When Sai Ramakrishna Karuturi was looking to start a new business quickly, East Africa beckoned.
He identified Kenya and Ethiopia for cultivating and exporting roses, bought 311,000 hectares of land, employed 10,000 people and today his company, Karuturi Global Ltd, produces around 555 million stems a year and is widely recognized as the pioneer of cut flower production. Almost its entire produce is exported to high-end markets in Europe, where it has 9% of the market, as well as to North America and Asia.
“Six years ago I was very dissatisfied with India,” he told FORBES AFRICA from Dar es Salaam, where he was looking for new business.
“Business in India is fragmented and land is expensive. It’s easier to look abroad instead of starting a business from scratch here.”
Several market studies later, Karuturi chose Kenya and Ethiopia as the most cost-competitive countries in which to grow flowers—and it paid off. For six straight years, the company has grown exponentially by 20% a year.
“Ethiopia has a good workforce. Two million people are unemployed and 25% of the population is under the age of 25, which means that there’s a huge supply of labor. Kenya, by comparison, has a smaller population. The cost of labor is less competitive, but it has other advantages like cheaper logistics and better infrastructure.”
Karuturi Global’s other core interest is food processing which, while still being executed in India, has grown fast in Africa.
“It’s an interesting fact that Africa is one of the biggest importers of food in the world. It’s clever to be growing food in Africa because there is a high demand for it. Food is really expensive on the continent. Lands are fertile, which coupled with the huge labor force, make it an ideal destination for agriculture and food production.”
Karuturi advises, though, that one does one’s homework. “You need to be patient. It’s better to take the time to understand the local legislation, as this is where companies fall down by disregarding the law, processes and culture of African countries. Too many people in the business world try to show Africa as a place where it’s difficult to do business and make investments. But it actually provides an ideal opportunity and the returns are very good.”
Bill Levine, managing director of Ecoterra Technologies (ETT), agrees but warns that without a local partner who knows the culture and has contacts with people at the top, it’s difficult to go far.
“We stalled at the beginning because we weren’t talking to the right people. There’s a lot of competition at a local level between governmental agencies, NGOs and investors from the country’s diaspora.
“Ethiopia is far from the usual portrait we see in the media; it’s a country full of opportunities. It has 11% GDP and a large proportion of the population is making money, especially in the cities. They have high mountains, perfect for producing wind energy, a lot of water for hydroelectricity and cows and goats for dairy and meat production. Most of the investors, local and foreign, are interested in bio-fuel energy production and/or infrastructure development like low-cost, eco-smart roads. Compared to countries like America, where the energy sector is already under the control of oil companies and other forms of non-sustainable energies, here you can make a profit.”
But he agrees it takes patience.
“There is no quick fix. You have to build a lot of infrastructure. We just finished building our first road and it went really well. At the moment most investors are locals, which means that the country is ripe for foreign investment—there are many areas without roads and power and where there is no competition.
“I have a sense of urgency that if we don’t turn Africa around, it will be exploited wrongly and all the great potential that comes from the environment and the people will be destroyed. We are looking for investors right now, trying to get them involved, especially in hydro electricity.”
And time is running out for investors to become involved.
The next 10 years are ideal for foreign investment, according to Eliezer Gil Yasu, one of many Ethiopians living abroad.
“Now is the time to invest in Ethiopia. Now you can make business there without needing so much money. But a decade from now, Ethiopia will be like everywhere else and you’ll need lots of money to make any real profit,” he says.
Based in Israel, Yasu is one of the 100,000 Ethiopians who left their country over the past 30 years. He heads the Ethiopian desk of Doron Tikotzky and Co. legal firm while also running a business that exports ceramics from Turkey to Ethiopia.
“There’s a joke where two people arrive in Ethiopia and see that no one has shoes. The one says, ‘No shoes! There’s no opportunity here,’ while the other says, ‘No shoes! There’s great potential here!’ It’s up to you how you see the market.
“If you want to invest in a rich country because people there have money, don’t go to Ethiopia. But if you understand that a place that has nothing is full of opportunities, then this is the country for you.”
Yasu mostly assists clients by putting them in contact with the right people and ministries: “Ethiopian bureaucracy is a nightmare and can take six months to master,” he chuckles.
On the plus side, the government encourages investment by giving incentives such as loans, exemptions from tax for several years, and even providing water if it is needed.
“Politically, the country is stable and security is very good. Ethiopia has developed quickly in the last 10 years. There are a lot of natural resources—gold, iron, gas, aluminum—which bring many opportunities for construction, while the workforce is very cheap and people are motivated to work.”
But Yasu admits there are risks.
“I had a client who wanted to grow hummus seeds and the government gave him a place very close to Sudan. For one year he cultivated the land until the Sudanese government ordered him to leave, saying it was their property.
The Ethiopian government apologized, compensated him and explained they thought it was theirs, but he’d lost money and time.”
Which is why Gideon Peri, a consultant for several daughter companies of one of the largest public companies in Ethiopia, the Endowment Fund For the Rehabilitation of Tigray (EFFORT), warns that while the country is an attractive investment destination, potential investors need to prepare in advance a detailed study on the area in which they wish to invest and always use the services of a local lawyer and partner.
“The difficulties in Ethiopia are the frequent stoppage and failure of power supplies, even in the capital; the frequent failure of communication systems; limitations on imports; government control and regulations; and tough foreign currency control. But the government is well aware of the need for development and appreciates foreign investment as an effective means of bringing in money and knowledge. So the opportunities are there.”