Africa’s second largest country by population and its ninth by size, Ethiopia’s vast potential has been quashed by authoritarian rulers’ determination to limit local entrepreneurs and foreign investors. Will the new prime minister and budding startups make Addis Ababa the new center of African tech innovation?
“I want to disrupt how smallholder farmers go to market,” Christian Tesfaye said on 7 June at
startupethiopia in front of 2,000 audience members in an Addis Ababa hotel. The 22-year-old entrepreneur was presenting GebeyaNet, a company that connects farmers with fruit and vegetable buyers like restaurants, stores and hotels.
“Some farmers waste as much as 60% of their harvests because they can’t distribute them in time,” he said. “80% of people in Ethiopia work in the fields.” This is how he intends to grow his country’s GDP and fight against famine, in Ethiopia and then in other African countries. Also at the scene was Selam Wondim, elected Total Woman Entrepreneur of the Year 2019 and founder of GroHydro, which boosts crop yields by using hydroponics; and Bethemel Dessie, creator of iCog, the country’s first artificial intelligence laboratory.
In 2017, Christian Tefaye’s project took him all the way to Finland, where out of a thousand contestants, he won the Slush pitch contest, one of the major startup events in Europe. Today, he’s still developing it, but in June, “it was the first time I saw an event like Slush in Ethiopia. It was very exciting.”
In recent years, the African continent has stood out in the creation of companies and in fundraising: a total of $725.6 million last year, according to the Venture investment report published by Weetracker. “Almost all funds invested in African startups are going to Kenya, Nigeria and South Africa,” said the Ethiopian minister of innovation and technology. If you add Ghana to the list, these countries make up three-fourths of the funds raised by startups in Africa. And the kicker: Ethiopia isn’t even on the list.
One of the event’s organizers was Bluemoon, an accelerator and coworking space based in Addis Ababa where Christian took his first steps. “Three years ago,” he says, “there were two startup accelerators in the whole country. People didn’t know what they were. Now there are six or seven,” including Ice Addis and Sheba Valley. Clélie Nallet, researcher at Ifri’s Sub-Saharan Africa Program, was there the month before and admitted: “You see apps there similar to Uber now, things that didn’t even exist before.”
The sleeping giant
“If we didn’t have it before, it’s not surprising, not even considered desirable,” the researcher says. Ethiopia grew more than any other country in the world in 2017. Over the years, the country has garnered the nickname “the sleeping giant” due to the untapped potential of its closed markets. In 2018, it was rebaptized “the African tiger,” the country in which “the hopes raised by the new prime minister are matched only by the poverty of the population.” With a population of 105 million inhabitants, Ethiopia has experienced one of the fastest economic growths in the world this past decade. In less than 10 years, 100 startups have emerged in Addis Ababa’s budding ecosystem.
Prime minister Abiy Ahmed, elected last year, is announcing highly liberal measures as well as a series of progressive reforms. His government is freeing prisoners, restoring diplomatic relations with Eritrea, and establishing priorities of business, finance, education and tech. In February 2019, the government officially initiated the privatization process by announcing the partial privatization of telecommunications monopoly Ethio Telecom, a move unheard of in Ethiopia. To address the bureaucratic and legislative sluggishness that surrounds the creation of new companies, Abiy Ahmed launched the Doing Business Initiative in order to facilitate startup creation. Here the prime minister is addressing the diaspora, some of whom have returned from the United States to become government advisors. So it came as no surprise when Abiy Ahmed announced: “My model is capitalism.”
This turnaround has been extremely quick, but it didn’t come from nowhere. In the early 2000s, prime minister Meles Zenawi launched the Ethiopian developmental state, inspired by Asian models. “The Ethiopian version is an approach that combines economic liberalization (the idea of the inevitable integration of Ethiopia into the economy of the international market) with a strong economic direction (the idea of the necessity of state control over public and private economic sectors),” Clélie Nallet wrote in an article for Ifri in March 2009.
Credits: Yonatan Tesfaye
The country’s major infrastructure projects (streets, bridges, railroads and construction of the Nile dam), financed by the state and by collective effort (some officials could lose a month of salary per year to contribute to the national effort), are the foundation of Ethiopian growth. The developmental state proved effective: the average annual GDP growth rate was estimated at 8% by the IMF over the last decade.
When Clélie Nallet wrote her thesis on small-scale Ethiopian entrepreneurs in 2010, “they evolved up to a certain point. Then when they reached a level of potential enrichment, they hit a wall.” Ethiopia, never having been colonized, has a strong sense of national identity, and the state looks suspiciously upon personal wealth. That trickles down into citizens’ mentalities. “Nowadays, we also see another perspective on wealth in Addis Ababa. There are luxurious places people go out to.” The researcher concludes: “The potential is there. But everything will depend on the government. Something has begun, clearly. But the future is still uncertain.”
Everything to invent
Each year, 250,000 new graduates arrive on the job market in Ethiopia. Among these students, 70% are STEM graduates facing unemployment rates of around 20%. The economic growth is good, but the country lacks foreign support, having limited foreign funds in recent decades. “The decision to privatize,” Clélie Nallet says, “was pragmatic, not ideological. That was a simple problem that needed resolving.”
One can see, with the cautious reaction of the minister of finance, that privatization has begun with small steps. “We’re privatizing Telecom, we’re learning, we’re seriously evaluating, then we’re carrying on,” he explained, announcing the partial and phase-by-phase privatization of three other national companies: Ethiopian Airlines, Ethiopian Shipping & Logistics Services Enterprise, and Ethiopian Electric Power Corporation.
Addis-Abeba by night
Credits: Daggy J Ali
The small steps are because, despite two decades of economic growth, Ethiopia still has one of the world’s lowest GDPs. And tensions caused by inequalities in the country are still very present. For Clélie, the startup projects “concern a small part of the population, a minority, that is put on display.”
But as long as Christian remembers, he’s always wanted to start his own company. By creating his own, and by seeing accelerators flesh out, he’s enthusiastic. He sees great potential. “An entrepreneur’s work is to find solutions to problems. In our country, there are plenty of problems – and therefore plenty of problems of solve,” he says pragmatically.
Today, there are nine employees at GebeyaNet, which has just opened its first warehouse. “Until now, we were working on logistics; we were testing to make it as efficient as possible. We worked with 50 farmers and 100 stores.” Now that the system is working, he’s looking for financing and will launch the finished product by the end of summer 2019. “In a year, we’re hoping to have 1,000 farmers and 8,000 distributors in the country. “There are still so many obstacles in the legislation for foreigners wanting to invest in our companies. But I hope that’s going to change.”