March 10 (Bloomberg) -- Unilever, the world’s second-biggest consumer-products maker, plans to open a manufacturing plant in Ethiopia during the next year in a bid to emulate its expansion into Vietnam, a company official said.
The London- and Rotterdam-based company is renting premises for a plant in the Chinese-built Eastern Industry Zone in Dukem, 31 kilometers (19 miles) southeast of the capital, Addis Ababa, Dougie Brew, head of corporate affairs in Africa, said in a phone interview on March 4. Unilever, which already imports Knorr stock cubes and Omo detergent into Ethiopia, may initially make fabric-cleaning soaps before moving into food, he said.
“The plans are ambitious for Ethiopia because we see it as a growing market,” Brew said from London. “We’ve taken a long-term investment decision in Ethiopia because of the demography, broad-based growth and opportunity to create a genuinely inclusive and sustainable business model from scratch.”
Ethiopia’s economy is projected to expand 8 percent in the fiscal year to July 7 after growing an average of 9.3 percent for the past four years, according to an October report by the International Monetary Fund. The country’s estimated population last year of 93.9 million people, sub-Saharan Africa’s second-largest, is increasing at 2.9 percent a year, according to the U.S. Central Intelligence Agency’s World Factbook.
Yum! Brands Inc., the owner of the KFC fast-food chain, said on March 6 it’s considering entering Ethiopia as it expands across the continent.
Unilever invested $130 million in Vietnam as the business grew annually at more than 10 percent for 14 years after opening in 1995, a 2009 report by a think-tank at the Southeast Asian nation’s Planning and Investment Ministry said. The company is looking at a “similar scale” operations in Ethiopia, Brew said.
Ethiopia’s economy, at $41.6 billion, is almost four times smaller than Vietnam’s, according to World Bank data.
The company plans to build a “comprehensive consumer-goods manufacturing business” in Ethiopia, which will source from Ethiopian suppliers, Brew said. “Retail is still a restricted sector so a lot of our work will be developing local Ethiopian companies that will act as distributors.”
The case study by Vietnam’s Central Institute for Economic Management praised Unilever Vietnam Co. for sourcing 60 percent of raw materials and all of its packaging domestically by 2007. The company created 1,200 jobs directly and 8,000 indirectly in the country, according to the report posted on Unilever’s website.
Foreign direct investment in Ethiopia may be 2.8 percent of gross domestic product this fiscal year and will “increase gradually to a long-run yearly average of 4.5 percent” as policies increasingly favor private businesses, the IMF said in October. The average for other low-income countries in sub-Saharan Africa was likely to be more than 5 percent of GDP last year, the IMF said in November.
Unilever’s global reputation may encourage more Western companies to manufacture in the country, said Abdulmenan Mohammed Hamza, an independent Ethiopian economist based in London. To maximize the benefits that foreign investment brings, the government should improve its tax-collection systems, he said in a March 4 e-mailed response to questions.
“Considering the incapacity and inexperience of the government to conduct the audit of such complex companies, tax avoidance is a serious issue,” he said.
Unilever, which owns brands including Lynx deodorant, Vaseline and Lipton Tea, will focus on sales in Ethiopia and later neighbors including South Sudan and Somalia once security improves.
“In businesses like ours it always makes sense to manufacture close to the consumer,” he said.
Violence erupted in South Sudan on Dec. 15 and clashes are continuing even after a Jan. 23 cease-fire, while Somali government forces have been battling Islamist militants for at least the past eight years.
The company today announced it appointed Marc Engel as head of its East African business and new markets.
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