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Tuesday, September 17, 2013

ANALYSIS
On the morning of Wednesday, September 4, 2013, Muluneh Jira, 39, was busy arranging his rented three-by-three boutique, around Hayahulet Mazoria, a few metres away from theGolagulTower.
Muluneh came to this area from Merkato, a year ago, to operate as a clothes wholesaler. Since he moved, his business has been going great. However, due to the road and railway construction that started four months ago, his customer base is beginning to drain.
"Before the construction started, on average 10 customers bought something from my boutique a day," Muluneh told Fortune, while observing the street thoughtfully. "This is not the situation anymore."
Alarmed by the decline of his business and in order to grab the marketing opportunity created by the coming holyday, Muluneh devised a method to attract more customers.
"A week ago, I introduced a 20-30pc sales discount on all the items found in my boutique", said Muluneh. "The sale will last until I run out of stock, maybe by the (Ethiopian) New Year or a few days after. I cannot say for sure."
For Muluneh, who has been in the same business for 10 years now, discount sales, if introduced in a timely and attractive manner, helps to make more money.
After 30 minutes of opening his boutique, Muluneh's luck turned, when Hana Belachew, a student inWelloUniversity, and her auntie Zuriashwork Gesesse showed up in his boutique.
Wishing to purchase a dress for Hana, Zuriashwork planned on spending close to 300Br.However, the price tag on the dress Hana preferred were 50 Br more than that. The price tag on the dress, however, clearly showed a 25pc discount from its original price.
This made Zuriashwork, who lives in the area, question the authenticity of the discount posted on the windows outside.
In the past, it was rare to find boutiques with sticker prices, but now it is becoming more common, especially during holyday seasons. A discount is a reduction in the standard price of a particular product or service. Discounts have an old and quite strategic place in market history.
The use of price discounting as a marketing instrument started during the period between the 1950s and the late 1980s. At the time, discount stores were becoming more popular than the average supermarket or department store in theUnited States.
There were hundreds of discount stores in operation, with their most successful period occurring during the mid-1960s in theUS. Discount store chains around at this time included - Kmart,Amesand E. J. Korvette.
Walmart, Kmart and Target all opened their first stores in 1962. Other retail companies branched out into the discount store business around that time also, as adjuncts to their initial store concepts.
In theUnited States, discount stores had 42pc of the overall retail market share in 1987. In 2010, this had leapt up to 87pc. Many of the major discounters now operate "supercentres", unlike the trend inEthiopia, which attaches a full-service grocery store onto the traditional format.
Unlike in developed countries, discounts are commonly being misconceived. This was the case with Hana and Zuriashwork.
"I toured around a few weeks ago and found" the same dress with the same price, Zuriashwork told Fortune. The boutique, according to her, doesn't offer discounted prices.
"How can I trust the sellers knowing this fact?" Zuriashwork commented.
Recently, the introduction of discounts on sales seems to be losing its valour and level of trust, according to customers Fortune interviewed last week. Many say that they were tricked into buying items for expensive prices in the name of discount.
"I visited a shop in the Merkato area and bought a pair of jeans for 500 Br, at what was announced at the time as a discount price," commented Geremew Kassu, a consumer, who was indignant about the situation. "But, when I showed it to two friends of mine, who knew more about prices, I realised that the shop owner and her assistant had actually cheated me."
The same goes for Marta Eticha, a customer who was touring shops in the Kirkos District. She recalled a similar incident she had recently with a sweater she bought for what she thought was a discount price. But, it wasn't.
"The seller simply removed the brand tag, pasted another one on it and sold the item at an even higher price than it should have been," Marta told Fortune.
That's just a tactic they use to attract customers, exclaims Tesfatsion Assefa, a buyer who was far from being impressed by a 40pc discount, said to be introduced during this holiday season on the shoes he bought from a shop in Merkato.
Semira Yusuf, a shop owner in Kirkos District, says sellers apply only marginal price discounts, but it helps them in two ways.
The first benefit of introducing price discount, according to Semira, is to get rid of old stock, which has stayed too long.
"By selling them at lower prices, a seller can have space for newer ones," she said.
The other benefit is that it avoids negotiations between the seller and the buyer, which saves a lot of time and energy on both sides, according to Semira.
For Mikias Tedla, a marketing expert, the concept of price discount is not correctly understood by sellers and buyers inEthiopia.
First and foremost, discounts should be used to show appreciation, not to retain or increase customers, says the expert.
"Discounts should be one of the many ways to express appreciation of the clients' loyalty and cooperation," the expert claimed.
Announcing a general discount plan can also be risky, according to the expert. Once done, bouncing back to the previous prices can be difficult.
Most of the shop owners Fortune interviewed complained that declining sales and the reduced number of consumers forces them to introduce discounts.
The old trend of shops opening on the main streets of Merkato, Hayahulet, Bole and Piassa is over, according to Shimellis Kebede, whose shop is located in Hayahulet. Rather, there is an expansion of shops and stores near to villages and residential quarters.
Less and less people flock to main spots or shops located in well known areas, because buyers prefer to avoid the hustle and bustle of Addis Abeba's hectic transport system, explains Shimellis.
Muluneh argued that he would have no reason to put items up for discount, without actually slashing any amount off the original price.
"They just don't believe me and maybe for a good reason," he admits. "There are several shop owners who put old items up for discount for no apparent reason, other than to get rid of their stock. Also, it is true, some discount sales are not genuine," Muluneh told Fortune.
Yet another indication of the declining state of discount sales is the few, if any, shops offering them in the areas Fortune visited. Almost none of the shops in the Piassa area had any discount offerings. Most in the Merkato and Hayahulet area told Fortune that they may introduce the sales when the New Year draws nearer. Most of them don't believe they will benefit greatly from introducing price discounts, however.
This is because sellers are using the wrong strategy, says the marketing expert.
"Discounts are effective only once the seller has a stable foundation of clients," the expert suggested.
Offering discounts from the start might sound like a good way to attract customers, but it could leave the sellers short in the balance sheet if they are unable to acquire enough work, according to the expert.
In addition, lowering the value of one's own items may give a different message to the customer, which is cheating, says the marketing expert.
This impression seems to be one of the reasons for Zuriashwork spending no less than half an hour negotiating prices with Muluneh.
Finally Zuriashwork and Hana decided to go to other boutiques around Hayahulet, in search of the same item at a cheaper price.
"I know I can find the same item at cheaper prices if I spend an extra hour," Zuriashwork told Fortune on her way out of Muluneh's boutique.
* Ethiopia's revival a tale of Africa Rising
* Nation still overshadowed by charismatic former leader
* Hailemariam cautious on opening state-dominated economy
* Ruling coalition keeps ethnic rifts in check
By Richard Lough and Aaron Maasho
ADDIS ABABA, Sept 17 (Reuters) - When global drinks giant Diageo bought a brewery in Ethiopia, it paid a premium for a stake in a barely tapped African market that in the 1980s had spectacularly failed to feed its own population.
Diageo paid $225 million for state-owned Meta Abo, joining a list of firms seeking a foothold in Africa's second most populous nation that was once run by communists and now has an emerging middle class after a decade of double-digit growth.
"We paid a premium of course and that was a deliberate decision ... We knew the value of what we were buying," Francis Agbonlahor, Diageo's managing director at Meta Abo, told Reuters in a capital that boasts smart highways and new office blocks.
Ethiopia is now sub-Saharan Africa's fifth biggest economy, leap-frogging next door Kenya and wooing investors from Sweden, Britain and China, as other emerging markets lose some of their shine.
Few nations can better tell the story of "Africa Rising", the narrative of a hopelessly mismanaged and violent continent now prized for strong growth and, in many cases, the kind of political stability scarcely imaginable a decade or two ago.
Yet like other African nations, Ethiopia must now work out how to maintain economic momentum as the U.S. Federal Reserve starts to turn off the taps of easy money that drove investors to more adventurous markets, and when China's economy and those of other emerging powers start to shift down a gear.
That means another tricky transition for Ethiopia, which has until now relied on the state to run its economy, but which has seen growth rates slip to 7-8 percent, short of the level needed for its goal of middle income status by 2025.
"When you are starting from a very low base with a lot of donor support, it is easy enough to grow in a strong, robust way," said Razia Khan, head of Africa research for Standard Chartered bank. "As the economy matures ... it is going to become a lot more difficult."
DILEMMA
Opening up the economy, as many businesses at home and abroad want, could draw in new investment but may also loosen the controls that can be exerted by a government made up of ethnic and regional parties that has carefully managed development and kept a lid on rivalries.
That is the dilemma for Prime Minister Hailemariam Desalegn and his cabinet, who still work in the shadow of Meles Zenawi, the rebel-turned-statesman who ruled with an iron grip for two decades until he died last year. Caution remains the watchword.
"We are not ready now," Foreign Affairs Minister Tedros Adhanom told Reuters when asked if Ethiopia could open up its mobile network or banks, prime targets for foreign investors.
Concerns about a deepening rich-poor divide and worries about changing the tried and tested policies of a charismatic leader, all weigh in to deter officials from a big shift.
But moving too slowly risks squandering investor enthusiasm and damaging the prospects of a nation once best known for "Red Terror" purges under communist rule in the 1970s and its 1980s famine. For now, at least, it has not deterred investors.
"I was in India recently and the thing that caught me by surprise (when talking) to foreign investors (was) the country that kept being mentioned was Ethiopia," said Khan.
Diageo is not alone in seeing the potential. Heineken of Holland and France's BGI Castel have snapped up breweries, which were among first state firms to be sold off.
The Ethiopian Investment Agency says Unilever and Nestle are sniffing around, and South Korea's Samsung told Reuters it was exploring Ethiopia as a place to assemble its electronic goods. The two European companies did not comment.
Hennes & Mauritz (H&M), the world's second biggest fashion retailer, has put in test orders as the nation seeks to boost textile exports to $1 billion a year by 2016 from $100 million last year.
H&M spokeswoman Marie Rosenlind said that, if the tests were successful, production could start this autumn.
LENDING SUPPORT
With manufacturing accounting for just 4 percent of gross domestic product, Ethiopia needs such investors to help reduce its reliance on exports of coffee, horticultural products and livestock that have driven growth until now. It also remains one of the world's biggest recipients of aid.
"No other country that I'm aware of, aside from these resource-rich countries, ... can go to middle-income status with still 50 percent of GDP on agriculture," Guang Z. Chen, the World Bank's country director, told Reuters in a June interview.
China could lend support, though this time not in the usual form of donations that have helped African growth till now.
Chinese shoe exporter Huajian has announced plans to co-invest $2 billion in an industrial zone outside Addis Ababa to bolster its Ethiopian exports and create up to 100,000 jobs.
The African Development Bank says a switch by Beijing towards domestic consumption may boost manufacturing in African economies like Ethiopia, where labour is cheap and power is a third of the price in China.
Ethiopia is building a huge dam on the upper reaches of the Blue Nile, part of plans to export electricity in a few years.
Until now, the most visible signs of growth are in the capital, where building sites clad in wooden scaffolding have mushroomed. In the upmarket Bole Medhane Alem suburb, an emerging middle class is enjoying new luxuries.
A fast-food outlet sells burgers and fries for a just over $4, more than many Ethiopians earn for several days' work. "We're not coping with demand," said one employee.
At a nearby coffee house, whose logo mimics Starbucks, hip youths in low-cut jeans sip frappuccinos and caramel macchiatos.
"The middle class is growing and is really increasing its purchasing power," said 18-year-old Yohannes, sitting near a billboard advertising two new residential tower blocks carrying the slogan: "From shabby to chic. Witness the transformation."
"I WON'T BE ONE OF THEM"
Yet for some, change is not being felt, including those in the capital's tin-roofed slums.
"You can see it all around you, there are rich people. But I am not going to be one of them," said Elias Zelalem, a teenager who earns $1.60 a day shining shoes -- if business is brisk.
Ethiopia's ambition is to achieve middle income status in 12 years time, defined by the World Bank as a per capita income of $1,430. In 2012, Ethiopia's per capita income was $410.
Yet to do this, Ethiopia's $43 billion economy needs to repeat the 10.7 percent average annual growth achieved in 2004 to 2011. Some question whether the state's determination to meet this target is coming at the cost of private business.
"We have to overcome poverty. How fast we should do this, therein lies the difference (of opinion)," said Zafu Eyessus Zafu, whose United Insurance Company is a shareholder in a commercial bank. He wants financial services open to foreigners.
Two thirds of Ethiopia's 8.5 percent growth in 2011/12 was due to public spending, the World Bank said. Half of spending needs are raised domestically, leaving little for private firms.
"If we need 50 million birr ($2.7 million) from the bank we may get 20-25 million," said a truck importer who identified himself as Taye, wary of using his full name in a nation where the state has long kept a tight lid on dissent and criticism.
"For foreign currency it is impossible. We can apply to the bank and wait a month or more," he added.
PROVEN POLICY
The credit crunch is deepened by a state-imposed requirement that each time a bank lends cash it must loan an additional 27 percent of the loan's value to the government in the form of a low-interest Treasury bond to help fund development projects.
But the government shows no change of tack. Reining in the state would challenge the vision of Meles, whose portrait still hangs in government offices.
"There is no need to look for policy changes at this time," deputy premier Muktar Kedir told Reuters earlier this year.
"We are of the mind that we have to fully implement the policy that has already proven itself successful," he said.
A policy shift could open rifts along ethnic lines in the coalition made up of four main regional parties. There is little room for anyone who might challenge the status quo.
Without the force of personality or reputation of his predecessor, Hailemariam has shown no sign he has the political will or clout to veer from Meles' path.
That may mean Ethiopia has to be content with slower growth and investors will need patience.

"Ethiopia is missing out in several respects," said Standard Chartered's Khan. "But there is this very cautious policy."