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The European Chamber in Ethiopia hosted its monthly CEO networking event on April 18, 2024. Guest speaker of the event, Ato Dawit Wubshet, Managing Director of Wubget Holdings, and Board Chair of the Ethiopian Freight Forwarders and Shipping Agents Association (EFFSAA), shared his insight on navigating the opportunities and challenges related to shipping and logistics along the Red Sea route.

Ato Dawit’s briefing highlighted a critical issue: container shortages at key ports, particularly the congestion in Djibouti. This bottleneck, further complicated by Djibouti’s transhipment of cargo to Yemen, is causing major disruptions for investors across industries. Ethiopian coffee exports, especially vulnerable due to their commodities’ perishable nature and susceptibility to price fluctuations, are particularly affected. While alternative ports like Berbera offer potential, their utilization remains hindered by ongoing conflicts, the absence of a finalized bilateral agreement, security concerns, and incomplete infrastructure development. Despite having sufficient warehouse capacity and the potential to handle around 500,000 containers, Berbera’s full functionality awaits a resolution to these political and infrastructural roadblocks.

Mombasa, another potential alternative port, faces significant drawbacks. Its immense distance of approximately 1,300 kilometers creates logistical hurdles, making it impractical to reroute shipments across such a vast stretch. Furthermore, the road infrastructure leading to Kenya or the Moyale border presents additional challenges, with limited capacity to handle the maximum tonnage of Ethiopian trucks (around 40 tons) compared to the port’s maximum capacity of 28 tons. This disparity necessitates offloading and reloading cargo at Moyale, leading to a significant increase in expenses, manpower, energy, and overall transit time. Compared to the port of Djibouti, utilizing Mombasa would result in a substantial rise in land logistics costs and inefficiencies.

While the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor remains under development, both Ethiopia and South Sudan are actively pushing for its completion. This initiative marks a significant step forward with the arrival of a trial shipment, with the first vessel expected to dock at the port on May 5, 2024.
Ato Dawit mentioned that Ethiopia’s new transport directive for the next decade seeks to revolutionize the logistics landscape by offering two distinct strategies. In terms of foreign investment, the directive allows foreign companies to partner with domestic entities on a 51-49 basis. This collaboration aims to inject fresh capital, technology, expertise, and manpower into the logistics sector, ultimately enhancing its efficiency and capabilities. Additionally, the government is granting multimodal licenses to three major companies. These companies will work alongside the Ethiopian Shipping Line, leveraging air, sea, and road transportation to develop and facilitate diverse routes, maximizing Ethiopia’s logistical reach. The Managing Director acknowledged Ethiopia’s strategic geographic location, ideally situated to serve various businesses throughout the region. By effectively leveraging its logistics sector, embracing cutting-edge technologies, and undergoing digital transformation, the country can unlock significant economic benefits. Conversations that followed Ato Dawit’s briefing focused on the practical experiences of the investment community with various ports in the region.

In a recent EuroCham CEO networking event, industry leaders convened to discuss Ethiopia’s economic landscape, shedding light on crucial macroeconomic indicators and challenges facing the nation. The event featured a presentation by a senior macroeconomist, drawing his extensive experience in various global markets, including Angola and India, to provide insights into Ethiopia’s current situation.
One of the keynote points highlighted was Ethiopia’s impressive economic growth, with macroeconomic indicators showcasing a remarkable 6% increase over the last six years. Accordingly, the total population of the country as IMF estimates to be 107,000,000 million the nation’s GDP is thought to stand at USD 163 billion, boasting a per capita income of USD 1,500. Despite the absence of significant oil and gas exports, Ethiopia has managed its foreign debt effectively, totaling USD 27 billion, with a substantial portion sourced from multilateral and bilateral lenders the panelist asserted.
However, the country faces a significant challenge in generating foreign exchange, prompting the National Bank of Ethiopia to implement policies such as enforcing a 20% loan disbursement cap among local banks.
Additionally, Ethiopia has defaulted on Euro Bond repayments, albeit claiming the capacity to honor obligations uniformly across lenders prompting the country to be kicked out of the international capital market.
Key creditors such as China, the G20, and bilateral lenders play a crucial role in Ethiopia’s debt profile, facilitating negotiations for temporary relief programs to reschedule repayment obligations. The International Monetary Fund (IMF) is poised to assist Ethiopia in stabilizing its monetary policy as a going concern in light of the negotiations going on but demands stringent conditions, including aligning foreign exchange rates with the black market, broadening the tax base and reducing subsidies on imports.
Ethiopia’s investment decisions, particularly in industrialization efforts, aim to boost export revenues, notably in textile specialties seems to fail as the investment did not worth the return partly due to the challenge posed in relation with AGOWA. However, the challenges in forex reserve persist, due to dwindling forex remittances, lack of transparency in forex allocation as well as export commodities notably coffee used as a tool to generate forex and increased import appetite with a foreseeable decrease in reserves of forex denominations amidst rising foreign expenditure.
The ongoing civil unrest, notably in the Oromia and Amhara regions, exacerbates economic woes, with estimates suggesting a 3% GDP loss due to conflict in the earlier Tigray conflict. Negotiations with the IMF underscore the urgency for deregulation to avert a looming forex crisis, with calls to align official exchange
rates with those of the black market.
As Ethiopia navigates through these economic challenges, stakeholders emphasize the need for swift action to mitigate the adverse effects on the nation’s economic landscape.