Ethiopia An Emerging Manufacturing Hub in Africa

1. Ethiopia An Emerging Manufacturing Hub in Africa March 2019

2. 1 Ethiopian Economy Profile 2 Strategic Investment Areas 3 Enabling Environments

3. Ethiopia has a clear vision for industrialization, which builds off of its rapid growth in recent years and its strong track record in attracting FDI Rapid economic growth • One of the fastest growing economies in the world • 11% average growth over the past 13 years Favourable destination for FDI • One of the top destinations for foreign direct investment (FDI) • Ethiopia accounts for 18.5% of all jobs created through FDI in Africa Population • Total: 100m (est. 2017) Young and productive population • Second most populous country in Africa • >100 million people, growing at 2.3 million annually • Young and productive age group accounts for 60% of the population Economics • GDP/capita: $739 (2015/16) • FDI inflow: $3.2bn (2016) • FDI growth: 46% (2016) Health • Health spend: $2.7bn • Health spend/capita: $27 • Health spend/GDP: 5% • Availability of EDMs*: ~70% Clear vision for development • Vision 2025: become leading manufacturing hub in Africa • Foreign investment is key focus of Prime Minister • Wide-ranging incentives in priority sectors Literacy • 49% of total population Source: World Bank, IMF, WHO

4. 1 Ethiopian Economy Profile Pharmaceutical Manufacturing 2 3 Enabling Environments

5. Ethiopia has identified strategic sectors for investment with a strong focus on Pharmaceutical manufacturing with a national strategy to develop the sector Todays focus area Strategic Sectors National Strategy for the Pharmaceutical Manufacturing Sector • Ethiopia is one of the first African countries to develop national strategy for pharmaceutical manufacturing with a strategy to grow exports in addition to substituting imports and improving access to medicines • Dual benefit of increasing access to medicines and promoting rapid industrialization of the country Energy Horticulture Pharmaceutical Agro-processing Tourism Textile Leather • Goal: To become a pharmaceutical manufacturing hub in Africa

6. Access to huge market and Industrial Park (IP) designated for pharmaceutical sector making Ethiopia attractive for investment Strategic advantages to manufacture pharmaceuticals in Ethiopia • Potential to serve as export hub for the >$20 billion pharmaceutical market in Africa • More regional markets through economic communities including COMESA and IGAD progressing towards regulatory harmonization. Focused Policies • Strong investment policy focused on pharmaceuticals which is led by Prime Minister Office • Tax exemptions: corporate income tax, personal income tax, duties, export taxes • One-stop shop for government services • Price preference in public procurement which accounts for a huge market Specialized Industrial Parks • Kilinto Industrial Park (KIP) will be state-of-the-art and will specialize in pharmaceutical manufacturing • Land lease rate for KIP is 3.59 USD/m2 p.a. for 40 years. Access to market Abundant workforce • More than 10 schools of pharmacy in Ethiopia • Expanding programs to new areas of specialization (e.g. industrial pharmacy, pharmaceutical analysis, etc.) • Centres of Excellence are being established to offer these specializations Source: Interviews, market research reports

7. Domestic market has huge potential due to rising population and health coverage in the Ethiopia Key drivers of pharmaceutical demand in Ethiopia Rising health care coverage • Government increasing healthcare coverage to the large rural population that promotes the need for increased access to pharmaceutical products; • Primary health care service coverage reached 100% in 2015 • Awareness, diagnosis and treatment of diseases are increasing; • High burden of communicable diseases: malaria, HIV/AIDS, and TB • Prevalence of non-communicable diseases, such as diabetes, cancer and hypertension • Ethiopia has second-largest population in Africa (>100M, ~8.5% of Africa’s population); growth of 2.3% per year is expected • With average economic growth of >10% per year, increase in disposable income will influence spending on pharmaceutical products Growing population and economy Source: Interviews, market research

8. Ethiopian pharmaceutical market is expected to grow at 15% per year to reach nearly $1 billion by 2020 Pharmaceutical market in Ethiopia (2015-30F), US$ million 2015 2018F 2019F 2025F 2030F 2017F 2020F 2016F Source: Frost & Sullivan, World Bank, National Strategy and Plan of Action for Pharmaceutical Manufacturing

9. Ethiopia is the next frontier for pharmaceutical manufacturing with regional market valued at >$25 billion The growth of pharmaceutical sales in Africa* (2013-20E), $US billion Pharma segment growth in Africa (2013-20E), $US billion CAGR% 17% 13% 10% CAGR%** 6% 9% 6% As developed markets stagnate, Africa represents a promising source of growth for multinational pharmaceutical companies Note: *2013 numbers are approximate; 2020 numbers are estimates; **CAGR is for the top seven countries in Africa (Algeria, Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa) Source: McKinsey (2015) Africa: A Continent of Opportunity for Pharma

10. 1 Ethiopian Economy Profile Pharmaceutical Manufacturing 2 3 Enabling Environments and Incentives

11. Kilinto Industrial Park is the first IP that specializes on pharmaceuticals with a total area of 279 Ha • Kilinto Industrial Park • Facts • Total area of park is 279 ha and 60% of these amount will be serviced by the GoE and availed to interested investors • Located in Addis Ababa, the capital of the country • Industrial cluster/ specialization - Pharmaceuticals • Endowed with tailor-made incentives • Installed with adequate water and power supply, roads and bridges, fences, sewerage line, waste water treatment plant (ZLD), telecommunication and landscape and greenery Status of the park: Construction completed

12. Tailored and attractive fiscal and non fiscal incentives for manufacturing Major incentives include: Fiscal Incentives • Exemption from income tax up to 15 years for Industry Park Developer, • Exemption from income tax up to 8 - 10 years for enterprises inside IPs, • Exemption from duties and other taxes on imports of machinery, equipment, construction materials, spare parts, raw materials and vehicles • Loss carry forward • Full export duty exemption Non fiscal Incentives • Customs facilitation through bonded export factory and similar other schemes • Guarantee against expropriation • Guarantee for repatriation of funds • Relaxed Industrial park land regime - 60-80 years charge-free lease for IP Developers, discounted lease rate for IP Enterprises Other Incentives • Expedited visa procedure - expedited procedure of securing entry, work permit and certificate of residency • Multiple entry visas for share holders and general managers • Facilitation of market linkages • One-Stop Shop Service under the EIC - including pre-establishment licensing and registration and post-establishment after-care services

13. Further pharmaceutical manufacturing benefits from tailor made incentives with corporate income tax holiday between 8 – 14 years Incentives Designed for Kilinto Pharmaceutical Industrial Park • Corporate income tax exemptions (partially contingent on export performance): • API production up to 14 years • Formulations/final medicines up to 12 years • Pharmaceutical packaging up to 8 years • Personal incomes tax exemptions for expatriate employees up to 5 – 10 years (and long term visas) • Duty and other tax exemptions on inputs • Zero tax on exports • Joint warehousing, calibration, and testing services Other Support Measures • Public procurement; • 25% price preference and 30% prepayment for firms manufacturing in Ethiopia • Potential for long term procurement guarantee • Export facilitation • More accessible and competitive logistics • Information consolidation and market linkages • Regulatory system • Fast-track medicine registration • Regional regulatory harmonization

14. www.investethiopia.gov.et