Food and beverage firm Kenafric Industries has become one of the first Kenyan companies to break into the Ethiopian market with a Sh500 million ($5 million) investment in a biscuit and sweets production plant.
Kenafric said the production facility, which is located about two hours from the capital Addis Ababa, is part of a larger plan to diversify and expand its operations in East Africa.
“We have been able to sign some commercial agreements in Ethiopia to begin production. We intend to start by the end of the year. We are looking at biscuits and confectionary at the moment with possibilities of expanding in the future,” said Kenafric Industries chief executive Mikul Shah.
Mr Shah said that Kenafric had inked a deal with a local company to take up a minority stake in the Ethiopian unit of its business but declined to name of the firm nor its interest in the business.
This local partner will be the principal distributor of Kenafric products in Ethiopia.
Kenafric has a presence in 14 African countries and already distributes its products in Ethiopia.
The expansion of production capacity in Ethiopia amounts to a realization of an ambition that Kenafric first announced in 2016 and is fueled by cash injected into the business by two private equity firms that bought into the company last year.
Kenafric, which is known for its Oyo Mchuzi Mix, juices and sweets, has already used part of the newly-injected funds to diversify its production in Kenya, acquiring equipment worth Sh100 million for the manufacture of biscuits.
Ethiopia, East Africa’s largest economy, has become increasingly attractive to foreign investors who are keen to tap into its consumer base of over 100 million people.
It has, however, remained a difficult market to enter, a fact that is reflected in its trade figures with neighbouring countries like Kenya.
Though the two nations have cordial diplomatic relations, the value of Kenya’s exports to Ethiopia stood at Sh8 billion in 2016, while Ethiopia missed the list of top seven source markets of imports for Kenya.
Part of the reason for this state of affairs has been the relatively closed nature of Ethiopia’s economy.
Foreign investment in certain sectors, such as financial services and telecommunication, is barred. In 2014, for instance, the Ethiopian government indicated that it was easing foreign investments restrictions in manufacturing — particularly in textiles, food and beverages as well as pharmaceuticals.
Over the years, several Kenyan firms have expressed interest in moving to Ethiopia with little success.
East African Breweries Limited #ticker:EABL led the pack with plans to acquire stake in a state-owned Ethiopian brewer until Diageo, its parent company, bid for the same firm. Co-operative and Equity banks have also expressed interest in moving into Ethiopia without much success.
At a state level, the two countries have signed agreements to jointly invest in infrastructure. Kenya and Ethiopia in 2016 signed a power purchase agreement. Kenya is positioning itself as a transport gateway for landlocked Ethiopia.