentration and asymmetry in size among operators: Due to the high capital
intensity and scale economies (see below), cement is typically a highly concentrated
industry, and Ethiopia is certainly no exception. At present, Mugher holds a market
share of about 20%, closely followed by Messebo, with about 18 percent, while
National Cement is a distant third with some 5 percent. Altogether, the three
companies account for about 40 percent of the market. Ethiopia does not compare
unfavorably with the situation found in other countries in the region. For instance,
in Kenya, more than 90 percent of the market is controlled by only three companies,
Bamburi, East Africa Portland Cement (EAPC) and Athi River Mining (ARM), with
Bamburi accounting alone for more than 50 percent. The situation is made worse by
the fact that the investor controlling Bamburi, which is Lafarge, also has minority but
significant stakes in both EAPC and ARM. If a recently proposed merger between
Bamburi and EAPC were to be implemented, Kenya’s cement would effectively
become a monopoly. In this respect, the market structure currently prevailing in
Ethiopia is more competitive and the situation is likely to further improve once the
projects currently ongoing or envisaged will be implemented.
Figure 7 Market Shares Held By Leading Cement Sellers – Ethiopia vs. Kenya*
Top 3 Sellers – Ethiopia Top 3 Sellers – Kenya

100% 100%
75% 75%
55%
50% 50%
30%
25% 20% 25%
17%
5% 5%
0%
0%
* Approximate values, referred to 2008

Source: Various articles which appeared in the Ethiopian and Kenyan economic press.
66
Vertical Integration: Cement factories are normally integrated with quarrying
operations, in order to reduce operating costs. In Ethiopia a new form of vertical
integration is emerging, with reference to coal. In 2008 Derba MIDROC and EAH
have established a joint venture, Derba East Coal Mining (DECM), to extract coal
that will be used by the new plants in Derba and Dire Dawa22. Access to a cheaper
source of energy will obviously confer an important cost advantage to these companies
(the production of clinker is heavily energy intensive). But as long as other players
are not prevented to buy coal at market prices and/or to develop their own coal
mines, this cannot be regarded as unduly impacting on the level of competition.
Entry barriers – Capital intensity and technical aspects: Cement is a highly

capital intensive industry and capital intensity is enhanced by the scale economies
characterizing some parts of the production process. Indeed, it has been estimated
that plants operating below the so called minimum efficient size face a considerable
cost disadvantage vis-à-vis their competitors. Available information on investment
costs in Ethiopia definitely confirms that the production of cement is reserved to
investors with deep pockets. The Derba project is estimated to cost no less than USD
351 millions and even MIDROC had to resort to international financial institutions
to finance the initiative23. Of a comparable size are the other large scale initiatives
announced (e.g., Dangote USD 250 million) and the expansion project undertaken
by Mugher (USD 130 million). In the case of the new plant envisaged by National
Cement and of an initiative announced by Ethio Cement (Eney Group), investment
costs are lower, in the order of USD 60 – 70 million, but still quite significant. Also,
the production of cement is a complex business, requiring specialized skills that
are not always easily available. For instance, in its early years of operations, Messebo
plant encountered significant problems in achieving an acceptable utilization of rated
capacity, and the company had to resort to the recruitment of a foreign management
team (Cementech International). All in all, economic and technical entry barriers
are quite significant in the cement industry, and this inevitably reduces the number
of operators.
Entry Barriers – Regulatory aspects and import regime: Entry in the cement
industry is open to all operators, including foreign investors, and there are no
particular regulatory barriers. Plants have to fulfill environmental protection
standards and the final product is to be certified by QSAE, but these are normal
requirements. A bit less normal is the fact that quality controls requested by QSAE
are reportedly performed by laboratories at Mugher and Messebo24. If confirmed,
this might cast doubts about the impartiality of the tests. A factor significantly
22
“Derba East Africa Coal Mining Company on the Edge of Extracting Coal”. Addis Fortune, 25 March 2008.
23
“EIB lends EUR 29 million for Derba Midroc Cement Factory”, EIB Press Release, 26 June 2008.
24
“Standards Authority Suspends Abyssinia Cement Production”, Addis Fortune, 13 April 2009.
67
impacting upon the functioning of the cement market is the import regime. Over
the last few years, the Government’s position on the matter has been oscillating from
the outright prohibition of imports, in order to protect domestic producers, to the
allowance of duty free imports, in an attempt to stabilize prices. For instance, a duty
free regime was introduced in 2006, in the face of rapidly increasing prices, but then
it was revoked in February 2008, when an import ban was introduced. The ban was
short-lived, and in June 2008 imports were again liberalized. But a new ban was re-
introduced in early April 2009, largely because of the increasingly difficult situation
regarding foreign exchange reserves25. This “stop and go” approach is indicative of
the difficulties encountered by the GoE in reconciling two different (and, actually,
opposed) objectives, i.e., fostering the development of local production and keeping
prices under control.

In the cement industry, as in many other markets analyzed in this study, allegations
of anticompetitive practices have mostly focused on instances of “hoarding” and
“arbitrary price increases”. These instances have been met by the GoE with the usual
harsh approach reserved to “speculators”. For instance, in March 2008, i.e., right
after the reintroduction of the cement import ban, a dozen shops were closed down
in Addis Ababa for arbitrary price hikes. In reality, the ups and downs displayed by
cement prices are the inevitable consequence of the frequent changes introduced by
the GoE in the import regime, which themselves create opportunities for speculative
behavior. For instance, after the liberalization of June 2008, prices declined from
about Birr 360/quintal in July to Birr 320 in August. During the rest of 2008, as
imports entered the market, prices continued to decline, until they reached a level
of about Birr 250/quintal. However, at the beginning of 2009, as soon as it became
apparent that the difficult foreign exchange situation would have sooner or later
prompted another ban on imports, prices started again to increase, reaching Birr
320/quintal26. It is worth noting that these oscillations refer to retail prices. Ex-
factory prices have been also on the rise, but this is linked primarily to increased
production costs (at Messebo, the cost of oil per ton of clinker escalated from Birr
180 in 2003 to 345 in 2007)27, rather than to market power.
25
“Gov’t Bans Cement Imports”, Addis Fortune, 12 April 2009.
26
“Cement prices rise despite global ease”, Capital, January 2009.
27
Biniam Taddele, Technical, economical, and environmental comparative analysis of fuel oil with coal as energy
source in the cement industry, Master’s Degree Thesis, Addis Ababa University, January 2008.
68
CHAPTER SEVEN
Financial Services
The financial sector plays a crucial role in supporting other economic activities
through the provision of payment services, the provision of financing to new
initiatives, the protection against risks through insurance, etc. In Ethiopia, as in most
developing countries, the financial sector is dominated by banking services, which
account for an estimated 80 percent of total assets in the sector. Traditional banking
is complemented by a number of microfinance institutions, providing savings and
lending facilities to the poorer strata of the population that do not have access to
formal banking services. Insurance is the third element of Ethiopia’s financial sector.
Other financial mechanisms and intermediaries, such as private equity funds, security
trading operators, etc., are non-existent or still scarcely developed. All included, the
value added generated by financial activities accounts for about 5percent of the GDP,
while total employment can be roughly estimated at some 15,000.
Banking Services
Salient Features
At present, Ethiopia’s banking sub-sector consists of 13 banks, including 11
commercial banks and 2 specialized institutions. Three banks are state-owned, one
owned by an endowment fund, and the remaining 9 fully private. The state-owned
banks were established during the socialist period, when pre-existing private banks
were nationalized and merged. The market for banking services was opened to private
operators in 1994, and the first private bank (Awash) was established immediately
thereafter. The two youngest commercial banks (Oromia International and Zemen)
were established in 2008. The basic features of banks currently in operations as of
June 2009 are provided in the table below.
Table 13 Basic Features of Ethiopian Banks
Name Establishment Activity Ownership Comments

Commercial Bank of 1963 Commercial banking State-owned Nationalized in the mid 1970s
Ethiopia
Development Bank of 1970 Development State-owned Actually re-established in 2003
Ethiopia banking
Construction and 1994 Housing finance and State-owned Successor of the Housing and
Business Bank commercial banking Savings Bank
Awash International 1994 Commercial banking Private
Bank
Dashen Bank 1995 Commercial banking Private
Bank of Abyssinia 1996 Commercial banking Private
69
Wegagen Bank 1997 Commercial banking Private Endowment company
United Bank 1998 Commercial banking Private

Nib International 1999 Commercial banking Private
Bank
Cooperative Bank of 2004 Commercial banking Private Mostly targeting cooperatives in
Oromia Oromia State
Lion International 2006 Commercial banking Private
Bank
Oromia International 2008 Commercial banking Private
Bank
Zemen Bank 2008 Commercial banking Private
Source: BKP Development, Assessment of the Impact of GATS on the Ethiopian Financial Services Sector,
30 April 2007, and press reports.
Over the last few years, Ethiopia’s banking sector showed some signs of dynamism,
with the entry of some new players and an increase in most parameters. However,
the sector remains largely undeveloped by international standards. In particular:
• Despite the increase recorded since the early 2000s, both deposits and lending
are still low in comparison with the size of the economy. In June 2008, total
loans outstanding were Birr 42 billion, which represents a mere 17 percent
of GDP, compared with 28 percent found in neighboring Kenya. Likewise,
deposits stood at 26 percent of GDP, compared with 43 percent in Kenya;
• Lending is not only relatively scarce but also directed primarily to trading
activities, which account for about 45-50 percent of total bank lending.
Agriculture, despite its overriding importance, is receiving only 15-20
percent of total loans;
• Banking services coverage remains low, with approximately 140,000 people
per branch, compared with about 45,000 in Kenya (and 10,000 in South
Africa). Moreover, banking services are largely concentrated in urban areas:
the eight largest cities account for over 50 percent of total branches, with
Addis Ababa alone accounting for about 35 percent ;
• The limited presence of branches combines with a low degree of innovativeness
in banking systems and methods: ATMs are still rare and plastic cards (credit
cards, debit cards) are offered only by few banks. In contrast, in mid-2008
Kenya had 1,100 ATM in operation and over 2 million plastic cards in
circulation (one for every 17 people).
Market Definition
Geographical Market: In geographical terms, the market for banking services
can be broadly regarded as having a nationwide character, but with significant
differences between urban centers and rural areas. As indicated above, in rural areas
70
the banking network is still largely undeveloped, and this gives rise to situations of
“local monopoly”, i.e., locations with only one bank branch. In contrast, in urban
areas the bank network is much more dense, therefore making it possible for users
(i.e., depositors and borrowers) to switch from one bank to another.
Product Market: In general, the definition of banking services encompasses a range

of products and services (short, medium and long term lending; domestic and
international payment services, deposits with different maturities, etc.), and this may
give origin to separated or at least only partially interlinked markets. In Ethiopia,
some banks specialize in certain products (i.e., DBE in long term lending, CBB in
housing financing) and others show an inclination to deal with certain sectors (e.g.,
Wegagen and United appear to be comparatively more involved in international trade
transactions). But, in general, most banks can be regarded as universal banks, offering
or, at least, potentially able to offer, all the various services. A completely separate line
of business is represented by microfinance. In some African countries, microfinance
institutions (MFI) have shown a tendency to “upscale” their operations, providing
larger loans with longer maturities, and some of these institutions have become,
de jure or de facto, commercial banks. An example is provided by Pro-Credit, a
financial institution active in many developing countries, which typically combines
microfinance products with traditional banking. In other cases, commercial banks
have launched special programs specially targeted at micro-enterprises, therefore
combining “mainstream” commercial banking with microfinance. An example of
this trend can be found in Kenya, where four commercial banks (Equity Bank, Co-
operative Bank, K-REP Bank and Family Bank), are active in providing microfinance
products and services. In Ethiopia, this “overlapping” between mainstream banking
and microfinance is still very limited (CBE is providing loans to some MFI while
some credit and savings organizations are among the founders of a couple of banks),
and therefore the microfinance sector is analyzed separately.
Presence of state-owned and endowment banks: Despite the opening up of the
market for banking services to private operators, state-owned banks still largely
dominate the sector. Taken together, the three public banks account for between
two thirds and three quarters of the total, depending upon the variable taken into
consideration (total assets, capital, loans outstanding, etc.). Only in the case of the
number of branches with private and public banks having more or less the same share
is the situation more balanced. However, the degree of public dominance has been
declining over time. For instance, in the case of total assets, since the mid-1990s the
share held by public banks has declined by about 20 percentage points, from about
94 percent to 77 percent. The role of endowment entities is relatively modest, with
Wegagen Bank accounting for 3 percent to 7 percent of the total, depending on the
variable considered. Relevant data are provided in Table 14 and Figure 8 below.
71
Table 14 Relative Importance of Categories of Banks
Loans Outstanding Capital Branches

Types of Banks Total Assets (2006)
(2006) (2008) (2008)
State-owned Banks 77% 59% 66% 47%
Private Banks 23% 41% 34% 53%
Of which:
3% 6% 5% 7%
Endowment Banks
30 April 2007 and NBE.
Figure 8 Composition of Banking Assets Overtime

100% 6% 9% 11% 13% 16% 17% 18% 21% 23% 27%
94% 91% 89% 87% 84% 83% 82% 79% 77% 73%
0%
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
Public Banks Private Banks
30 April 2007 and own estimates based on NBE data.
Concentration and asymmetry in size among operators: The state-owned

Commercial Bank of Ethiopia (CBE) is by far the largest operator, accounting alone
for 68 percent of total banking assets. CBE’s role is comparatively less important,
but still predominant, in lending activities, where it accounts for about one third of
loans outstanding. Overall, Ethiopia’s banking sector is highly concentrated, with
CBE and the other three largest banks accounting for 86 percent of total assets. A
high level of concentration is not uncommon in the banking industry in African
countries, and there are several examples of (usually small) countries where the
banking sector is dominated by only a couple of financial institutions. However,
when compared with the banking sector of African economies of comparable size,
such as Kenya, Ethiopia shows a much higher level of concentration and, especially,
a marked asymmetry between the leading bank and its followers. Relevant data are
provided in Table 15 and Figure 9 below.
72
Table 15 Market Concentration – Ethiopia vs. Kenya*
Ethiopia (2006) Kenya (2007)

Market share of largest bank 68% 17%
Market share of top 4 banks 86% 45%
Market share of top 8 banks 97% 68%
* Calculated with reference to banking assets
30 April 2007, and Central Bank of Kenya
Figure 9 Asymmetry in Size among Banks – Ethiopia vs. Kenya*
Size Distribution of Top 10 Banks – Ethiopia Size Distribution of Top 10 Banks – Kenya
(2006) (2007)
100% 100%
75% 75%
68%
50% 50%
25% 25%
17%
12% 10%
6% 6% 6% 7% 6% 5%
4% 3% 4% 4% 4% 3%
2% 2% 2% 0%
0% 0%
* Calculated with reference to banking assets

Source: BKP Development, Assessment of the Impact of GATS on the Ethiopian Financial Services
Sector, 30 April 2007, and Central Bank of Kenya.
Entry Barriers: In line with the Licensing and Supervision of Banking Business
Proclamation No.84/1994, the establishment of banks is subject to the licensing
of the National Bank of Ethiopia (NBE), which is also responsible for overall
supervision of the banking sector. The minimum capital for the setting up of a
commercial bank is set at Birr 75 million, equivalent to some 6.8 million USD. This
is at an intermediate level compared with what is found in other African countries
(Kenya: USD 3.6 million; UEMOA—West African Economic and Monetary Union
--countries: USD 10 million) and does not seem to pose any significant barrier to
the entry of new operators. The real entry barrier concerns the fact that the banking
business is reserved to domestic investors, with an explicit prohibition to the entry
of foreign operators. Ethiopia’s restrictive regime contrasts with what is found in
most African countries. For instance, in neighboring Kenya 10 banks out of the 45
in operations are controlled by foreign investors and foreign interests own about 45
percent of total banking assets. The prohibition of foreign participation in Ethiopia’s
banking sector has been repeatedly criticized by international organizations and
observers, and has also become a contentious issue in the framework of negotiations
73
for accession to the World Trade Organization. However, this position remains a key
element of government policy, as recently re-confirmed by the Prime Minister.
Vertical Integration: Strictly speaking, the notion of vertical integration has limited
significance in the banking sector. Instead, the existence of privileged relationships,
i.e., of special linkages between banks and their clients, especially borrowers, may
introduce distortions to competition, especially in the markets where “privileged
partners” operate. This is indeed the case in Ethiopia, as several commercial banks
are participated by large industrial groups.
Regulatory Aspects: NBE’s prudential regulations are applicable to all banks,

irrespective of their status and ownership. Therefore, these measures, although
sometimes criticized by the banking community on various grounds (as in the case
of the increase in reserve and liquidity requirements), do not have any significant
impact on competition. A minor limitation is represented by the setting of minimum
rates on deposits (lending rates were liberalized in 1998), but the impact of this
measure appears to be modest. On the other hand, the NBE has tried to reduce
the risk of cartelization among banks by prohibiting the simultaneous presence of
certain individuals in the board of directors of more than one financial institution,
but unfortunately this pro-competitive attitude has been challenged in courts.

In Ethiopia, the issue of anticompetitive practices has often been raised with
reference to state-owned/endowment banks, which are often said to grant more
favorable conditions to other state-owned/endowment entities, especially regarding
access to credit facilities. Available data confirm that state-owned enterprises, as well
as cooperatives, rely overwhelmingly on lending from state-owned banks, while the
situation of endowment banks cannot be easily ascertained. The relevant figures are
provided in the following table.
Table 16 Distribution of Outstanding Loans by Type of Borrower (2008)

(In billion Birr)
Types of Borrower State-owned Banks Private Banks Total
State-owned Enterprises 8.8 0.0 8.8
Cooperatives 3.0 0.1 3.1
Private Enterprises 13.0 16.3 29.3
Total 24.8 16.4 41.2
Source: NBE.
In any event, it is important to note that instances of privileged relationships can

also be found in the case of some private banks, and in some cases lending to related
74
parties resulted in significant problems. The point is illustrated by the difficulties
experienced during the financial year 2007/08 by Bank of Abyssinia, which suffered
significant losses as a result of loans extended to some of its shareholders (or their
associates), namely the Star Business Group and the Ethio-Investment Group28.
Microfinance
Salient Features
As of June 2008, there were 28 MFI in operation in Ethiopia. Most of these entities
were established in the second half of the 1990s and in the early 2000s, although
some (e.g. Digaf, Harar, Tesfa, and Lafayeda) were recently founded. Ethiopia was
one of the first African countries to adopt a coherent framework for the regulation of
microfinance activities (Proclamation No. 40/1996), and this allowed for an orderly
development of the sector. Indeed, Ethiopia’s MFI sub- sector is fairly large relative
to the banking sector: in mid-2008, MFI’s total assets were at some 5.3 billion Birr,
above 10 percent of the corresponding value in the banking sub-sector. Also, the
two largest MFIs, Dedebit and Amhara Credit and Savings Institution (ACSI),
have both assets and loan portfolios well above Birr 1 billion, making them broadly
comparable with the smallest commercial banks. Overall, Ethiopian MFIs provide
service for an estimated 1.5-2 million people, reaching very high penetration rates
in some areas (more than 80 percent of households in Tigray Regional State). MFI
operations are usually run in an efficient manner: operating costs are low and the
quality of portfolio is fairly high (non-performing loans at about 5 percent), and this
translates into relatively low interest charges. Ethiopian MFI are represented by the
Association of Ethiopian Microfinance Institutions (AEMFI). Established in 1999,
AEMFI is a solid organization, providing assistance and training to its members,
with support from various donors.
Market Definition
Geographical Market: The market for microfinance services is largely segmented
along regional lines. Indeed, the majority of Ethiopia’s MFI, and especially the largest
ones, are active in only one regional state. Only a handful of medium sized MFI (e.g.
Wisdom, PEACE, SFPI) operate in more than one regional state. The presence of
various MFI in Ethiopia’s regions is presented in Table 17 below.
28
“Sick Loans Plunge Abyssinia’s Profit by 75 Percent”, Addis Fortune, 8 December 2008.
75
Table 17 Regional Presence of MFI
MFI Tigray Amhara Addis Ababa Oromia SNNP Dire Dawa Harar Benishangul
Dedebit √
Amhara CSI (ACSI) √
Addis CSI (ADCSI) √
Oromia (OCSSCO) √
Omo Microfinance √
Diredawa Microfinance √
Harar Microfinance √
Benishangul-Gumuz MFI √
Aggar Microfinance √ √
Africa Village Fin. Services √ √
Bussa Gonofa Microfinance √
Digaf Microfinance √
Eshet Microfinance √
Gasha Microfinance √ √
Ghion Microfinance √
Harbu Microfinance √
Letta Microfinance √ √
Meket Microfinance √
Meklit Microfinance √
Metemamen Microfinance √ √
PEACE √ √
SFPI √ √
Shashemene MFI √
Sidama Microfinance √
Wasasa Microfinance √
Wisdom Microfinance √ √ √ √
Lefayeda MFI √
Tesfa Microfinance √
Source: AEMFI and NBE.
Product Market: Microfinance includes a wide range of products, from solidarity

and individual micro loans in the order of Birr 1,000 to 5,000 to more sophisticate
products, such as housing loans of 40-50,000 Birr and micro leases of up to Birr
200,000. While “classical” micro lending is offered by virtually all MFI, more
advanced products are provided only by the largest MFI and/or by those operating
in urban areas.
76
Presence of state-owned and endowment operators: Several MFI were established
by regional governments/endowment funds and/or enjoy financial support from these
entities, in the form of loans, donations or guarantees. This is especially the case of
the largest MFI, such as Dedebit, ACSI, OCSSCO and Omo Microfinance, which
are actively supported by the local governments of, respectively, Tigray, Amhara,
Oromia and SNNP. Medium sized MFI are largely connected with NGO and civil
society organizations, although several MFI also see a significant participation of
individuals. At times, the involvement of local governments and/or endowment
funds in the ownership of MFI has been criticized for being an instrument to create
political consensus. On the other hand, as indicated above, these political motivations
do not seem to have had any negative impact on the efficiency of MFI operations.
Concentration: At the national level, the MFI sector is largely dominated by a

few large players. In particular, Dedebit and ACSI have a cumulated market share
of about 65 percent. The market share increases to 85- 90 percent when the three
other large MFI are added (ADCSI, OCSSCO, and Omo Microfinance). In reality,
given the geographically fragmented nature of the microfinance sector, the level of
concentration in regional markets is significantly higher, with several cases of absolute
monopoly. More competitive conditions are found in Addis Ababa, Oromia and
SNNP, but even there the leading player is estimated to account for at least 70- 75
percent of the market. The relevant data are provided in Table 18.
Table 18 Concentration in Regional Markets*
Dire
MFI Tigray Amhara Addis Ababa Oromia SNNP Harar Benishangul
Dawa
Number of MFI in 1 4 10 12 8 1 1 1
operation
Leading MFI Dedebit ACSI ADCSI OCSSCO Omo Dire Harar Benishangul
MFI MFI MFI MFI
Estimated market share 100% >95% >75% >70% >75% 100% 100% 100%
of leading MFI
* Data refer to MFI total assets.

Source: AEMFI and NBE.
Entry Barriers: The minimum capital required to establish an MFI has been set at
Birr 200,000, i.e., about USD 18,000. This is a very modest amount, much lower
than in other African countries (in Kenya an amount 15 times higher is required
even for non-deposit taking MFI) and this helps to explain the large number of
small MFI in operations. As in the case of commercial banks, MFI cannot be owned
or participated in by foreign entities. However, MFI are entitled to receive funding,
in the form of grants or loans, from foreign NGO as well as from donor programs.
77
Regulatory Aspects: NBE’s prudential regulations apply to all MFI, irrespective
of their ownership/affiliation status, and therefore have no impact on competition.
Lending rates were liberalized at the end of the 1990s, while NBE still sets minimum
rates deposits, which are set at the same level for both MFI and commercial banks.
Insurance
Salient Features
In Ethiopia, the insurance business started in the early 1950s, with the establishment
of the Imperial Insurance Company of Ethiopia, a joint venture between Ethiopian
investors (including HM the Emperor) and British interests. This was followed by
the establishment of several other operators, mostly foreign-owned. An appropriate
regulatory framework for the insurance business was introduced in 1970, and this
included the establishment of an independent supervisory authority, the Controller
of Insurance, a fairly innovative arrangement for the period. These early, favorable
developments were brought to a drastic halt during the socialist period, when
all insurance companies were nationalized and consolidated into the Ethiopian
Insurance Corporation (EIC). The market for insurance services was revived after
the fall of the regime. Proclamation No. 86/1994 opened the market for insurance
services and products to (domestic) private operators and conferred supervisory
responsibilities upon the NBE. Despite the opening up of the market to private
operators, the development of Ethiopia’s insurance sector has been fairly modest,
also in comparison with other African countries. Total annual premiums are worth
little more than Birr 1 billion, a figure that is less than one fifth of what is earned
by the insurance industry in Kenya. Accordingly, expenditure for insurance is at a
mere USD 1.5 per capita, compared with about USD 21 per capita in Kenya. Also,
activities concentrate in the so called “general insurance” business and life insurance
remains largely undeveloped. Some comparative data on the insurance industries in
Ethiopia and Kenya are presented in Table 19 below.
Table 19 Key Indicators for the Insurance Business — Ethiopia vs. Kenya
Indicator Ethiopia (2007) Kenya (2007)

Total Premiums (General Insurance and Life Insurance) USD 113 million USD 754 million
Share of Life Insurance Business 6% 32%
Insurance Penetration Rate (total premium as % of GDP) 0.60% 2.65%
Insurance Density (premium per capita) USD 1.5 USD 21.4
30 April 2007, and Association of Kenya Insurers.
78
At present, there are 12 active insurance companies in Ethiopia, of which one is state-
owned, one controlled by an endowment fund and 10 fully private. Private insurance
companies are often participated by commercial banks, as sometimes signaled by the
use of similar denominations (e.g., Awash Insurance and Awash Bank). Apart from
EIC, the majority of insurance companies were established during the 1990s and in
the early 2000s, but recently there have been three new entries (Lion Insurance in
2007, Ethio-Life and Oromia Insurance both in early 2009). In the year 2000, the
insurance sector witnessed the only merger of note that occurred so far in Ethiopia’s
financial sector, with the take-over by United Insurance of an ailing insurer. Most
companies are active in both general insurance and life insurance, with few cases
of specialization. The salient features of insurance companies in operations are
summarized in the following table.
Table 20 Basic Features of Insurance Companies

Ethiopian Insurance 1980 General and life Public Resulting from the amalgamation
Corporation insurance of insurers nationalized in the mid
1970s
Awash Insurance Company 1994 General and life Private Participated by Awash Bank and
insurance Nib Bank
Africa Insurance Company 1994 General and life Private Endowment company
insurance
United Insurance Company 1994 General and life Private Participated by United Bank
insurance Took over Lion Insurance in 2000
National Insurance 1994 General Controlled by Nib Bank and Bank

Company of Ethiopia insurance only of Abyssinia
Nile Insurance Company 1995 General and life Private Controlled by Bank of Abyssinia
insurance
Nyala Insurance Company 1995 General and life Private Participated by Dashen Bank
insurance
Global Insurance Company 1997 General Private Participated by Wegagen Bank,

insurance only endowment company
Nib Insurance Company 2002 General Private Controlled by Nib Bank

insurance only
Lion Insurance Company 2007 General Private Participated by Lion Bank

insurance only
Ethio-Life Insurance 2009 Life insurance Private

only
Oromia Insurance 2009 General and life Private Participated by Oromia-based
Company insurance financial institutions and Awash
Bank
Source: Hailu Zeleke, Insurance in Ethiopia, August 2007 and BKP Development, Assessment of the Impact of
GATS on the Ethiopian Financial Services Sector, 30 April 2007.
79
Market Definition
Geographical Market: The market for insurance services can be broadly regarded
has having a nationwide character, but with one important qualification. As in the
case of banking services, the network is largely concentrated in the main urban areas,
with Addis Ababa alone accounting for 51 percent of all the branches in operations
(88 out of 172). Accordingly, in some rural areas and smaller towns there are cases
of “local monopoly”, where clients are not in a position to choose among different
insurance companies.
Product Market: The insurance business includes two main lines of business, namely,
general insurance and life insurance. The former is further subdivided into several
segments, such as motor insurance (for both individual and commercial entities),
engineering insurance, aviation and maritime insurance, fire insurance, accident
and health insurance, etc. Strictly speaking, each of these activities does constitute
a separate product market in its own right, as obviously there is no substitutability
among different types of insurance policies. However, in the case of Ethiopia (as
well as of other developing countries), specialization is fairly rare and most insurers
operate across the whole range of insurance businesses. Indeed, at present there is
only one company specializing in life insurance (the just established Ethio-Life),
while three others (Global, Nib and National) only deal with (the various types of )
general insurance business. In practice, this means that the majority of companies
currently operating in the country are effectively in competition with each other.
Presence of state-owned and endowment operators: The presence of the state in
the insurance business is quite significant, but not as dominant as in the case of
banking services. Starting from the mid-2000s, the state-owned EIC has accounted
for little less than 50 percent of total premiums. EIC’s share is higher (above 60
percent) in the life insurance business, which however accounts for only a fraction
of the total. The endowment fund-owned Africa Insurance Company accounts for
about 9 percent of total premiums (about the same for life insurance), while fully
private insurers cumulatively hold a market share of about 45 percent (30 percent
for life insurance).
Concentration and asymmetry in size among operators: The Ethiopian insurance

industry is highly concentrated. Apart from the absolute leadership exerted by EIC,
the top four companies hold a cumulated market share of 72 percent. This is about
2.3 times bigger than the market share held by the top four insurers in Kenya (see
Table 21 below). The high concentration is associated with a marked asymmetry in
size among operators, with EIC being four times bigger than its closest competitor
80
(Nile Insurance). Again, this is at odds with the situation found in other countries,
where a more balanced situation among the leading players is often found (see
Figure 10). As a result of the above, the current situation can be described as one
where private insurers are simple “followers” or “imitators” of EIC, rather than being
capable of devising and implementing autonomous development strategies.
Table 21 Market Concentration – Ethiopia vs. Kenya*
Ethiopia (2007) Kenya (2007)

Market share of largest insurer 44% 9%
Market share of top 4 insurers 72% 31%
Market share of top 8 insurers 100% 51%
* Calculated with reference to total gross premiums (life + general insurance).
Source: BKP Development, Assessment of the Impact of GATS on the Ethiopian Financial Services
Sector, 30 April 2007, and Association of Kenya Insurers.
Figure 10 Asymmetry in Size among Insurance Companies – Ethiopia vs. Kenya*
Size Distribution of Top 10 Insurers – Ethiopia Size Distribution of Top 10 Insurers – Kenya
(2007) (2007)
50% 50%
44%
25% 25%
11%
9% 9% 9% 9% 8%
7% 9% 8%
6% 5% 5% 5% 5% 4% 4%
3%
0% 0%
0% 0%
* Calculated with reference to total gross premiums (life + general insurance).

Source: BKP Development, Assessment of the Impact of GATS on the Ethiopian Financial Services Sector, 30
April 2007, and Association of Kenya Insurers.
Vertical Integration: As in the case of other financial services, the issue of vertical
integration is scarcely relevant in insurance. More important is the issue of privileged
relationships existing between some insurance companies, banks and other economic
groups, which may open the door to favoritism and abusive practices.
Entry Barriers and Regulatory Aspects: Minimum capital requirements for the
establishment of an insurance company are set in Proclamation No. 86/1994 and
vary from Birr 3 million for general insurance companies to Birr 4 million for life
insurers to Birr 7 million for companies active in both general and life insurance.
81
These are extremely low amounts, corresponding to one tenth of what is required
for the same lines of business in Kenya, and certainly do not constitute a significant
barrier to the entry of new operators. As in the case of other financial activities,
the insurance business is reserved for domestic investors. However, Ethiopian
companies are free to deal with foreign re-insurers, to whom they pass part of the
risks underwritten. NBE regulations are sometimes criticized by insurance operators
as being poorly adapted to the sub-sector, but in general they do not seem to have
any appreciable impact on the level of competition.
Private insurers have sometimes complained about the fact that state-owned
enterprises are “instructed” to do business only with EIC, thereby depriving
competitors of a significant slice of business. Indeed, some years ago there was a
letter form the Government essentially recommending public enterprises to ‘think
twice’ before switching from EIC to other companies. According to government
officials interviewed on the matter, the letter was motivated by considerations
regarding EIC’s stronger financial situation and should not be interpreted as a sign
of favoritism. Whatever the motivations of this specific episode, it is a fact that in
practice state-owned enterprises tend to rely on EIC, while private insurers mainly
work with private operators. In this respect, it should be noted that at times private
insurers have themselves showed an inclination for dubious deals with related parties,
and this has certainly not contributed to enhance confidence in their financial
solidity. An example is provided by the financial guarantees issued in 2008 by Nile
Insurance in favor of the Star Business Group and other shareholders which resulted
in significant losses29.
29
On this subject, see “Central Bank Eliminates Two Directors from Nile Insurance”, Addis Fortune, 24 June 2008
and “Central Bank Sacks General Manager of Nile Insurance”, Addis Fortune, 1 July 2008.
82
CHAPTER EIGHT
Transport Services
The transport sector plays a crucially important role in Ethiopia, owing to the
country’s vast surface and landlocked nature. Transport provides service for all other
sectors of the economy and it is estimated to account for about 8 percent of the
GDP. All transport modes and technologies are used in Ethiopia, from horse/ox-
drawn carts to railways and from motorized road transport to shipping. Motorized
road transport is the dominant mode, accounting for 95 percent of all passenger and
freight movements. Accordingly, this chapter focuses on the two typologies of road
transport: freight transport and passenger transport.
Road Freight Transport

Salient Features
Overview: According to the latest statistics published by the Ministry of Transport
and Communications (MoTC), in 2005/6 dry freight transport reached a volume of
7.8 million tons (2,321 million tkm), while liquid cargo (basically, fuels) was at 1.1
million tons (372 million tkm). Overall, freight cargo has displayed a growing trend
over the years, in line with the growth in economic activity. In 2006/7, Ethiopia’s
cargo fleet included over 43,000 vehicles. About one third of vehicles are owned and
operated by businesses in various sectors and used for “own-account” transportation,
leaving a total of 37,400 vehicles for commercial (i.e., “for hire”) transport, of which
35,600 for dry cargo and 1,800 for liquids. Trucks with a low to medium capacity
(up to 18 tons) are the most common, and only one fifth of vehicles are long
vehicles, with a capacity of 30-40 tons. The Ethiopian truck fleet is pretty old: some
40 percent of vehicles have been in service for 16 years or more, and fewer than 20
percent are less than five years old. Many vehicles are in precarious conditions and
this, combined with widespread malpractices (e.g., overloading, long hours at the
wheel), contribute significantly to Ethiopia’s negative record in terms of traffic safety.
Given the country’s geographical position and heavy reliance on international trade,
the Addis Ababa – Djibouti route, via Adama, Awash, Mile, Galifi, is by far the main
corridor. Due to the imbalanced nature of traffic along the corridor (imports are
much more important than exports), load factors are relatively low. This is especially
the case for liquid cargo, and basically all tankers en route to Djibouti travel empty.
Productivity is further affected by the long waiting times at Djibouti port and by
various structural factors, such as the poor conditions of certain roads, the lack
of bypass roads to avoid congested urban areas, etc. Despite all these weaknesses,
overall the Ethiopian road freight system does not perform too badly. Transport does
83
represent a significant share of the total cost of exports and imports, but the situation
is not worse than in other landlocked African countries. In fact, unit rates have been
declining in real terms for some years, and at times their level has been judged lower
than operating costs.
Main Operators: In freight transport, there are two main types of operators,
namely transport associations, and transport companies. Transport associations
are organizations of a cooperative nature, grouping individual truckers and small
trucking firms. Their main function is to secure cargo for their members, in
exchange for a commission. Some associations also provide ancillary services, such as
maintenance. According to the data provided by the Transport Authority (TA), there
are at present about 90 associations in operations, of which about 20 have fleets of
between 100 and 400 trucks. Some associations collaborate closely with transport
companies (especially state or endowment-owned – see below), for whom they work
as subcontractors. Transport companies include some state-owned entities resulting
from the breaking up of the state corporation which dominated the sector during the
socialist period (Ethiopia Freight Transport Corporation – EFTC), as well as newly
established private and endowment companies. At present there are an estimated
60 - 70 transport companies, with fleets ranging from a mere 10 – 15 trucks to up
to 350 vehicles. Most companies specialize either in dry cargo or in liquid cargo,
but some (e.g. Trans Ethiopia) are active in both lines of business. Some transport
companies are also engaged in other, more or less related, lines of business, such as
the provision of maintenance services, the import and distribution of spare parts
and, sometimes, vehicles and construction equipment. The salient features of the
leading freight transport operators are presented in Table 22 below.
Table 22 Basic Features of Ethiopian Freight Transport Operators
Fleet (Number
Companies Typology and Ownership Lifting Capacity
of Trucks)
Dry Cargo (capacity in tons)
Trans Ethiopia Transport Company - Endowment Fund 351 13,071
United Dry Cargo Association Transport Association 449 12,566
Africa Dry Cargo Association Transport Association 206 7,375
Selam Dry Cargo Association Transport Association 296 6,411
Bekelcha Transport Transport Company - State-owned 191 6,330
Liquid Cargo (capacity in ‘000 liters)
East-West Transport Transport Company - Private 90 3,678
Yahel Transport Transport Company - Private 90 3,292.9
Tana Liquid Cargo Association Transport Association 102 2,425.2
Vision Liquid Cargo Transport Company - Private 60 2,440.5
Abas Trade and Transport Transport Company - Private 46 1,983.7
Source: Interviews and database from the Transport Authority.

84
Market Definition
In terms of product market definition, freight transport is a composite business,
including various separate lines of business. The first, obvious, distinction is between
dry cargo and liquid cargo. But even within each of these two categories, there are
important distinctions. For instance, a trailer used for carrying containers cannot
be easily converted to transport agricultural produce in bulk. Also, gasoline and
milk are both liquids, but they obviously require dedicated vehicles. The market is
also segmented along geographical lines. While trucks are, by definition, movable
assets, which can be quickly relocated from one area to another, depending upon
needs, in practice such relocation is difficult to achieve, because of various factors
(lack of previous business relationships, drivers unfamiliarity with the terrain and
road network, etc.). The existence of regional/sub-regional markets, confirmed by
the existence of widely diverging tariff rates, inevitably limits the significance of the
aggregate analysis carried out in this chapter.
Presence of state-owned and endowment enterprises: At present, there are four
state-owned transport enterprises, of which three are active in the dry cargo business
(Comet, Bekelcha and Shebele) and one in the liquid cargo (Weyira). Some state-
owned enterprises involved in trading, such as MEWIT and EGTE, do own and
operate their own fleets of vehicles. Reportedly, they are occasionally carrying cargo
on a commercial basis, in order to minimize the impact of empty hauls30. There are
three endowment enterprises active in road freight transport: Trans Ethiopia, owned
by EFFORT; Blue Nile Transport, owned by ENDEAVOR; and Dinsho Transport,
part of the Dinsho Group. Trans Ethiopia is one of the key players in the industry,
operating in both the dry cargo and liquid cargo segments (as well as in related
lines of business, such as import and distribution of tires, fuel distribution). Overall,
state-owned and endowment companies play a significant role in the business, but
they cannot be regarded as holding a dominant position. However, their influence
is enhanced by the existence of collaboration agreements with some transport
associations, which act as “force multipliers”.
Concentration and Asymmetry in Size among Operators: In dry cargo transport,

prima facie, the level of concentration is rather modest. Data provided by the TA
indicate that the first four operators account for not more than 21 percent of total
lifting capacity (measured in terms of tons), while the first 8 hold a share of 33
percent. Figures are even lower when concentration ratios are calculated with respect
to trucks, with the top four operators accounting for 17 percent and the top 8 for
27 percent. Higher figures would be obtained if one were to consider the transport
associations working as subcontractors, but on the whole concentration does not
30
World Bank, Transport Costs in Ethiopia: An Impediment to Exports?, 18 March 2004.
85
reach alarming levels, at least at national level (see below). Concentration is higher
in liquid cargo transport, but this is in line with the more specialized nature of the
business. The top 4 companies account for 46 percent of capacity and 44 percent of
trucks, while the top 8 reach levels of, respectively, 67 percent and 71 percent. It is
important to note that the above data refer to concentration measured at national
level. While in the case of liquid cargo this seems to be a good approximation of
conditions prevailing in the relevant market (most liquid cargo transport is done along
the Addis Ababa – Djibouti corridor), in the case of dry cargo higher concentration
figures may well occur in the regional/sub-regional markets, where fewer companies
are likely to operate.
Table 23 Market Concentration – Dry and Liquid Cargo
Dry Cargo Liquid Cargo

In Terms of Lifting Capacity
Market share of top 4 operators 21% 44%
In Terms of Trucks
Source: Database provided by the Transport Authority.
Vertical Integration: Vertical integration is of limited relevance in the road transport

sector. Almost all the large transport companies and associations have their own
mechanical shops and other auxiliary services, but this responds to understandable
cost minimization logic, without any appreciable impact on competition. A factor
having a much more substantial impact on competition, is Comet’s position as a de
facto inland dry port manager, as its yard in the southern outskirts of Addis Ababa
has been used as an inland clearance depot for the traffic coming from Djibouti31.
However, the recent launch of a proper inland dry port facility at Modjo, managed
by a Dutch company, has modified this situation.
Entry Barriers – Economic and Regulatory Factors: Economic factors do not

constitute a serious barrier to new entrants. Obviously, trucks (and, especially,
tankers) do not come cheap. But there are plenty of opportunities for second-hand
vehicles. As shown by the some 3,000 new licenses for freight transport granted by
MoTC in 2005/6, the size of the initial investment cannot be regarded as a major
obstacle. As for regulatory aspects, the dry cargo business has been completely
liberalized, and rates are freely set, with the TA simply monitoring their evolution. In
the liquid cargo business, transport rates are indirectly set by the GoE, as a result of
31
COWI – GOPA, National Transport Master Plan Study – Road Transport, Working Paper 15, September 2006.
86
the setting of both the purchase and selling prices for oil products. The liberalization
of rates for liquid cargo has been repeatedly requested by operators, who complain
about the limited profitability of the business. Other regulatory barriers refer to the
high import duties levied on vehicles, which tends to slow down the modernization
of the fleet, and the prohibition of entry vis-à-vis foreign operators.

The analysis does not reveal any particular instance of anticompetitive behavior. In
some cases, reference is made to the privileged treatment reserved to state-owned and
endowment fund-owned enterprises, but the supporting evidence appears limited32.
As a matter of fact, the low rates recorded, at least along the main corridor, suggest that
competitive forces are at work. However, there is an element that appears to require
a deeper investigation. A recent study from MoTC33, indicates a wide variation in
freight costs across regions, with unit rates ranging from Birr 1.46 in the Tigray and
parts of Afar regions to Birr 0.52 in Central Ethiopia. These marked differences
are largely explained by the more severe road conditions found in certain parts of
the country, as well as by other factors, such as the type of cargo and the length of
hauls (the shorter the trip, the higher the incidence of handling costs). However,
as indicated above, it is also possible (indeed, likely) that in selected regional/sub-
regional markets concentration is higher than at the national level, implying a higher
degree of market power and/or facilitating collusive practices. This is certainly an
area where more detailed work would help in reaching a better understanding of
situation.
Road Passenger Transport

Salient Features
Overview: The passenger road transport business includes two main segments,
namely urban transport and intercity transport. According to MoTC data, in
2006/7 urban transport reached a total of 186 million passengers, while intercity
transport stood at 133 million passengers. Service is provided by a fleet of about
37,000 vehicles, including some 20,000 taxis and minivans, 13,000 minibuses
(seating 9 to 12), 4,500 midi-buses (seating 13 to 45) and 1,000 maxi-buses (seating
more than 45) . Taxis, minivans and minibuses are mostly used in urban transport,
together with a certain number of city buses. Intercity service is performed with
midi and maxi-buses. As in the case of freight transport, the fleet is in less than ideal
conditions, with some 50 percent of all vehicles having been in use for more than 20
32
For instance, the World Bank report cited above indicates that only GoE approved transport companies are allowed
to move gas from Sudan and Ethiopia. However, the information dates back to 2004 and it was not possible to find
a confirmation of the problem in more recent documents.
33
MoTC, Commercial Road Freight Transport – Review of Freight Haulage Costs in Ethiopia, May 2007.
87
years. Again, this negatively impacts on the level of service and, especially, on road
safety, with minibuses being responsible for a large share of road accidents.
Main Operators: In urban transport there are three typologies of operators: public
transport companies, taxis and minibus associations/companies, and individual taxis.
With a fleet of some 350 serviceable city buses, Anbassa is the leading urban transport
operator, providing services in Addis Ababa and in Jimma. Established back in 1943,
initially Anbassa was also involved in inter city transport, but later transferred this line
of business to another state-owned enterprise. More limited public transport services
are also reportedly provided in Mekele, Hawasa, Dire Dawa, Bahir Dar and Adama.
Taxi and mini bus associations have fleets of a variable size. A new taxi company
(Sheger) was recently launched in Addis Ababa, for the provision of metered taxi
services. Inter-city transport sees the presence of 15 - 20 transport associations,
mostly active on short and medium routes, and of a few transport companies, active
in long distance travel. The latter include one state-owned enterprise (Walia), some
companies established by regional development associations (e.g., Selam) and some
newly established private companies (e.g., GTS Commercial Transport, Emperor
Fasil, etc.). The salient features of selected passenger transport operators are provided
in the following table.
Table 24 Basic Features of Selected Passenger Transport Operators
Companies Establishment Ownership Fleet Comments

Anbassa 1953 State-owned 350 city buses Also active in Jimma. Recently bought 90
midi-buses from China, with GoE funding.
Sheger City 2008 Private 150 taxis (expected) A new initiative, intended to become
Meter Taxi operational within the first half of 2009.
Selam 1996 Tigray Some 20 luxury Starting in 2006 opened the capital to
Development buses private investors, with aim to reduce public
Association shareholding to 40%.
Walia Bus 1995 State-owned Between 30 and Inherited the inter city business from Anbassa.
110 intercity The company is facing financial difficulties
buses (varies upon and attempts to privatize it have failed.
sources)
Source: PSD Hub, The Management of Commercial Road Transport in Ethiopia, 2 April 2009, company websites
and press reports.
Market Definition
The passenger transport sector must be seen as a collection of separate markets.
Apart from the obvious distinction between urban and intercity transport, there are
a number of other factors that contribute to segmentation. For instance, a ride on
88
an overcrowded, 20-year-old collective taxi is obviously very different from a ride in
a metered taxi. In urban transport, there is some degree of substitutability between
some transport means (one can substitute a ride with Anbassa buses, with minibus
services, provided that they go in the same direction). Instead, in intercity transport,
each route does constitute a separate market. As in the case of freight transport, the
presence of various relevant markets in product and/or geographic terms, inevitably
reduces the significance of the aggregate analysis carried out in this chapter.
Presence of state-owned and endowment enterprises: In urban transport, city
bus services are provided only by state-owned enterprises, while minibuses and taxis
are operated by private entities. State-owned enterprises play an important role
only in Addis Ababa, where Anbassa is estimated to account for anything between
one third and a half of total motorized movements. In other cities, the market is
dominated by private operators34. For instance, in Dire Dawa, the local municipal
bus company is reported to carry a mere 800 passengers per day, compared with the
130,000 transported by minibuses, taxis and rickshaw. In intercity transport, data
referred to 2006 show that Walia and Selam accounted for less than 3 percent of the
fleet. However, Walia was also counting on a series of associates, which cumulatively
accounted for little more than 20 percent of the fleet, while the rest was accounted
for by transport associations. Overall, the role of state-owned enterprises (including
those established by regional development associations) is limited and on a declining
trend.
Concentration and asymmetry in size among operators: Urban passenger

transport is subject to government regulation, and the level of concentration and
asymmetry among operators is a comparatively less important indicator than in other
businesses. In Addis Ababa, the market is basically divided up between Anbassa and
three large transport associations, with a few other players operating at the fringes.
Limited information is available for intercity transport, and this does not allow
calculating market shares. However, the overall limited number of operators active
in this business suggests that on specific routes concentration may be substantial.
Vertical integration and economic barriers to entry: As in the case of freight

transport, vertical integration is of limited significance to judge the level of
competition. Minibus associations sometimes provide back up services for their
members, but this does not have any appreciable impact. Economic barriers mainly
relate to the investment cost associated with the purchase of vehicles. Again, this does
not seem to be a major limitation, as the Dubai second-hand market offers plenty
of opportunities at convenient prices. Brand new buses recently bought by transport
34
For detailed information, see PSD Hub, Report to Improve and Update the Study on the Management of Com-
mercial Road Transport in Ethiopia, 2 April 2009.
89
companies were imported from low cost producing countries (Anbassa from China,
Selam from Brazil), a clear indication that alternatives to expensive couches do exist.
Regulatory Barriers: Passenger transport is subject to regulation by the TA. First and
foremost, TA is responsible for licensing operators and for determining schedules.
While entry is in principle open, in practice membership in one association is a
prerequisite for being licensed. Dispatch schedules are agreed between the TA
and transport associations. Then, schedules are allocated by each association to its
members. Overall, the mechanism appears based on cooperative principles, where
fairness considerations take precedence over efficiency concerns. Regulation also
extends to the setting of fares. Regarding urban transport, Anbassa fares are set
at below cost levels, in order to enhance accessibility, and the difference is covered
by subsidies. Mini bus and taxi rates are also subject to regulation, although this
is based on proposals formulated by transport associations. In intercity transport,
fares for short and medium routes, operated by transport associations with mini
and midi-buses, have been deregulated. Fares for long distance trips are still subject
to approval, with the exception of “premium services”. Regulators are required to
consider justified requests for increases, but there are complaints that current rate
levels are not remunerative (and, indeed, Selam decided to pull out from standard
service and to move into “premium services”).

Urban passenger transport is a rather special case, because of obvious social and
environmental considerations. The licensing of operators, the setting of minibus and
taxi fares, and the subsidization of Anbassa certainly have an impact on competition
but must be regarded as legitimate measures, aimed at achieving social objectives.
If anything, a stricter regulation on qualitative aspects (e.g., age and conditions
of vehicles, qualifications of drivers), could be envisaged, although this is likely to
encounter significant resistance. In intercity transport, social considerations are
also present, but appear as less compelling. Under these conditions, some form
of licensing appears justified (again, on quality and safety grounds) whereas tariffs
could be completely liberalized. An aspect probably worth looking into in detail
is the functioning of transport associations, and especially their role in allocating
routes among members. In fact, while the presence of these intermediate bodies
clearly facilitates the task of regulators, it could also act as a brake to the introduction
of innovative services by more enterprising small operators.
90
PART III
FINDINGS AND
RECOMMENDATIONS
91
CHAPTER NINE
Summary of Findings
This final section summarizes the key findings of the study. First are provided
consolidated assessments of the analysis carried out in Part II. This involves the
summary presentation of the factors impacting on competition in the selected
markets and the ranking of markets in terms of obstacles to competition. Then are
grouped the various markets into homogeneous categories or “typologies” and the
main issues and consequences of obstacles to competition reviewed.
Ranking of Markets
The key factors impacting on competitive conditions in the selected markets analyzed
in Part II are summarized in the table below.
Table 25 Summary of Factors Impacting on Competitive Conditions
Markets Factors Impacting on Competition

Flour • Limited concentration of production, although in some local markets sellers may
have a stronger position
• Modest public presence (12% of total output), expected to decline as a result of
privatization
• Modest financial and technical entry barriers and no regulatory barriers of significance
(foreign presence is forbidden, but this is scarcely relevant in this business)
• Some downward vertical integration, but not impacting on competition. Upward
integration into cereals envisaged for ‘defensive reasons’ (shortage of wheat)
Beer • Presence of a clear market leader (50%), battling with small but not insignificant
competitors
• Presence of state-owned and endowment companies is significant (50%) but
fragmented (and could decline if scheduled privatizations are eventually finalized)
• Significant economic and technical entry barriers, but no regulatory obstacles
• Upward integration into production malt envisaged by one brewery
Soft Drinks & • Duopolistic structure in soft drinks and near monopoly in mineral water (but
Mineral Water situation is evolving)
• Total absence of state/endowment companies
• High (in soft drinks) to moderate (in mineral water) economic barriers. No
regulatory barriers
Sugar • De facto state monopoly (although situation may change as result of new projects
envisaged by private investors)
• Distribution partially done through public companies as well
• Very high financial entry barriers (huge investments) also because of vertical
integration into sugar cane production
• No regulatory barriers, apart from the general prohibition of foreign presence in the
import business
93
Edible Oil • Low concentration of production, with the leader facing some close competitors
• Extremely low presence of state/endowment companies
• Low economic and technical entry barriers
• No regulatory obstacles of significance, apart from the prohibition of foreign
presence
Cereals • Low to moderate concentration among grain traders in local markets (but role of
cooperatives is growing)
• Limited direct public presence (some commercial farms and EGTE) while
government-sponsored co-ops are gaining ground
• Low economic and technical entry barriers
• No regulatory obstacles of significance apart from export ban (deemed to be
transitory) and the general prohibition of foreign presence in the import business
Fertilizers • De facto state monopoly in the import business

• Near state monopoly in wholesaling and highly controlled distribution system (co-
ops, local extension services)
• High financial barriers to entry in import business (due to increasing size of lots)
• No regulatory obstacles of significance apart from the general prohibition of foreign
presence in the import business
Textiles and • Modest presence of state/endowment companies (mostly in textiles)

Apparel • Moderate to low concentration, thanks to opening of market to imports
• Moderate to low financial and technical barriers
• No regulatory obstacles
Banking • Dominant position of state-owned banks, but their share is declining
• Modest presence of endowment banks
• Moderate financial entry barriers (moderate minimum capital), but prohibition of
foreign presence
• Bank supervision and regulations implemented uniformly, irrespective of the
ownership status. Minimum deposit rates are mandated, but this has a modest
impact
Microfinance • Dominant position of endowment/regional government supported organizations,
with cases of absolute monopoly in some regions
• Low financial entry barriers (moderate minimum capital) but prohibition of foreign
presence
• No regulatory obstacle of significance, apart from setting of minimum deposit rates
Insurance • Leadership of state-owned insurer (44%), but its market share is declining
• Moderate presence of endowment insurance
• Low financial entry barriers (moderate minimum capital), but prohibition of foreign
investments
• Insurance supervision and regulations implemented uniformly, irrespective of the
ownership status.
Road Freight • Limited direct presence of state-owned/endowment companies
Transport • Moderate concentration (at least along the main corridor, maybe higher in certain
regions)
• Low financial and technical barriers
• No regulatory barriers, but prohibition of foreign presence
Road Passenger • Limited direct presence of state-owned/endowment companies

Transport • Moderate concentration (at least at the national level, may be higher on specific
routes)
• Low financial and technical barriers
• Licensing and setting of some tariffs as well as prohibition of foreign presence
94
The above elements can be used to achieve a ranking of markets following the
methodology illustrated earlier in the report. In particular, competitive conditions
in each market are assessed with respect to six main dimensions on a 1 to 5 scale,
where 1 means low (i.e. no constraint or very low constraint to competition) and 5
means high (i.e., very high obstacle to competition). The results of this exercise are
summarized in Table 26.
Table 26 Ranking of Markets
Dimensions of competition distortion
Presence of
Presence Vertically Economic Distorted
Market Market Asymmetry Presence of Competition
of State Integrated & Technical TOTAL
Share of among Regulatory Rank
-Endowment Operators/ Entry Score
Leading Operators Obstacles
Operators Privileged Barriers
Operators
Relations
Cereals 2 2 1 1 1 1 8 14
Fertilizers 5 3 5 4 4 2 23 2
Flour 2 2 2 2 2 1 11 11
Beer 4 3 3 1 3 1 15 7
Soft Drinks &

4 4 1 2 3 1 15 7
Min. Water
Sugar 5 5 5 4 5 1 25 1
Edible Oil 3 2 1 1 2 1 10 13
Textiles &
2 2 3 1 3 1 12 9
Apparel
Cement 3 2 3 1 5 2 16 6
Banking 4 4 3 2 2 4 19 4
Microfinance 5 5 4 3 1 4 22 3
Insurance 4 3 3 2 2 4 18 5
Freight
3 2 2 1 2 1 11 11
Transport
Passenger
3 2 2 1 2 2 12 9
Transport
Review of Market Typologies

The above ranking exercise allows for the identification of four typologies of markets.
(i) Monopolized/highly concentrated markets, dominated by state-
owned or endowment enterprises. This typology includes the markets
for fertilizers and for sugar, plus the special case of microfinance. In
these markets, basically there is no competition to speak of and state/
endowment affiliated entities are fully in control.
(ii) Highly concentrated markets with a dominant, but declining state/
endowment funds presence. This includes banking and insurance, plus
the cement market. In the financial sector, state-owned enterprises are
still largely in command, but their position has been gradually eroded
95
by private competitors. In cement, the dominant position of state/
endowment producers has been undermined by imports, and it is
likely to decline further as new private initiatives operations become
operational.
(iii) Highly concentrated markets with private sector dominance. This
typology includes the markets for beer and soft drinks/mineral water.
Here, large private companies play a dominant role but competition
among operators, albeit imperfect, is indeed present.
(iv) Low-moderately concentrated markets with private sector dominance.
This includes the markets for cereals, flour, edible oil as well as road
transport for both freight and passengers. The situation is not perfect
and some degree of dominance may exist in specific local markets, but
overall competition appears to be fairly effective.
The salient features of each typology are briefly discussed below.
(i) Monopolized/Highly concentrated markets dominated by state-owned/

endowment organizations. In the sugar industry, state dominance is largely
connected with structural features, namely the extremely high financial entry barriers
in terms of investment outlays, especially taking into account the fact that sugar
plants are vertically integrated with sugarcane plantations, whose development in
turn may require significant investment in irrigation infrastructure. Fertilizers are
a completely different story. In the early days of liberalization, private presence in
the fertilizers trade was quite significant and at times threatened the leading role of
AISE. It was out of deliberate choice that private operators have been largely expelled
from the fertilizers business. As the experience of Kenya shows, there is no inherent
economic reason why the fertilizers business should be monopolized by state-
owned and endowment enterprises. Microfinance is a special case in many respects.
First, the market is largely segmented along geographical lines, with very few MFI
operating in several regions. Second, in this case the dominant role is played by
endowment organizations and public support is provided by regional governments
rather than by central authorities. Third, dominance is not the result of regulatory
or financial barriers, which on the contrary are quite low. Fourth, in contrast to the
other two markets, dominance is not detrimental to efficiency. On the contrary,
available evidence indicates that the Ethiopian microfinance sector is highly efficient
and plays on important role in supporting broad-based economic development.
(ii) Highly concentrated markets with dominant but declining state presence.
Relatively easy entry of domestic private operators has been created for both banking
and insurance. Also, regulatory power has been used impartially, without any serious
discrimination vis-à-vis private banks. Taken together, these two factors have led to
the gradual emergence of a domestic private banking sector, which has progressively
96
eroded the initial state monopoly. State-owned entities are still exerting a major
influence, but a more competitive environment is being progressively put in place.
However, the fact that the entry of foreign operators is prohibited, combined with
the inevitably limited means available to domestic operators, has probably slowed
the process of innovation as witnessed by the scarce diffusion of advanced financial
mechanisms and products, from ATM to life insurance to leasing. In cement, state/
endowment companies still account for the bulk of domestic production, which
however accounts for less than half of the market, the remainder being imported
by a number of private operators. More importantly, the GoE has adopted an
open attitude towards the entry of private investors, and significant players are
heavily investing in new cement mills, which will ultimately further reduce both
concentration and state presence.
(iii) Highly concentrated markets with dominant private presence. The high
level of concentration found in the beer and soft drinks/mineral water markets owes
much to the structural features of these businesses and at any rate is not unusual,
as similar levels of concentration are found in other African countries (as well as in
Western countries). State presence is still significant in the beer business, but this
appears to be unintentional, as some attempts were made in the past to privatize
the three state-owned breweries. In any event, state-owned breweries appear to be
largely commercially oriented and the same applies to the endowment fund-owned
Dashen beer. It is in these sectors that private dominance may lead to “classical”
anticompetitive practices, such as price fixing, as well as to vertical restraints, in
the form of refusal to sell/exclusive agreements, which if not adequately supervised,
could be seriously detrimental to consumers.
(iv) Low or moderately concentrated markets with private sector dominance.

The markets for cereals, edible oil, flour and road transport appear to represent
the best approximation to the concept of workable competition found among
the markets analyzed in the study. In the cereals and flour markets, the relatively
large number of operators seems to be the best guarantee against the emergence
of grossly anticompetitive practices, while the modest role played by state-owned
entities contributes to improve the overall efficiency of operations. Certainly, the
functioning of both markets is still negatively affected by a number of structural
factors (from poor infrastructure to variations in output due to climate), and this
leaves room for opportunistic behavior. But these are to be regarded as largely
transitory phenomena, whose impact is expected to diminish as the quality of market
infrastructure improves, for instance, through initiatives such as the establishment of
ECX. In edible oil, the level of concentration is a bit higher (at least for refined oil),
but all state-owned enterprises have been privatized and government intervention is
limited to import to stabilize prices. If anything, a stricter enforcement of quality
standards would be advisable to ensure that products are in line with basic health
97
standards. Similar considerations apply to road freight transport. Concentration is
at acceptable levels (although it is likely to be higher in selected local markets). There
is a non-negligible presence of state-owned and endowment transport companies,
but competition appears to function effectively, at least for traffic along the main
corridor. Passenger transport is somewhat a special case, as direct state presence
through state-owned enterprises is supplemented by regulation of entry and by the
setting of some rates. However, regulation has not prevented the entry of a number
of private operators, and on the whole, competitive forces appear to be at work.
98
CHAPTER TEN
Recommendations – Policy, Institutional and
Legal Aspects
Introduction
In this chapter we concentrate on issues at the institutional, legal and policy
level, whose solution may require a re-orientation of current policies and/or the
adoption of institutional or legal reforms. An analysis of technical and resource
related aspects with the formulation of recommendations of an operational nature,
is provided in the next chapter.
Key Policy Recommendation: Reconcile Competition Policy with

Other Government Policies
In Ethiopia, as in any developing country, achieving higher levels of socio-economic
development is obviously the overriding concern of government authorities. Given
the multidimensional nature of development (higher economic growth, but also
more and better jobs, improved food security, etc.), decision-makers are often faced
with major trade-offs, and this may lead to subordinate the creation of a truly
competitive environment (whose benefits tend to accrue over the medium to long
term) to the achievement of other development goals, regarded as more pressing at
least in the short term.
The impression derived from the results of this study is that in Ethiopia the benefits
of competition have been too often sacrificed to the achievement of other policy
objectives. Even more importantly, it appears that in a number of cases, this has
been done without performing a careful analysis of the pros and cons of the various
policy options, with some counterproductive results. An example is provided by the
decision to restructure the fertilizer sector, which involved a substantial backtracking
compared with the liberal approach adopted in the early 1990s. This decision was
obviously motivated by the commendable objective of making fertilizers available
at affordable prices to the largest possible number of farmers, in order to intensify
cereal production and, therefore, reduce the risk of food insecurity. However, while
this policy has been successful in keeping prices under control, it has also led to
serious inefficiencies in distribution, with an overall modest impact on agricultural
output. In a similar vein, the policy of preventing foreign investors’ participation
in certain sectors, has certainly served the purpose of fostering the emergence of an
Ethiopian entrepreneurial and managerial class, but at the same time has deprived
the country of the benefits that the superior technologies and organizational models
possessed by international operators could have generated.
99
Therefore, the main general recommendation stemming from the results of this study
is that, whatever the issue at hand, comparatively more attention should be devoted
to competition-related aspects. In this respect, it would be particularly important
that government authorities incorporate some kind of “cost benefit analysis” in the
decision making process, with the explicit identification of the positive and negative
impacts on competition.
Structural Measures to Enhancing Competition ---- Policy Aspects

Structural measures are aimed at creating the basic conditions for competitive
market structures to emerge. The rationale is that the more competitive the market
structure is (i.e., the greater the number of market participants, the lower the entry
barriers, etc.) the less likely is the materialization of anticompetitive practices. Under
the expression “structural measures”, several types of interventions are subsumed,
including the break-up/down-sizing of existing monopolists or dominant players,
the privatization of state-owned enterprises, the liberalization of conditions for
trading (e.g. the dismantling/lowering of import duties, quotas and the like), etc.
The results of this study suggest that three types of structural measures should receive
high priority, namely:
1. The privatization of remaining state-owned enterprises;
2. Promoting the entry of new market participants: and
3. The opening of selected markets to foreign operators.
These aspects are discussed below.
(1) Accelerating the privatization of state-owned enterprises. Privatization does

not automatically result in a more competitive environment, and indeed there have
been cases in which it has resulted simply in replacing state-owned monopolies with
private ones. Having said this, in Ethiopia the state still controls a disproportionately
large share of productive assets and a reduction of its direct involvement in economic
activity would be certainly beneficial. In the short term, privatization of state-owned
enterprises can be realistically achieved only in the case of some manufacturing
and service sectors, such as breweries, flour mills and road transport (with the
exception of urban bus transport). It should be pointed out that the GoE has already
attempted to sell its participations in these sectors and that transactions were not
finalized for various reasons, including the lack of qualified bidders. In sectors such
as cement and sugar, regarded as having a strategic importance and characterized
by heavy capital intensity, privatization can be envisaged only in the medium to
long term. In these cases, an improvement in competitive conditions in the short to
medium term should be sought primarily through other measures.
(2) Promoting enhanced private participation. Whenever privatization is not

a realistic option in the short term, efforts should be made to attract new entrants
100
from the private sector. This approach appears particularly relevant in the case of
fertilizers, where the presence of private operators would introduce an element
of flexibility in the present system. Private traders could probably start serving the
higher end of the market, namely those farmers who can afford buying fertilizers
without having to go through the standard credit scheme currently in force, and
who place greater value in timely deliveries and, maybe, are interested in accessing a
broader range of fertilizers. Overtime, the outreach of these traders could gradually
increase and, in any event, their presence could serve as a stimulus to increase the
efficiency of the system centered on AISE and farmers’ co-ops. Given the setback
experienced by private traders in the 1990s, there is no doubt that significant efforts
should be deployed in order to attract new operators in the business and that ample
assurances should be provided by authorities regarding the absence of interference
from AISE and other public/endowment entities. Another sector where the entry
of new operators is expected to greatly enhance competition is cement. However,
in this case the GoE has already adopted a rather liberal attitude towards private
investors and, as documented earlier in this study, a number of new projects are
already been implemented.
(3) Allowing Foreign Investors Participation. The opening up of markets to foreign

operators is relevant in the case of financial services and, especially, of commercial
banks and insurance companies. This is notoriously a contentious issue (inter alia
being the subject of discussion within the framework of WTO negotiations) and
therefore must be considered without ideological preconceptions. To begin with, it
is important to acknowledge that foreign participation in the financial sector should
not be regarded per se as a panacea. In developing countries, there are numerous
examples of financial sectors dominated by foreign investors that have displayed a
below-average performance, in terms of outreach capabilities, lending volumes, etc.
The static conditions of Djibouti’s financial sector, until recently in the preserve of
a couple of French-controlled banks, provide a clear example in this respect. Also,
in retrospect, it has to be acknowledged that the policy of reserving financial sector
activities to domestic operators has generated some long lasting benefits. Ethiopia
can now count on a new breed of bankers and managers, and this constitutes an
important asset, not available to many other African countries. Having said this, the
potential for an entirely endogenous growth appears limited and many Ethiopian
financial institutions would definitely benefit from some form of collaboration
with foreign partners. This is especially true in the case of insurance, where the
level of sophistication of local operators appears to be comparatively lower than in
banking. Under these conditions, it could be useful to revisit existing limitations to
foreign investment in financial institutions, to allow at least the formation of joint
ventures. In this way, some of Ethiopia’s financial institutions would have the chance
of establishing stable connections with large international groups (including those
with an African origin), with the result of broadening the range of products on offer
and of strengthening their operational capabilities.
101
(4) Opening Financial Markets to Foreign Operators: Dissenting Opinions. The
appropriateness of opening Ethiopia’s financial markets to foreign operators was the
subject of a lively debate during the presentation of this report, with representatives
of some banks voicing their doubts (if not their outright opposition). The argument
put forward is that foreign financial institutions, because of their very nature, are
extremely unlikely to improve access to banking services, especially in rural areas and
to poorer strata, and that if allowed to operate in Ethiopia they would tend to confine
themselves in the corporate banking business. Furthermore, recent developments in
the global financial sector indicate that large international banks are not necessarily
more efficient and better managed than banks in developing countries.
These views are not without merit, but they tend to discount the positive ‘systemic’
impact that the arrival of new entrants with better technologies and a more
aggressive attitude could have in Ethiopia’s banking sector. Even if new entrants were
to concentrate only in corporate banking, the ensuing greater competition would
contribute to increase the quality of services offered to Ethiopian businesses. Even
more importantly, domestic banks would be pushed to expand their services in other
market segments and/or geographical areas, thereby expanding the level of access.
While it is perfectly understandable that existing banks perceive the possible arrival
of foreign competitors as a threat, the experience of other African countries with
a more liberal regime suggests that some foreign presence (which is different from
foreign domination) in the banking sector can indeed bring about some benefits for
the economy as a whole.
Fighting anticompetitive practices: Institutional, policy and legal aspects

Whatever the efforts deployed to create market structures conducive to competition,
the risk of anticompetitive practices remains significant. This is especially the case
of developing countries, because of the thinness and segmentation of markets
and of the comparatively greater exposure to exogenous shocks (abrupt changes
in commodity prices, unfavorable weather conditions, etc.), which in turn create
excellent opportunities for opportunistic behavior. The notion of anticompetitive
practices is typically associated with the presence of private operators, because of their
profit-seeking motivation. However, state-owned enterprises are also not immune,
either because they may also be commercially-oriented or because anticompetitive
prices may help in prolonging their existence or provide some other form of benefit
to politically appointed managers (i.e. over fulfillment of targets and the like).
In the case of the markets analyzed in this study three types of anticompetitive
practices have emerged as having some relevance. These were: (i) price fixing and
similar cartel-like arrangements, (ii) hoarding and price gouging, and (iii) exclusive
distribution arrangements. In order to be tackled effectively, these practices require a
combination of institutional, policy and legal measures. These aspects are dealt with
in the following paragraphs.
102
(i) Price-fixing/Cartelization. Price fixing is universally regarded as one of the
most serious infringements to competition and is normally severely sanctioned. In
the case of the markets analyzed in this study, accusations of price fixing have been
leveled against producers and traders in several cases. The most suspicious episode
is represented by the simultaneous price increase announced by beer producers in
late 2007/early 2008. As already mentioned, the increase was justified by producers
with the increase in the cost of malt and, reportedly, no action was taken by relevant
authorities. This draws the attention to the main issue in price fixing cases, namely
the need to carefully disentangle episodes of cartelization from situations in which
price increases may be due to changes in cost conditions. In turn, this calls for a
strengthening of competition authorities. As illustrated in detail in another study
carried by the PSD Hub Program35, the Ethiopian Trade Practices Commission
(TPC) has so far played only a modest role, operating essentially as an adjudicatory
body, i.e., very much like a civil court. If TPC is to play an active role in fighting
cartels as well as other anticompetitive practices, two conditions must be fulfilled.
First, TPC investigative powers should be expanded, giving it the power to
investigate independently suspect cases. Second, TPC should be endowed with
the necessary means to effectively discharge its functions. This concerns both the
collection of relevant information (typically, evidence on price fixing cases can only
be retrieved through spot inspections) and the conduct of detailed analytical work.
In this respect, TPC staff could benefit from some of the operationally-oriented
initiatives illustrated in Chapter 11.
(ii) Hoarding and price gouging. Hoarding differs from price fixing because the
price increase is obtained indirectly, through the withholding of stocks. Allegations of
hoarding are quite common in Ethiopia and, if anything, the inflation recorded over
the last few years has made these allegations more frequent. In particular, instances
of alleged hoarding have been found in the case of cereals, flour, edible oil and
sugar. It should be noted that hoarding can be a commercially viable strategy only in
situations of significant imbalance between supply and demand and, indeed, all the
markets where episodes of alleged hoarding have taken place have been characterized
by significant supply shocks. In this respect, the only effective way to combat the
practice is to adopt measures aimed at restoring a satisfactory balance between
supply and demand in the market. This extends inter alia to government policy
regarding imports, which sometimes may provide a powerful incentive for stockpile
products. The issue is neatly illustrated by developments in the cement market,
where price movements appear to be closely correlated with the introduction or
lifting of import bans. In this respect, the adoption of a less erratic policy regarding
the import regime would greatly help in stabilizing economic operators’ expectations
and, ultimately, would reduce the incentive to engage in speculative behavior.
35
PSD Hub, Review of the Legal and Institutional Framework for Market Competition in Ethiopia, November
2008.
103
Another element that appears to contribute to hoarding is the lack of appropriate
information on prices, and cases have been reported of “defensive hoarding”, i.e.,
where operators (often, farmers and farmers’ cooperatives) were withholding stocks
because of a genuine uncertainty regarding price trends. In this respect, a significant
improvement in the situation could be achieved by expanding the role and
functions of the ECX. At present, ECX is only trading a handful of commodities. If
its role were extended to all widely-traded agricultural products, the process of price
formation would become much more transparent and the wide dissemination of
information on prices established at the ECX would greatly contribute to undermine
the rationale for hoarding.
(iii) Exclusive distribution arrangements. Instances of restrictive distribution

arrangements, involving the prohibition for retailers to carry competing products,
have been mentioned in the case of beers and soft drinks. In many countries, exclusive
distribution arrangements are not automatically regarded as an infringement to
competition and their impact has to be assessed on a case by case basis. The rationale for
this is that for certain products, typically complex manufactured products such as cars,
the existence of exclusive agreements between the producer and resellers (“dealers”)
may result in an overall reduction of costs, which is ultimately likely to benefit the
consumers. In the case of developing countries, exclusive distribution agreements are
likely to be found in consumer goods, for which the cost saving rationale is much
less stringent. Under these conditions, the adoption of a restrictive attitude vis-à-
vis restrictive distribution arrangements appears advisable. Essentially, this would
involve reversing the burden of proof, so that exclusive distribution arrangements
would be regarded a priori as unlawful unless convincing evidence of cost savings
for the consumers is provided. This would have a greater deterrent effect and would
economize competition authorities’ scarce resources.
104
CHAPTER ELEVEN
Recommendations – Operational and
Technical Aspects
This last chapter is devoted to the formulation of recommendations of an operational
and technical nature. In so doing, the chapter focuses on aspects that do not require
any major modification of government policy and/or of the institutional and legal
framework. The first aspect analyzed here relates to the possibility of facilitating
public – private dialogue on competition policy. The issue is, obviously, far from being
merely “operational” or “technical” and potentially has vast ramifications. However,
the approach proposed here is a modest one, and focuses on the establishment of a
working group that could contribute to initiate the process. The other two aspects
analyzed here deal with more technical aspects, namely the consolidation and
dissemination of information on competition-related issues and the development
of more detailed market studies. On all these aspects, it is envisaged that AACCSA
could play an active role, either within the framework of the PSD Hub Program or
as part of its regular activities.
Facilitate Public-Private Dialogue on Competition Issues

When it comes to issues related to competition, the Ethiopian private sector is
currently confined to a purely passive role and its voice is scarcely heard. To begin
with, the private sector is not represented in the TPC, which for all practical purposes
can be regarded as a branch of the government. Even more importantly, whenever
instances of alleged anticompetitive behavior emerge, the GoE displays a tendency
to quickly adopt harsh measures (typically, the seizure of the merchandise allegedly
“hoarded”), and in doing so does not show much consideration for the views of the
business community. At the same time, the attitude of the Government appears much
more relaxed when complaints originate from the private sector and concern state-
owned or endowment companies. This state of affairs has negative repercussions. On
the one hand, government measures are often perceived as unduly punitive (and,
sometimes, depicted as “politically motivated”), and this risks undermining the very
legitimacy of competition policy in the eyes of private operators. On the other hand,
it provides an excuse to relieve the business community from taking its share of
responsibility in ensuring the proper functioning of markets.
Under the above conditions, the establishment of a mechanism for enhancing

communications between the GoE and the business community appears as an urgent
measure. This could take the form of a working group consisting of representatives
of both the public and private sectors and specifically devoted to the analysis
of issues related to competition and competition policy. The working group
105
would not have any formal role, thereby allowing for discussions to take place in an
unconstrained manner and for the agenda to be set flexibly. Topics to be analyzed
could range from the review of competitive conditions in sectors/markets known for
being “problematic”, in order to identify possible solutions and generate a consensus
around them, to the assessment of competition-related implications of proposed
government policies and measures. Whenever warranted, the working group could
invite the relevant stakeholders (business associations, consumer organizations, etc.)
to contribute their views. In order to discharge effectively its functions, the working
group would have to rely on the support of a secretariat (hence, the proposed active
role of AACCSA), which would be responsible for adequately preparing the meetings
with background memos and for following up with whatever additional analytical
work that might be required.
Permanent consultative bodies dealing with competition issues exist in several

countries (e.g., South Africa, Pakistan, Australia, Canada, Belgium), while in others
consultation mechanisms are established on an ad hoc basis, to analyze specific
problems or to review the impact of proposed pieces of legislation. These bodies
have proved effective in enhancing mutual understanding and in defusing tensions
between the parties involved, and there is no reason why a similar result could not
be achieved also in Ethiopia.
Enhance the Collection and Accessibility of Information for

Competition Analysis
In Ethiopia, information on aspects that may have a bearing in the analysis of
competition-related issues is scarce and not easily available. This is witnessed by
the difficulties encountered in the preparation of this study, which had to rely on
a variety of widely dispersed sources. Publications from sector ministries and the
CSA do contain useful information to depict the broad trends prevailing at the
sector level, but this is rarely sufficient to understand the nature of competition
(let alone to ascertain the existence of anticompetitive practices) in specific product
and geographical markets. One problem has to do with the limited integration
between data on production and those on international trade. This makes it more
difficult to appropriately measure the size of the market and, therefore, induces an
excessive attention on domestic production. In fact, it is because of this distorted
approach that the cement industry is often characterized as a near monopoly, while
in reality the market is largely supplied by imports. Second, information on the size
of leading operators is scarce and unsystematic. This is a common problem, found
in many countries, but in Ethiopia it is made more severe by the dearth of updated
sector studies and reports, as well as by the limited information disclosed by sector
associations (annual reports and websites, when they exist, are more celebrative than
106
informative). Third, whatever information is available, data often refer to the whole
economy, with limited information on the situation in various regions and sub
regions. This makes it virtually impossible to conduct any serious analysis in the case
of geographically fragmented markets. A commendable exception in this respect is
represented by CSA data on prices for consumers’ goods, which are available for
a number of products in a variety of local markets (and, indeed, this allowed the
comparison between the prices of locally produced and imported cooking oil).
Given the above, it is recommended that an effort is made to enhance the collection
and accessibility of information that could be used in competition-related analyses.
This could start with the compilation of a complete listing of available sources
of information, be they statistics, descriptive studies, annual reports of sector
associations, etc. This should be coupled with the identification of sources of
information on the situation prevailing in other countries, which could be used as
benchmarks. The initial compilation work would then lead to the development of a
database consolidating quantitative information (domestic production, imports,
exports, price levels, and the like), which could provide useful starting point for
deeper analyses.
Perform Detailed Analyses on Selected Markets

In the case of sectors encompassing a variety of products and of geographically
fragmented markets, a proper understanding of competitive conditions requires
a much deeper analysis than the one carried out in the baseline study. Therefore,
it would be useful to follow up this initial work with a series of detailed studies
on markets deemed to be of particular relevance, such as the markets for cereals,
flour, edible oil, beer and road freight transport. The results of these detailed studies
could usefully feed into the works of the proposed working group on competition
policy, and could contribute to clarify currently unresolved issues (e.g., is hoarding
of grain really a rational strategy? If so, who really benefits from it? What is the role
played by agricultural cooperatives? Is state-support to cooperatives fully justified
on social/food security grounds? Or is it unduly distorting competition?) on the
basis of solid empirical evidence. These market studies should be structured in a
manner (and endowed with sufficient resources) that allow(s) the testing of data
gathering and analytical techniques that are adopted by well established competition
authorities, including the performance of field surveys of operators. In this respect,
apart from their intrinsic informational value, the market studies could have a major
educational value. Therefore, it would be important that representatives of key
stakeholders (government services, sectoral associations, consumer organizations) be
associated with the exercise.
107
REFERENCES
I. Books, Reports, Research Papers and Articles Published in
Scholarly Journals
Ariga J. and others, “Trends and Patterns in Fertilizer Use by Smallholder Farmers in
Kenya, 1997-2007”, presented at the Egerton University Tegemeo Institute Agricultural
Policy Conference, Nairobi, 17 September 2008
Biniam Taddele, Technical, economical, and environmental comparative analysis of fuel
oil with coal as energy source in the cement industry, Master’s Degree Thesis, Addis
Ababa University, January 2008
BKP Development, Assessment of the Impact of GATS on the Ethiopian Financial
Services Sector, 30 April 2007
Booker Tate, Finchaa Sugar Project, s.d.
Byerlee D. et alius, Policies to Promote Cereal Intensification in Ethiopia: A Review of
Evidence and Experience, IFPRI Discussion Paper 00707, June 2007
CBI and others, World Wide Water - Export potential of Ethiopian mineral water,
November 2004
COWI – GOPA, National Transport Master Plan Study – Road Transport, Working
Paper 15, September 2006
David Gass, Challenges and Opportunities for the African Sugar Industry, International
Policy Council, Washington, s.d.
Eleni Z. Gebre-Madhin, Market Institutions, Transaction Costs, and Social Capital in
the Ethiopian Grain Market, IFPRI Research Report 124, 2001
Embassy of Ethiopia in the US, Investing in Ethiopia: Textiles, s.d.
Getaneh Gobezie and Carter Garber, “Impact Assessment of Microfinance in Amhara
Region of Northern Ethiopia”, paper submitted at the FAO International Conference
on Rural Finance Research: Moving Results into Policies, Rome, 19-21 March 2007
Hailu Zeleke, Insurance in Ethiopia, August 2007
KenAgri, Market Survey – Ethiopia, Eritrea, Rwanda, Burundi, s.d.
Loening Josef L, Dick Durevall, Yohannes Ayalew Birru, Inflation Dynamics and Food
Prices in an Agricultural Economy: The Case of Ethiopia, 4 October 2008 (preliminary
draft)
MoTC, Commercial Road Freight Transport – Review of Freight Haulage Costs in
Ethiopia, May 2007
109
PSD Hub, Report to Improve and Update the Study on the Management of Commercial
Road Transport in Ethiopia, 2 April 2009
Rahel Abebe, AGOA: The Case of the Ethiopian Textile Sub-Sector, May 2007
Tanguy Bernard et alius, Smallholders’ Commercialization through Cooperatives - A
Diagnostic for Ethiopia, IFPRI Discussion Paper 00722, October 2007
UNDP, 1996 Fertilizer Situation: Progress, Problems and Programs, September 1996
UNIDO, Profile of the Food processing Industry in Ethiopia, Addis Ababa, October
2001
USAID – WFP, Ethiopia Food Security Update, February 2009
Wijnands J. and others, Oilseeds business opportunities in Ethiopia, Ministry of
Agriculture, Food and Quality, The Hague, May 2007
World Bank, Transport Costs in Ethiopia: An Impediment to Exports?, Washington, 18
March 2004
II. Articles Published in the Economic Press and Press Releases
“Ethiopian Amalgamated appeals against auctioned properties”, Capital, 25
November 2003
“How Ethiopia’s cooking-oil industry got burned by USAID”, Christian Science
Monitor, 6 January 2004
“Fertilizer Market Suffers Souring Prices, Limited Suppliers”, Addis Fortune,
February 2007
“The Sad State of Fertilizer Import, Distribution”, Addis Fortune, 11 March 2007
“Derba East Africa Coal Mining Company on the Edge of Extracting Coal”. Addis
Fortune, 25 March 2008
“Government Lifts Sur Tax on Edible Oil, Soap”, ENA, 29 March 2008
“Central Bank Eliminates Two Directors from Nile Insurance”, Addis Fortune, 24
June 2008
“EIB lends EUR 29 million for Derba Midroc Cement Factory”, EIB Press Release,
26 June 2008
“Central Bank Sacks General Manager of Nile Insurance”, Addis Fortune, 1 July
2008
“Cotton projected to spin $ 500m from 2011”, Capital, 19 August 2008
“Dangote To Invest $250 Million Into Ethiopian Cement Industry”, The Times of
Nigeria, 9 September 2008.
“Lafarge setting up cement plant in Ethiopia”, ENA, 20 October 2008
110
“Sick Loans Plunge Abyssinia’s Profit by 75 Percent”, Addis Fortune, 8 December
2008
“Cement prices rise despite global ease”, Capital, January 2009
“Edible oil price relief on its way”, Capital, 9 February 2009
“Forex Crunch Deepens Soft Drinks Shortage”, Addis Fortune, 8 March 2009
“Coca Cola hits the brake affected by foreign currency shortage”, The Reporter, 14
March 2009
“State Takes Back Textile Co. from Turkish Firm”, Addis Fortune, 22 March 2009
“Federal Court Hands Chinese 15 Yrs Sentence for Customs Fraud”, Addis Fortune,
9 April 2009
“Gov’t Bans Cement Imports”, Addis Fortune, 13 April 2009.
“Standards Authority Suspends Abyssinia Cement Production”, Addis Fortune, 13
April 2009.
III. Statistics and Annual Reports

AEMFI, Activity Performance Report of 2008 (January-December), Addis Ababa,
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Association of Kenya Insurers, Insurance Industry Statistics Report for the Year 2007,
Nairobi, s.d.
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January 2008
Central Statistical Agency, Large and Medium Manufacturing Industries Survey, 2006
– 2007 (1998 – 1999 EC), Addis Ababa, 18 December 2008
Central Statistical Agency, Ethiopia Small Scale Manufacturing Industries Survey
2005/06 (1998 EC), Addis Ababa, 19 February 2008
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EC), Addis Ababa, 20 December 2008
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111
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Baseline Survey on Competition

and Markets in Ethiopia

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P. O. Box 2458, Mexico Square, Addis Ababa, Ethiopia

All Rights Reserved

Part I – Overview of Sectors and Markets 15

Chapter 1: Profiles of Markets in Agriculture 17

Chapter 2: Profiles of Markets in Industry 21

Chapter 3: Profiles of Markets in Services 31

Part II – Analysis of Selected Markets 33

Chapter 4: Food and Beverages 37

Chapter 5: Agricultural Products and Inputs 53

Chapter 6: Manufactured Goods 61

Chapter 7: Financial Services 69

Chapter 8: Transport Services 83

Part III – Findings and Recommendations 91

Chapter 9: Summary of Findings 93

Chapter 10: Recommendations – Policy, Institutional and

Chapter 11: Recommendations – Operational and

Table 1 : Ranking Markets in Terms of Distortions of Competition — An Illustration 13

Figure 1 : Category of Ethiopian Product Markets 10

Part I of the report provides an overview of the status of competition in the

Step 1 - Matrix of Markets/Initial Scanning

Figure 1 Category of Ethiopian Product Markets

Figure 2 Broad Components of the Ethiopian Markets

Step 2 - Analysis of Selected Markets

Step 3 – Consolidated Analysis of Findings

An illustration of the approach is provided in Table 1 below, which refers to two

Table 1 Ranking Markets in Terms of Distortions of Competition – An Illustration

Figure 3 Overview of Markets in Agriculture

Operational Intermittent drought occasionally affects production of small holding farmers.

Marketing Lack of adequate infrastructural facilities such as rural road networks,

Anticompetition - Existence and abuse of dominance as a result of the existence of EGE.

Operational Exporters complain of supply problems. Local regional governments fail to

Anticompetition - The practice of collusion in the spice market.

Level of At retail level competition appears to be free of anticompetitive behavior. The

Anticompetition - Abuse of dominance.

Anticompetition - Impacts of operational and marketing problems on competition.

Marketing Information on marketing problems not available.

Level of Free market competition prevails.

Figure 4 Overview of Markets in Industry

Market/Product Characteristics Description

Anticompetition - Existence of dominant position in selected food markets.

Marketing The domestic wearing apparel manufacturers’ seem to have marketing

Anticompetition - State dominance and abuse of dominance.

Anticompetition - The role of the Quality, Standards and Authority of Ethiopia in

Operational About 93% of the establishments reported operational problems which

Anticompetition - Existence of transaction costs that reduce competition.

Anticompetition - The degree of market dominance and existence of abuse of dominance.

Anticompetition - Existence of market power and its impact on market competition.

Anticompetition - Existence of collusion practices.

Marketing No information is currently available on marketing problems contractors are

Level of Competition in general follows the principles of free market competition.

Anticompetition - Abuse of dominance.

Table 4 Results of a Quick Scan of Markets in Services

Market/Product Characteristics Description

Anticompetition - State monopoly.

Anticompetition - The degrees of involvement of the National Bank Ethiopia

The analysis follows a standard format, including a presentation of the salient

Table 5 Key Indicators for the Flour Industry

Alleged Anticompetitive Practices

Table 6 Basic Features of Ethiopian Breweries

Companies Establishment Ownership Brands Comments