May 27, 2014 / 2:30 PM / 3 years ago

U.S. consultancy wins rare foothold in Ethiopia's retail sector

4 Min Read

ADDIS ABABA (Reuters) - A U.S. management consultancy has won a short contract to run Ethiopia's just-launched state-owned cash-and-carry chain, officials said, the first such concession given to a foreign company by a country that tightly controls its retail industry.

A.T. Kearney will run the Alle wholesaler for two-and-a-half years, similar to other management deals that have on rare occasions been offered to foreigners in other prized but protected areas, such as telecoms.

Ethiopia's fast-growing market of 90 million people has lured foreign investors, including from Sweden, Turkey and India, to its manufacturing and agri-business sectors. But laws prevent international firms from entering sectors viewed domestically either as cash-cows or as politically sensitive.

Before Monday's launch of the wholesaler Alle, Reuters revealed that Ethiopia - once run by communists - was pushing the door ajar to foreign retailers by offering management deals although it is keeping the state in control.

"We are an independent management company," said Mirko Warschun of A.T. Kearney, which had advised on setting up Alle.

"Our work on behalf of the Ethiopia's Ministry of Trade gave us the opportunity to take this much further - to reduce food price inflation and modernise trade," he said, in comments at the Alle launch late on Monday.

Ethiopia has said it needs to modernise its supply and distribution networks and encourage competition to cut costs and keep down inflation, which leapt to 40 percent in 2011 when food prices surged and government price caps led to hoarding.

Trade Minister Kebede Chane said Ethiopia had looked into opening up the market to international companies such as Walmart as well as launching a state-owned "Walmart-like company".

"The current unfortunate status of Ethiopian businesses, which are not ready to compete with international (companies) like Walmart ... made government lose interest in the first option," Kebede said at the launch.

Ethiopia's private sector is not yet three decades old. During the 1970s and 1980s, the country's communist leadership - best known for "Red Terror" purges and a 1980s famine - nationalized businesses and ran the economy into the ground.

While Ethiopia is now among sub-Saharan Africa's fastest growing economies and its fifth biggest, it has spurned the liberalizing approach of other African markets.

It has held control of its telecoms monopoly and kept foreigners out of retail and banking, while opening up its manufacturing industry to help create jobs.

Although Alle is state-owned, the government promises it will be run like a private firm.

The wholesaler's interim director, Nuredin Mohamed, forecast Alle would control about a quarter of the wholesale market. Ethiopia's leading commercial bank, the state-owned Commercial Bank of Ethiopia was financing 600 million birr ($31 million) of the 1 billion birr start-up capital, he said.

A.T. Kearney's Warschun dismissed worries that other wholesalers would be crowded out. "There is huge opportunity for other competitors in the market because Ethiopia is growing, the market is growing, the middle class is developing," he said.

Writing by Richard Lough; Editing by Louise Ireland

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