Notable challenges for Canadian infrastructure companies in Ethiopia
- Increased complexity with longer procurement timetables
- Lack of efficient coordination with many stakeholders
- Public sector institutional capacity to implement and monitor projects
Business landscape in Ethiopia
CPCS, a management consulting firm that specializes in transportation infrastructure, power and public-private partnerships (P3), won a feasibility study valued at Can$3.3 million for a railway between Addis Ababa and Port Sudan. This Sudanese port on the Red Sea could reduce Ethiopia’s dependence on the Port of Djibouti. The company has an anticipated pipeline project to be announced by the Ethiopian Ministry of Finance for a contract to provide consultancy services for increasing the private sector’s participation in industrial parks.
The state is heavily engaged in economic development, with ongoing mega-infrastructure projects in rail, roads, renewable energy, ports and industrial parks. Until recently, key sectors such as telecommunications, finance and aviation, remained under state control.
Following a major policy shift in 2018, the government decided to open up the economy to give the domestic and foreign private sector a slice of the booming economy.
Ethiopia’s foreign exchange earnings are led by the services sector—primarily the state-run Ethiopian Airlines—followed by exports of several commodities. While coffee remains the largest foreign exchange earner, Ethiopia is diversifying its exports and commodities.
Gold, sesame, livestock and horticulture products are becoming increasingly important. Manufacturing represented less than 8% of total exports in 2016, but these exports should increase in future years as a result of a growing international presence.
P3 environment
In 2018, Ethiopia enacted a new public-private partnership act. The new law outlines the government’s commitment to encouraging private sector development and greater collaboration between private and public institutions. As a result, a new public-private partnership unit was created within the Ethiopian Ministry of Finance, overseen by the management and approval of the P3 board.
The law sets out a new P3 legislative framework with a view to promoting and implementing privately financed infrastructure projects and enhancing transparency, fairness and value for money.
Under the Ethiopian P3 law, projects may involve new or existing facilities, including:
- design
- financing
- construction
- restoration
- expansion
- modernization
- operation
- maintenance
- administration and/or management
The scope of the current P3 law excludes:
- mining
- airspace rights
- privatization or divestiture of public infrastructure of public enterprises
Since the law was ratified, the P3 board has announced 17 major infrastructure projects valued at US$6.5 billion. The announced projects focus on roads, hydro and solar energy.
The government has carefully chosen these projects as a trial for the first few years, and they are expected to enhance the Ethiopian government’s capacity in terms of handling P3 projects.
Ongoing and pipeline projects
Of the 17 announced projects, 8 solar PV projects of 800 MW with an estimated cost of US$800 million were opened to the international private sector community in June/July 2019. In the first round, 250 MW were awarded to a Saudi Arabian company to develop the project at a cost of $300 million, with a negotiated power purchase agreement (PPA) of US2.5260 cents/kWh.
For Canadian companies looking to enter Ethiopia’s P3 market, creating consortiums to reduce market-attributed risks and showcasing knowledge-transfer intentions are highly encouraged.
The MOU that Ethiopia and Canada signed in June 2019 to collaborate on P3 infrastructure projects, which demonstrates Ethiopia’s recognition of Canada’s clear track record in terms of implementing quality P3 projects, is also expected to attract Canadian companies to Ethiopia’s P3 market system.
Summary
Ethiopia is an attractive market because the country is slowly starting to privatize state-owned rail, maritime and utilities sectors, and there are preliminary discussions about liberalization in the financial and banking sector.
Steady infrastructure spending and a need for alternative financing are driving interest in public-private partnership (P3) models.
Ethiopia is committed to improving its infrastructure in various areas and is open to seeing more Canadian companies developing these projects.
For more information on infrastructure in the Ethiopia market, please contact Ermias.Kefelegn@international.gc.ca.
