Commentary An Ethiopian Business News organization operating in print and online platforms. EBR provides deep analysis to major business stories and trends facing the private sector in Ethiopia. The Ethiopian Business Review Magazine is for Middle or senior level managers, academicians, business consultants and others working in the areas of business. http://www.ethiopianbusinessreview.net Wed, 27 Mar 2019 00:03:44 +0000 Joomla! - Open Source Content Management en-gb The Essence of ICT Restructuring in Ethiopia http://www.ethiopianbusinessreview.net/index.php/commentary/item/6082-the-essence-of-ict-restructuring-in-ethiopia http://www.ethiopianbusinessreview.net/index.php/commentary/item/6082-the-essence-of-ict-restructuring-in-ethiopia

Information and communication technologies (ICTs) are among the main enabling tools of modern civilization. These days, it is an integral part of our lives. The global economy needs ICT infrastructure for its activities such as the facilitation of trade and commerce. In addition to that, human welfare and poverty eradication programmes need proper ICT to enable humanitarian efforts. In this article, I present the importance of ICT restructuring in Ethiopia by first analysing the current state of ICT in Ethiopia and then suggesting the kind of restructuring it needs. 

ICT is an important technology sector which provides basic communication services to individuals and helps the overall growth and development of a country. ICT itself is one of the largest economic sectors and contributes to almost five percent of the global gross domestic product (GDP), according to the reports of Gartner Inc., a global research and advisory firm providing insights, advice, and tools for leaders in IT, Finance, HR, Customer Service and Support, Legal and Compliance, Marketing, Sales, and Supply Chain functions across the world. These days, ICT is essential for empowering the people all over the world. It provides knowledge and information which is essential for the success of democracy. In the modern world, ICT enables online businesses, provides advanced methods of teaching and learning, plays a key role in the functioning of governance, and enriches the entertainment industry. All branches of science, arts and commerce benefit from ICT. Recent advances in healthcare and public services are the results of the modern ICT. Overall, ICT has become an integral part of the modern human lives. 

Ethiopia has achieved some growth and development in the ICT sector over the last couple of decades. As of 2018, fifty-four million people use cell phones in Ethiopia. However, it is still far behind several African countries. It is one of the countries with very low Internet penetration. Every year, the International Telecommunications Union (ITU) analyzes the growth and development of ICT services across the world. Based on this analysis, it ranks the ICT services of the countries. This is quantified as ICT development index (IDI). In terms of IDI, Ethiopia ranked at 170 out of total 176 countries in 2017. Even its neighbouring countries Kenya, Djibouti, and Sudan were ahead of Ethiopia in terms of IDI. 

The modern digital ecosystem is very much expanded and several new dimensions are added to it every year. All of these new services provide some economic benefits and help the country in its development endeavours. If we analyze the human development index (HDI) of the countries around the world, we see that HDI and the IDI are very much dependent. The countries which have high HDI have high IDI. The following table shows the correlation between these two indices, which are critical for modern development. 

ICT is also instrumental in curbing corruption and financial fraud. For instance, in India, the public welfare system and public financial systems had corrupt practices at different levels. The current government in 2014 centralized these schemes using ICT. Now, the money directly goes from the welfare departments to the beneficiaries using the ICT facilities. It has brought down the corruption significantly. Similar practices are available in several countries. 

It is expected that Ethiopia will follow ICT enabled techniques to eradicate corruption from its public financial systems. The initiatives Prime Minister Abiy Ahmed (PhD) has enacted to make Ethiopia corruption free are very much dependent on an effective ICT system. ICT can play a very constructive role. 

Ethiopia, a country with more than 100 million population is currently struggling on several fronts such as corruption, lower level of literacy, unskilled/ limited skilled human resource, struggling education system, lack of research facilities in the universities, lack of modern infrastructure, slow business processes, and inefficient logistic systems. Several of these problems can be sorted out through ICT based solutions. The restructuring of the ICT sector in Ethiopia is quite slow. The last meaningful restructuring took place a decade ago. Though several ICT policies have been changed in 2018, they are not enough to bring the overall changes in the country. 

Last year, the prices of several services related to ICT were reduced by 40Pct to 50Pct. Despite that, the current prices of ICT services in Ethiopia are still among the most expensive in the world. For instance, Internet services over mobile phones are almost 100 times more expensive compared to the prices of those services in India and China. Furthermore, the qualities of those services are to be improved significantly. Initial installation and maintenance of ICT services in Ethiopia are very slow. In Western Europe, a connection for Internet and telephone service is provided on the same day on which the request is made (in some countries within a couple of hours). In Addis Ababa, it takes something between two weeks and six weeks depending on the location of the house in the city. These basic aspects of ICT service provisioning should be changed. This is possible through overall restructuring of the sector across the country. 

The following restructuring seems quite essential to change the state of ICT and its associated sectors in Ethiopia. 

Liberalization of the ICT Sector

Currently, Ethiopia has a very conservative policy forits ICT market which is very similar to Asian ICT markets of 1970s. Instead of having one government owned operator, it should allow both domestic and international operators in its market. 

Creating Competition

The privatization should be allowed on a large scale so that the competition in the market will ensure improved quality of service and reduction of tariffs. 

Globalization of ICT Sector

This will allow international companies to start operations in the country. They will build advanced telecom infrastructure which is not possible by Ethiotelecom through public funding. 

Changing the Telecom Policy

The national telecom policy should be changed to accommodate these changes. Of course, an appropriate regulator is required to monitor the relevant issues and problems of the sector. 

It seems to be the opportune time to make the above restructuring as Prime Minister Abiy is very much in favour of the liberalization, privatization, and globalization of the telecommunications sector. It would be beneficial to the common users of the country, the telecommunications sector, and the government. These restructuring would reduce the prices of the services, would bring more business, and thus profits for the corporate. The government will collect more taxes as the expansion of the services would bring more revenues. Overall, it will push Ethiopia towards growth and prosperity. At the same time the human values and democracy would be strengthened.


8th Year • Feb.16 - Mar.15 2019 • No. 71


 

 

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Sasmita.Mohanty@gmail.com (Sasmita Mohanty) Commentary Sat, 16 Feb 2019 03:00:00 +0000
Tourism-led Urban Regeneration of Addis http://www.ethiopianbusinessreview.net/index.php/commentary/item/6083-tourism-led-urban-regeneration-of-addis http://www.ethiopianbusinessreview.net/index.php/commentary/item/6083-tourism-led-urban-regeneration-of-addis

Several European cities left by industries and who has accumulated ‘obsolete’ built environment, which is human-made surroundings that provide the setting for human activity, ranging in scale from buildings to parks. Among such cities Barcelona, Glasgow and Bilbao have become models of a tourist magnet city by adopting urban regeneration strategies. Consequently, more and more cities have begun to invest in building hospitality facilities, cultural and convention centres as well as museums, landmarks, entertainment and sports facilities in order to attract tourists and to please ‘the tourist gaze’. This can be called tourism-led urban regeneration.

 

The contemporary use of the past, in a sense implies to the clarification of the past to infuse it with present purposes to achieve continuity with time. The past represented in architecture, culture, transportation systems, dining habit and lifestyle in general is only appreciated in publications and rarely utilized to produce urban regeneration by creating tourist consciousness. 

The assessment of the tourism function of historic inner cities is not only to be seen as a cultural process in society as Myriam Jansen-Verbeke, professor emeriti of the Catholic University of Leuven (Belgium)  argues, but also as the result of a specific leisure policy by which urban recreation is reconsidered and evaluated as an alternative to countryside recreation.

Unlike many European cities, the general public attitude towards historic vicinities of Addis Ababa so far is unappreciative of its inner-city touristic potentials. Historic urban areas of Addis with peculiar physical representation of a past era, familiarity and belongingness in a changing environment, richness and diversity in craftsmanship and care: all open interesting approaches to the city’s touristic development.    

Addis’ historic urban areas and their values, however, are not promoted and appreciated practically in an organized manner. But they can be conserved and branded as tourist conscious products that are specifically selected and packaged for tourism marketing. The tourist product consists of a specific environment offering a spatially concentrated supply of facilities in a typical urban landscape, with both facilities and setting complementary in the leisure function of the inner city. 

Primary elements of this product are its characteristics as an “activity place.” Possible leisure activities are largely but not entirely conditioned by the presence of a set of facilities. In many features of the inner-city environment of Addis, all sorts of indigino-modern lifestyle can be considered as the “leisure setting” in the contemporary space-time continuum. 

Jansen-Verbeke stresses on the point that the historical setting is highly appreciated by visitors with a higher educational level. The analysis of tourists’ appreciation of the inner city as a leisure faculty and as a touristic place is based on two main points: the importance given to each of the elements and characteristics of the inner city. The historical setting and morphological characteristics can be seen as the most important elements. Jansen-Verbeke further specifies this overall conclusion by characteristic features, such as historical facades, bridges, monuments, and the compactness of the inner-city area. Shopping facilities, markets, restaurants, bars, and pubs undoubtedly play an important role in attracting visitors.  

The most challenging aspect of this exploration into inner-city tourism is the relationship between the elements of product, tourist, and promoter. Promoters of inner-city tourism include all institutions and organizations intending to develop and promote tourist flows to the inner city. Their objective is to attract more visitors, obtain a higher rate of visits, and eventually extend the duration of visits. 

The complexity of inner-city tourism as a system, the numerous elements considered to be touristic resources, and the variable and fashion-influenced behavior and appreciation of tourists requires that promoters to seriously consider the strengths and weaknesses of their product and evaluate them based on their degree of importance. Promoters generally believe that the historical setting is a primary condition for inner-city tourism as a given fact. The second interest seems to be mainly in accommodation facilities for tourists and the organization of events. Their impact on inner-city tourism is more directly related to tourists than to the product itself.

Local policies to stimulate tourism development can be based on a number of small-scale improvements to the inner city. Suggestions given by promoters will be effective only if based on a genuine knowledge of tourists’ demands and suggestions. Planning access to places of historical interest, conservation of the historical urban landscape and invention of new attractions for tourists such as abundance in hotel accommodation and shopping areas, is important. The importance of green spaces is also of an equal importance in the inner-city tourist led regeneration design and planning. 

Urban planning strategies based on inner-city regeneration can potentially equip Addis with capacities to revitalize socio-economic activities and sustains the legacies of the peculiar indigino-modern image identity of the city. It is still necessary to responsibly contemplate contextual outcomes of near-inner city built environment early in the design process so that when the nouveau-riche immediate development novelty wears out and the society begins to understand genuine processes of civilization with education, it may at least get them a chance to regret what is lost by their spontaneity to the superficial a long time after it is all destroyed. 


8th Year • Feb.16 - Mar.15 2019 • No. 71


 

 

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dfas@gmail.com (Nahom Gedeon) Commentary Sat, 16 Feb 2019 00:00:00 +0000
Business Manipulation, Conspiracy http://www.ethiopianbusinessreview.net/index.php/commentary/item/6068-business-manipulation-conspiracy http://www.ethiopianbusinessreview.net/index.php/commentary/item/6068-business-manipulation-conspiracy

Corporate loyalty and discipline is an important part of doing business. This means business organizations and their personalities should behave in a responsible manner while doing their job. However due to different factors, there is a strong belief in the business world that ‘bad and good go together`.  Business manipulation and conspiracy motivated by the motive for lucrative profit and undue benefit are not uncommon in today’s globalized world where the business community is on the verge of revolution. The purpose my article therefore is to show how businesses may behave badly to conspire at the expense of the lawful business as well as the social and economic capital; and the possible factors thereof. 

 

A well known criminologist, called Hansen distinguishes between economic, business, and elite crimes where each of them may behave independently but also act in consortium to conspire and manipulate the business community by monopolizing the market, inflating the economy and involving in a racket business. Traditionally or before the era of internet, illicit lucrative profits that again circulate in the volatile economic transaction could be concealed by fraudulent recording (paper based book-keeping). On the other hand, the contemporary advanced and globalized system enable them to hide and legalize (launder) illicitly earned profits any place where domestic legislation and regulatory schemes are more favourable. These places are known as safe tax heavens.  

According to Hanson, individuals employed by and in legitimate business organizations or business groups probably commit most of white-collar crimes (crimes in business offices, occupational or elite crimes) for their own purposes or enrichment, and/or for the enrichment of the organization on a whole, in spite of supposed corporate loyalty and business responsibility than freewheeling and organizationally unattached predators (outsiders). Explanation of why this type of crime is so prevalent among seemingly respectable individuals and businesses call the need for examining business behaviour and the crime nexus. Apart from external factors discussed above such as technological buffer zones, different theories explain why business elites tend to commit white collar business crimes. 

A social learning theory (differential association theory), for instance, proposes that a person associating with individuals who have deviant or unlawful mores, values, and norms learns criminal behavior. According to this theory, certain characteristics such as the proposition that criminal behavior is learned through interaction with other persons and interactions occurring in small intimate groups play a key role in placing business persons to behave unlawfully. It is like an old fashioned Ethiopian maxim which says “Tell me whom your friend is, and I could tell you who you are.” Some studies suggest that most crimes are learnt from the usual business environment than being inherited.

However, personal inclinations should not be overlooked since there are some extra-ordinary personal exposures of criminal mentality behavior (‘born criminal’). Despite the influence the law of attractions, not all corporate elites commit crimes and necessarily behave in an overtly deviant manner. But most of the business crimes are learnt since most of them are motivated by undue lucrative profit and manipulation. 

In general, the four key elements of belief, attachment, commitment, and involvement may lead to elite misdeeds based on the strength of the bonds formed between corporate “bad boys.” For instance, micro-level business actors would involve in economic exchanges where white-collar crime might be the consequence of attraction, competition, differentiation, integration, and opposition. 

Another theory known as ‘control balance theory’ that measures the potential for individuals to commit corporate crimes utilizes a ratio of control exercised in relation to the degree of control experienced. According to this theory, control balances surpluses, rather than deficits, which leads to white-collar crime and corporate deviance. On the other hand, the role or a position that the criminal or potential criminal is occupying for the time being influences the risk of criminality and criminal behavior or poses a danger or exposes to crime. 

An example of this type of individuals is politically exposed persons or individuals who are entrusted with prominent public functions. It is argued by Gilligan that such an individual must be tracked by financial institutions as he or she poses potential reputation risk to regulated entities. Cases which were recently viral in different media outlets such as the former president of the Philippines, Ferdinand Marcos, and former president of Nigeria, Sani Abacha and some figured personalities in Ethiopia who were accused of fostering corruption within their countries as well as in their respective institutions and transferring millions of dollars of public funds out of their home countries into bank accounts overseas are few examples of corporate business criminality.

Another model of criminalization called the monopolistic model (a criminal organization in the form of a monopolistic firm), is predominantly used to analyze organized corporate crimes. It implies that potential criminals have no other choice but are forced to join a criminal organization if they decide to commit a crime and hence, they use the corporate organization as a ‘front company’ or as a criminal shield to undertake a corporate crime since they could not engage in such criminal activities perhaps without having a business license.  A ‘labor agent’ involved in trafficking persons or a ‘tobacco company’ engaging in drug dealing could be an example in this regard. These kinds of organizations usually attract individual criminalists to do a corporate offence as a normal course of business while individuals by themselves or independently cannot do so. Even though this approach seems less than exhaustive in terms of describing criminal behavior, the determination of the market structure for crime should be endogenous, which has notable implications for the optimal crime enforcement policies and crime itself. In such cases, individual crimes and organized crimes are coexisting alternatives to a potential offender. Here, the method adopted to allocate the criminal organization’s payoffs and the extra benefit provided by the criminal organization play crucial roles in an individual’s decision to involve and commit a crime and the way in which he or she commits that crime. 

On the other hand, Gross explains the relationship between corporate structure and organizational criminal behavior as follows: First, the internal structure and setting of organizations is of such nature as to raise the probability that ‘the attainment of the goals of the organization will subject the organization to the risk of violating societal laws of organizational behavior’. Secondly, persons who actually act for the organization in the commission of crimes will, by selective processes associated with upward promotion in organizations, be persons likely to be highly committed to the organization and be, for various reasons, willing and able to carry out crime, should it seem to be required in order to enable the organization to attain its goals, to prosper, or minimally, to survive. 

Last but not least that explains business criminal behavior is an agency theory that is based on principal-agent relationship. This theory has in mind an illegal monopoly where it is difficult to detect and punish the principal unless an agent is detected due to the ambiguous nature of organizational ownership, temporal and spatial organizational culture between and among the principal(s) and one or multiple agents. It is also assumed that agents work rather independently so that the likelihood of detection of one agent is fairly independent from another. Drug dealers in the streets with the principal being the local distributor or agent extortionists or blackmailers distributed across a country with the principal being the coordinator of their activities providing them information or criminal know-how could be good examples. 

Criminal organizations are often based on trust (which is a critical success factor in partnership businesses in its many forms) between its members. Individualized trust relates specifically to agreeable behavior of an individual and trust based on reputation relates to trust based on publicly formed and held opinion about the ones to be trusted. This type of trust hinges on the flow of information. Information may be dispersed in a context associated with illegality, for example the underworld “grapevine system”. 

  In general, study reports show that the tendency of business organizations to engage in illicit economic activities is increasing from time to time. This will not only spoil the political economy of each country but also the healthy business undertaking. The “trade warfare” between the United States and China which is also termed as global ‘trade fare’ is a simple example that is directly or indirectly attributed to bad business behavior of transnational business companies. This is aggravated by the proliferation of new technologies that eases and interests significant number of business organizations to explore it to pursue their criminal intentions. Emerging technologies greatly assist ill gotten or dirty money. Informal and parallel banking businesses bypass the monetary and regulatory systems. Electronic fund transfer frauds, racketeering offences, forgery and counterfeiting crimes are some of these criminal offences that are alarmingly on the rise both in coverage and in its devastating effect. Therefore a concerted effort is not a matter of choice to alleviate the problem.


8th Year • Jan.16 - Feb.15 2019 • No. 70


 

 

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123@gmail.com (Gashaw Tamir ) Commentary Fri, 15 Feb 2019 00:00:00 +0000
Court Reform One Agenda on the Table http://www.ethiopianbusinessreview.net/index.php/commentary/item/6067-court-reform-one-agenda-on-the-table http://www.ethiopianbusinessreview.net/index.php/commentary/item/6067-court-reform-one-agenda-on-the-table

Ethiopia has been making various reforms that may finally lead it towards genuine democratization. Part of the reform measures has been the court reform effort within the macro legal reform program. Ethiopia’s court system has been hassled by the drastic upheavals in the political system over more than half a century. Although the country successfully implanted modern codes of law in the 1960s, establishing a court system that can accommodate the modern laws have been and is still the challenge. Accordingly, the country’s modern civil law, penal law, and commercial law are ahead of the level where the court system needs to be to understand them, let alone apply them.

 

Post 1991 Ethiopia has witnessed tremendous changes in almost every aspect of political, economic and social life, including the changes in the legal system. The establishment of a regional state court system with cassation bench and federal court, as well as the change in the court language without any translation of the basic Amharic written codes in a political environment in which Amharic has been undermined, and massive recruitment of judges and judicial staff after short term legal training and political indoctrination was the basic legal task in the immediate years after EPRDF took power.

Such measures resulted in a gradual fusion between the judiciary and the executive bodies. The court became the best instrument to execute the political interests of the executive and the legislative bodies. Those who tried to genuinely execute the role of the court were dismissed from their judicial positions, and those who compromised their role managed to keep their jobs. Such an undermined role of the court and the part played by the judicial officials in that, finally contributed to mounting public grievances and desperation about the political system. Therefore it became obvious that the court needed reform. 

Recently, members of the court reform committee were disclosed. But there is no clarity on how transparently it is done. The bench mark for the selection is not yet clear, either to the public or to the legal community. The professional associations were not given the chance to recommend and give opinions on the selection process or the nominees. 

Various studies indicate that the court has critical problems related to independence, competence and integrity of some judges, as well as complex administrative issues and the like. Most of the studies on court reform were shelved without pragmatic political commitment to apply them. Therefore we can say that the courts still suffer under their previous problems. Despite their issues, some former judicial officials advocated for marvelous court reform achievements during their terms. It became clear, however, that it was mere propaganda, rather than real reform. Some of the former officials who were blamed for the problem of the courts are included on the reform committee. The basic criterion for selection should have been new minds with new perspectives on reform. In addition, a court is a dynamic institution and efficiently addressing its problems needs vibrant and committed lawyers very close to the litigation practice, as the role of the court is finally manifested by adjudication quality in terms of output and expediency. Those distant from the litigation can’t easily discern the basic problems courts are experiencing. Institutional studies on courts should be an area of interest for academicians, researchers, lawyers, political scientists and public administration professionals. 

As the experience of other countries shows, the multi disciplinary nature of such studies has given the courts various advantages versus the traditional perception that court issues are always the professional domain of lawyers. Therefore, engaging such academicians and researchers can have a lot of advantages. As a continuous improvement plan, the supreme court should commission doctoral and masters  research theses on specific areas that need research based solutions vis-a-vis the other problems that can be identified by its research department . 

An annual judicial conference can also be the other innovative method of engagement for the courts to take advantage of new thoughts, utilizing ideas from brainstorming sessions and research presentations. Research forums on the judiciary is an almost neglected exercise by all stakeholders. What used to exist was a political forum orchestrating the judicial politics and the presenters were the usual judicial officials. The annual Justice Day can be taken as the best example of this theatre. If having a lot of law schools in more than 20 universities, and regional supreme courts with enough budgets, cannot put together a collaborative judicial research forum, it is not only disappointing but embarrassing. Establishing laws schools like high schools and gracing supreme courts with fancy buildings is nothing unless something serious can be done to address the problem of the judiciary with a research based approach. 


8th Year • Jan.16 - Feb.15 2019 • No. 70


 

 

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abebe.a@ethiopianbusinessreview.com (Abebe Asamere) Commentary Fri, 15 Feb 2019 00:00:00 +0000
Short-termism, Sustainability of Financial Institutions http://www.ethiopianbusinessreview.net/index.php/commentary/item/6066-short-termism-sustainability-of-financial-institutions http://www.ethiopianbusinessreview.net/index.php/commentary/item/6066-short-termism-sustainability-of-financial-institutions

Considering the existing reality in the Ethiopian finance sector, one may propose that an excessive short-term focus by some boards of directors, corporate leaders and shareholders combined with insufficient regard for long-term strategy can cause an imbalance in the companies’ long term and sustainable growth. Particularly, shareholders represented by a board of directors typically affect company operations and decisions differently than other stakeholders concerned with the business.

 

In every corner of the world, there is a rapid increase in shareholder activism which is demonstrated in their dominance and influence on corporate governance issues as well as long term business continuity. Most people squabble that the impact and pressure put on CEOs to deliver short term results, mainly high profit margins and dividend, is becoming higher than ever before. 

Short-termism refers to a disproportionate focus on short-term results at the cost of long-term interests and sustainable growth opportunities that require devoting some part of current returns to long term investments. Due to short-termism, financial companies in Ethiopia are competing with each other to register high profit, sometimes by implementing excessive service charges and non-value adding services for their customers. 

Some CEOs argue that the pressure for doubling profits is mounting and no one has asked them about long term plans. This in turn is creating a burden on the overall growth of the industry in general, that requires working on financial inclusion and aggressive financial literacy throughout Ethiopia. Given this, one could ask why shareholders and boards of directors put unnecessary pressure on CEOs and management to maximize short term goals over long term ones.

Among others this may be due to the awareness level of board of directors that may be elected because of their shareholdings and minimum fit and proper requirement set by the regulator, the National Bank of Ethiopia (NBE). For instance, regarding knowledge and experience of board of directors, the NBE’s Directive on requirements of persons with significant influence allows 45Pct of the Board members to come from an academic background of competing only general secondary school or its equivalent. Although the directive requires financial companies to provide adequate trainings on sector specific knowledge, most barely implement it in providing trainings that are capable of giving strategic insights for board of directors.

The difficulty with short-termism in many ways is that it does not ensure long term results for shareholders and it also limits the vision of the companies to only run after profit and become myopic to strategic issues. While the majority of company leaders prefer to remain peaceful with their board and high dividend demanding shareholders, the windfall businesses they get may not benefit the shareholders in the long run and the services that the society seeking may not be realized

Here, unless the CEOs fight to shift the attention of their board and shareholders toward “strategically right” investments, the long-term health of the companies will be compromised. Hence the growth of the financial sector in serving the future of the country becomes stifled.

Shareholders are the owners of a business and are the ultimate decision-makers on the direction of a company. While the management of a company has the day-to-day decision-making power, shareholders guide the strategy, financing and selection of management of the firm. In many cases, shareholders are the management of the firm. Shareholders also receive the benefits of dividends and the appreciation of the company’s value. However, they also are responsible for the liabilities of the firm and the risk of the value of the company dropping to zero. On the other hand, the board of directors is the legal representative of the shareholders. The board has several duties, including providing continuity for the firm, selecting the managers, assuring the firm is sufficiently financed, providing guidance on policy and strategy and reporting to the shareholders

Looking forward

Companies must put purpose before short term profit so as to serve the public and ensure healthy and sustainable growth of the financial sector. Moreover, in most Annual General Meetings of shareholders, companies should allocate time to engage in constructive dialogue with shareholders and the Board in areas that affect the long term interest of Companies.

It is known that profitability also is important in attracting and retaining stakeholders. However, Companies that have historically had a single primary objective of maximizing profit should also try to look for other areas, especially long term sustainability through investing on the future. Somebody must stop or reduce such impacts. Regulations designed to help shareholders hold top executives need to be revised to enable capable people sit in the board room.


8th Year • Jan.16 - Feb.15 2019 • No. 70


 

 

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fikru.tsegaye@yahoo.com (Fikru Tsegaye) Commentary Fri, 15 Feb 2019 00:00:00 +0000
CEO Succession in Banking http://www.ethiopianbusinessreview.net/index.php/commentary/item/6065-ceo-succession-in-banking http://www.ethiopianbusinessreview.net/index.php/commentary/item/6065-ceo-succession-in-banking

The financial sector in Ethiopia, and particularly banks, do hardly any work towards developing future CEOs.  You might argue that this is anecdotal evidence, but I have surveyed various bank executives to find out if there is an ongoing, constant, and systematic process of development and discernment.  Rather, I have found out that it is a time – limited event   which it is not   driven by the strategy and core values of the banks, and it does involve the intentional engagement of all of board members.  To be specific, most banks, for instance, grapple with CEO succession when there is a real need to find a CEO.

 

Research has shown that two – thirds of public and private companies in developed countries still struggle to get CEO succession right as they have no formal CEO succession plan in place.  This figure is alarming. One – third of the companies which have such a program were satisfied with the outcome.    Imagine what would happen to a company when a visionary CEO is gone. Most often innovation dies and the company coasts for years on momentum and its brand. Rarely does it regain its former glory. 

A known Ethiopian private bank CEO left their bank   because of a dispute with the board chairman over the CEO’s refusal to approve a loan for one of the major shareholders. This bank is now on a downward spiral, and is playing catch up.  As I write this article, I have learned that this former CEO is an advisor to a major competitor. The bank he advises is soaring over the crowd.  

Succession 

It is crystal clear that succession plans matter for the entire organization. It is not just for CEOs. There are plenty below whose absence would have ripple effects throughout the organization.  Companies are obliged to put in place a robust succession plan to minimize disruption and capitalize on employee potential. They must be intentional about their succession plan.  

A succession plan has a lot of benefits to the organization.  On one hand, it sends a positive signal to the entire organization that there is always a room to grow, to move up, and to try new opportunities.  Companies who have strong succession plans in place communicate that they are committed to hire and promote from within. One industry study shows that in a company where there is a clear succession plan, 62 pct of employees say it impacts their engagement level positively. On the other hand, succession planning also helps recruit the best employees because they are going to be looking for ways to grow, and at the same time it is a strong retainer for existing employees. The above mentioned points show how important organizational wide succession is with regards to setting up a solid business foundation.  This article, however, aims at unpacking what the private banks should do to make CEO succession an ongoing process since  the CEO plays such a pivotal role in setting a strategic direction and  ensuring success of high – level organizational initiatives .

CEO Succession as a Strategic Imperative 

Traditionally, CEO succession planning is typically viewed as one of the board’s least exciting activities. Board of Directors scramble to find a replacement when it is triggered by the abrupt departure of the old CEO rather than through a structured process.  This change impacts company culture and can also affect the company’s performance negatively. Successful companies stay ahead of the curve in managing this process with a  clear set of processes and milestones.  Effective CEO succession requires a well-defined path that ensures a strong pipeline of highly capable candidates ready to assume the CEO position whether through emergency situation or a planned transition. 

Ownership rests with the Board 

CEO succession is the responsibility of the board of directors.  It is true that the incumbent CEO has the responsibility to work hand in hand with the board to make sure that there is a strong leadership pipeline. However, the board should never lose sight of the fact that it must run the show. Boards need to focus on CEO succession on a regular basis, whether they have a brand new CEO or a CEO close to retirement to avoid a loss of momentum that can significantly harm financial performance. The board needs to link the strategic direction of the organization to the CEO succession planning to make sure that the new CEO is going to be right fit for the position.  Research has shown that two questions every board should ask when considering a new strategic plan or direction, are, first, “How long do we anticipate our current CEO to remain in the role and what is our plan if he or she should abruptly depart?” And second, “How can we take the surprises out of this process so we have adequate warning to make the changes as seamlessly as possible?” Savvy boards recognize that the leadership style, experience and aptitudes of an individual CEO will influence strategic direction, and they embrace it. Without this awareness, boards may make the mistake of thinking that CEOs are interchangeable parts. Particularly when there are personality clashes, a board may start to think of their CEO as “not the right fit” and act as if “we’ll just find another.”

An ongoing process 

CEO succession planning must begin immediately following the installment of a new CEO. The planning must be a constant, ongoing process that is managed as closely and attentively as any of the company’s critical business issues. Thus, it is important to build fast – track programs that deepen leadership development early in employee’s career.  The creating of a long – term Executive Development Program through talent review and development and monitoring can significantly increase the internal pool of candidates. It is important that boards need to be less hierarchy – conscious in the way they think about value creation. Thus, they should look at high growth people two or three levels below the CEO for them to have a feel of the organization’s real talent and to recognize their achievements through various platforms.  This in turn sends a positive signal to these talented people that there is always room to grow, to move up, and to try new opportunities. I believe that the Head of Human Resources should work closely with the CEO and the board to help identify and build talent and give insight and strategic leadership along this line.

Prepare for emergency CEO succession 

An absence of leadership during the abrupt departure of a CEO sends the wrong signal across the board. It indicates poor board governance and has an immediate damaging effect on the company’s market position and share value.  Boards never know when they may have to implement an emergency CEO succession plan. For this reason, boards should always be thinking about a succession plan to ensure the continuous coverage of executive duties and safeguards the interests of the company’s stakeholders, reputation and value-creating activities.  Sadly, 80 percent of the senior leaders I surveyed claim that they are not prepared for an emergency succession in the event of a sudden, unexpected or unplanned departure of their company’s top leader.

Align Strategy with Profile (Inside / Outside Choice)

The company’s current strategy surely informs the direction boards should take with regards to drawing candidates for CEO from inside or outside the company.  The board first evaluate the situation that the company is in , that is , if the company is performing well and the aim is to keep the momentum going , there is a general consensus that  an inside candidate is preferred . The outside candidate may be better if the company is not meeting its strategic objectives or if the company’s competitive position in the industry is not meeting the board’s expectations or there is a need to change direction for the future.  The recent appointment of an outside CEO for Commercial Bank of Ethiopia is a good example that supports this perspective. 

What does the next CEO look like?

The board must reach a consensus on what the right candidate for CEO should look like, that is, her or his skill set, industry knowledge and leadership history. Four principal attributes at the top of any board’s list should be: operational ability, strategic outlook, congruence with the corporate culture, and a high level of social and emotional intelligence. Besides, the evaluation criteria must include the ability to handle key relationships with three “masters” in mind: customers, shareholders, and employees. It is important to look back on the preferred candidate’s track record in dealing with these three key, yet very different stakeholders. While these elements are not directly linked to the selection process, the CEO candidate’s knowledge of them and how to strengthen ties to them should be a primary consideration in the final decision.

CEO succession when planned   and executed proactively offers a company far more than just the transitioning of its top leader. It enables organizations to envision new opportunities for growth, and realign and strengthen processes and systems throughout the enterprise.


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Dawit@gmail.com (Dawit Arega (MBA -IB)) Commentary Fri, 15 Feb 2019 00:00:00 +0000
Growing a Sustainable Customer Base http://www.ethiopianbusinessreview.net/index.php/commentary/item/6064-growing-a-sustainable-customer-base http://www.ethiopianbusinessreview.net/index.php/commentary/item/6064-growing-a-sustainable-customer-base

Customers are what keep a business alive. Coming up with a business idea, doing research, making plans, and executing the business- this should all be done with customers in mine. Once the business has identified a problem to solve for the customers, has understood its niche market, and has decided how to reach out to customers, it can be up and running. But many fledgling businesses run into a problem here. Days and weeks, and even months go by, but only a few customers have come in, nowhere close to the targeted numbers. 

At this point, questions start to arise. The product is good, the shop looks nice, everything is all set. So why aren’t customers flocking to the business? 

People love businesses for different reasons. They may love a business for the quality of the product. They may love a business for its fair price. They may love a business for its reliability. They may love a business for its brand. They may love a business for its eloquence and style. For whatever reason customers might love a new business, it should be able to bring in enough of them to quickly grow. So the question becomes: how can a business grow their customer base enough to succeed? 

Cold calling works

Cold calling exists for a reason. In fact the phone directory on the table has a lot of power. Its value starts not when cold calling begins, but from the instant that the business is conceived and research begins. It helps identify target customers and be clear about the niche market. It might even help bring in potential customers before business kicks in. It is essential to prepare a customer base that includes potential companies that may readily accept a new business’s products or services. It might also be better to use CRM software that is available free or cheaply online. 

Cold calling may seem satisfying at first when speaking to two or three companies that respond well. But after some more calls it becomes more frustrating. Some companies may treat cold callers badly, causing callers to feel discouraged or to lose confidence. This pattern continues until fear prevents any more calls. It is necessary to check this behavior before it happens.

One way of getting around this is to prepare ice breaking speeches and other phrases that might help easy communication. Businesses should identify common scenarios and be prepared to come up with interesting and short questions and answers. These especially will help if telemarketing software is used. Talking to customers will instantly become second nature. Another way to ease frustrations is by recording follow-up calls, either through voice recordings, or text summaries. This will save time and make communication more precise for subsequent calls.

Businesses shouldn’t make the mistake of chasing difficult and uncooperative customers. They will drain energy and time. Otherwise, sales targets may lag back and the company may lose lots of money. Results will accrue when businesses develop good communications methods and understand when to stop chasing leads. 

Referrals work better

Cold call customers are complete strangers. A number of follow-ups are needed to get to know them and others in order to close a deal. The process is a bit lengthy and costly. Using referrals makes the process easier and less awkward. If businesses find leads that are interesting but do not turn into customers, they should be asked nicely if they know any other business that might find the product or service beneficial. If deals are closed with customers, employees should take their time and try to know the nature of their business well, extracting as much information as possibly about their industry and making sure to ask for referrals. 

Businesses should use different tools when reaching out for referrals, like surveys or questionnaires. They may also request recommendation letters and testimonials from their best customers. This will help them get to know their niche market very well, and it extends and makes their customer base richer.

Relationship marketing works best

Two of the methods discussed are a bit traditional and can be a bit challenging. Although businesses will be able to secure a considerable amount of customers from these endeavors, their potential to turn leads into customers is limited. It also lacks the potential to retain customers longer. Relationship marketing is a perfect choice to get customers and make them stay longer. Businesses will be able to find many of their best customers using this approach. They may find these customers from cold calling and referrals. They may also find them from their support system.

Try to satisfy the needs of these customers better. Businesses mustn’t hesitate to help them with all their power, and take time to understand their company and their industry. Businesses should try to involve them in company meetings and discussions about future products and services. These are the customers that shouldn’t be missed. They turn a mission into a reality and  can make company a success. 

Brands can’t be out of the equation

So once someone comes up with a business idea and has a blueprint for its execution. They are familiar with the expertise and effort it’s going to need. The next step is figuring out how to become inspired and stay motivated to the end, and how to make customers ask themselves if they can be able to get by without the service/product. That is branding, and it cannot be left out of the equation.

Wishes and goals for the business can be put into the name, logo, interior and exterior design, paper and digital promotional and corporate identity materials (of course with the help of a professional designer). This is the first step to turning customers into a family. 

Businesses should always serves their brand. A brand should tell a company’s story, and always align it with the mission and culture the company wants to build. Customers respond to brand. They will notice a strong brand and grow in number in a short period of time.

Smart marketing 

Building a marketing and sales team should be very deliberate. Businesses should put in place a good marketing and sales plan, and encourage their teams to be creative about how the plan is executed. Teams should also be closely supervised so that sales goals are not missed. A good sales team is an integral part of creating a loyal and satisfied customer base. 

How a company is built defines the customers. How customers respond and react defines a business. Taking care of a customer base while building a business is imperative to creating a company that sustainable and succeeds. 


8th Year • Jan.16 - Feb.15 2019 • No. 70


 

 

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addis@gmail.com (Ashenafi Semu) Commentary Fri, 15 Feb 2019 00:00:00 +0000
Piassa Indigenous Modernism http://www.ethiopianbusinessreview.net/index.php/commentary/item/6049-piassa-indigenous-modernism http://www.ethiopianbusinessreview.net/index.php/commentary/item/6049-piassa-indigenous-modernism

Inspecting through the maps of Addis Ababa from the 1880s up to today’s Google satellite images, it is impossible to avoid noticing how the city has handled its expansion and morphological transformation within a century. And in what way it dealt confrontations between modern planning and traditional settlements. 

Bahru Zewde (Professor) describes global character of modernization as ‘increasingly urban orientation of a society’ is a very concept that explains the Ethiopian urbanization as literally digested since the emergence of Addis. However, the modern’s attributes’ close association with the western experience such as its industrial novelties, Bahru argues, had produced a deformed understanding of modernization that is considered to be tantamount to westernization. Eventually in the 21st century, the non-colonized African city chose to lean completely on western references as symbols of positive development in its contemporary architecture and by so promoting false images of modernism on its buildings, ittakes part in the global market as an import dependent industry. 

Limitations in thinking to utilize design and lack of urban oriented planning principles are some of the major reasons the scholars underline to the indifferences that become visible in the built environment of today; neglected identities, landscapes and contexts. Design is defenseless to the interests of developers and is misunderstood to end after building permits are secured. The realization of the building is largely left to the developer. According to the prognoses of Dirk E. Hebel (professor) in his 2012 publication, 80Pct of the building materials are imported, and therefore, investment capital, domestic knowledge, entrepreneurship and healthy growth of local markets are out-casted from the value chain process of the country. 

Academic publications also highlighted on the quantity of energy these glazed tower buildings, by ignoring to design appropriately for the climate, unnecessarily consumed to cooling techniques of the increasingly heated indoor environments and reckoned their share on the recurring electrical energy interruption of the city.“Chaotic urbanism without internal coherence” is a dominant ruler of the contemporary Addis skyline. 

Yet, some parts of the city such as Piassa and around the National Theater are built in accordance with urban oriented planning principles. While National Theatre area, also known as the Commercial District by professionals, has an educated reinvention of urbanization concepts in its own context Piassa is that we are able to extract characters of healthy spatial development that suites existing conditions of the city. They represent spatial (in its architectural and urban sense) legacies of the late 19th and 20th century Ethiopian urbanization processes in relatively abundant concentration, while they synchronized and improved the indigenous social structure intact and in harmony with modernism. To the indigenous Ethiopian lifestyle, the nucleus of modernization had been completely foreign while the way it has been introduced and contextualized remained profoundly familiar. Urban spaces such as Piassa had been instrumental to the comfortable access of fresh standards of modernism to the domestic environment. This gradually abstracted itself to become ‘the spirit of the place’, or technically speaking the ‘Genius Loci’; Piassa as the modernist center of the city where those western technological innovations and scientific understandings had come to light and tested, until the beginning of the second half of the 20th century. 

 Based on their spatial characters, Aden Street and Ghandi Street fall in to a similar category where they reflect on the pre-five-years-war face of the city while Haile Selassie, Cunningham and Dejasmach Jote streets put an emphasis on the achievements of the second and third generation modernizations. Collectively, these streets of Piassa are unique to Addis for providing pedestrian friendly spaces and inviting people to enjoy outdoor experiences with a rare urban-spatial continuity. The proportionality and scale of the buildings to the width of the streets are made not to be dominant over pedestrians. The physical status of most parts of the area is severely underprivileged as of current, where it’s important to admit the indigenous has a hard-lined cynical attitude about compromising one’s superstitious and archaic habits to be reciprocated with profound progress in civilization and is observed more successful at hindering modern these legacies than developing it. Workneh Eshete, the first Ethiopian educated as a medical doctor, once aphorized in his diary ‘the country is beautiful but the man is vile’; nevertheless we concentrate on registering the precedent ideas and spatial qualities of early architectural achievements to modernize it as a unique African experience.

 Piassa’s streets are highly significant for its historic skyline with a dominance of early 20th century leading style in architecture. The “Addis Ababa style” emerged as a necessity to a transformed urban lifestyle by the time.It is a sophistication of the simple cylindrical hut by verbalization of the central wide space with smaller spaces circling it and no corridors introduced. It is characterized by such combination of spaces, and in some cases houses, and an introduction of reception hall (i.e. a central space). And is built from heavy masonry in the ground floor topped with a wooden balcony and posts with a froth of glazing - richly decorated mostly after the Armenian, Greek and Indian influences with a fanciful gable roof shapes. The balconies and verandah recesses, being closely associated in space flow with roads, witnessed some crucial events in the history of the city as it rode waves of popular rejoice in the streets.

On the other hand, the buildings in Piassa are good examples of how architecture modernizes while embracing indigenous social cohesion as the Genius Loci of the place in an urban scale. The buildings that emerged in the 60s maintained to persist on these spatial qualities of the place with their balconies, buffering corridors and better urban dialogue with each other. The area including the Baghasserian building, which houses the famous Tea Room, particularly articulated the familiar character of the place, inviting pedestrians to profoundly experience the urban-spatial continuum. 

An acutely triangular island created by a highway from De Gaulle square to Gebrewold building - down to Mohammed-Ally store (today the old post office) and back, is also properly experimented and revived with an alternate but interesting interpretation of the same underlying concept. As the East - West route of the highway is separated by a sloppy landscape featuring down to the West - East route, the architects of the time carved spaces from a land fill (a design technique particular to Ethiopia’s ancient and medieval period) and programmed the inner-city overlapping activities in the island known for Centro pastry including provision of a rare urban hygiene facility program to the city. The roof of these spaces which comes at level with the East - West route are actually, obvious to the trained eye, programmed after a necessity of lobby space for the cinema across the street. Today it rather attracts micro-economies. 

At the center of Piassa, Arada building built in 1984 energetically illustrates the concept of Genius Loci in an even more sophisticated, latest fashion in larger scale. Being the most recent and probably the last achievement of such school of thought in the architecture of Addis Ababa, the streets are multiplied within the building’s cascading volumetric structure with an intricate spatial flow through individual and common spaces taking the central role and towering the place’s landmark. The alignment of the cells within the horizontal volume is a good example of designing for the climate. 


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dfas@gmail.com (Nahom Gedeon) Commentary Sat, 15 Dec 2018 00:00:00 +0000
The New Development Paradigm http://www.ethiopianbusinessreview.net/index.php/commentary/item/6047-the-new-development-paradigm http://www.ethiopianbusinessreview.net/index.php/commentary/item/6047-the-new-development-paradigm

Inspired by the current political change in Ethiopia, economists, political scientists and ordinary people have started to search for a new strategic economic plan for the country. After reading every thought-provoking suggestions made by others, I feel discomfort to remain silent on the subject which I closely studied. The present and future economic situation of the country is such that it compels us to spark off a debate on issues related to strategic economic roadmap; it is high time now to embrace a new direction.

The suggestions made so far signify the difficulties faced while searching for new strategic economic roadmap for the country. But, there should be a consensus on the need for new economic roadmap to begin with. We need to discuss on weather a new paradigm is required or is there still a space to rectify the current model. There are some researchers who expect that the current economic development model, popularly known as developmental state, can work, if and when, its efficiency is improved concurrent with the ongoing democratic reforms in the country. By virtue of their application democratic reforms brings about transparency and accountability. These virtues can rectify the management constraints and institutional incapability of developmental state model and thus there is no need for a paradigm shift. This view (long live the old model) is shared by others who benefited from its formulation and implementation. There seem to be some politicians who still accept the continued use of the model for a different reason: lack of finding or envisioning an alternative paradigm.

I am familiar with the developmental state model since its inception. Initially it appeared to me as a better choice than the no design state of condition existing at that moment. As one who study the effects of rapid population growth (mass unemployment, sever scarcity in basic needs, and uneven urban development), I was interested in and open to any economic model that declares to solve the problems. Population growth perspective helps to understand not only the day-to-day resource gaps and operational activity of the government. Its demographic based economic growth projection model, on the other hand, helps to anticipate the future as well. In my analysis, I have always in mind how to bring the future into present. 

Initially when the developmental state model was formulated around at the turn of the century, I was suspicious of the motive and orientation of the model. The developmental state model was conceived for the purpose of getting political legitimacy at home (developmental state instead of democratic state) and as a means to find new and alternative non-west alliance at global level. I saw a discrepancy between what the nature of the population growth economy demands and the motives and objectives that the model envisaged to accomplish. The model was designed to increase the export capacity of the state and its capability to finance centrally planned projects (developmental state features). Boosting the economic capacity of the state, if at all it can be done, does not mean solving population growth effect problems (mass unemployment; sever scarcity of goods and services, unbalanced regional development and local economic transformation). We all know that as to who has benefited from the state’s aggressive intervention in the economy. The arrest of the managers of Metals and Engineering Corporation on the allegation of corruption is a conspicuous example of model failure.

To begin with, there was a problem of design even at the stage of its formulation. I was critically examining the outward orientation of the model (export-led industrialization), the priority and alignment of the economic sectors, on conditions to build developmental state model, carrying capacity of the Ethiopian economy, youth unemployment and employment creation policies, local and regional development, and came to know what is in the name of developmental state, among others. 

The Ethiopian version of developmental state model does not have only mismanagement problem. The problem is more than a question of efficiency and technicality. It is a principle of design (development approach, direction, priorities, organization and implementation of policy instruments), and level of state intervention (order of precedence on who leads development in the country). The fact that there is a political commotion in the country shows the failure of the developmental state model. The present popular movement aims to change not only authoritarianism but also its economic foundation. Authoritarian state can survive if they have well designed economic transformation policies as in the cases of China and other Asian countries. But in Ethiopia’s case, this is not the case, which makes the Ethiopian developmental state model, fake. There never was an economic roadmap that could solve the problems of mass unemployment, sever scarcity of goods and services, and unbalanced local and regional development. 

So, what is or should be the alternative strategic economic roadmap for Ethiopia? I suggest preparation of bottom-up industrial policy strategy document to develop the local value chains and transformation of the local economy. There is no economic growth and transformation without local-based and people–centered industrial policy. Bottom-up industrialization means the establishment, operation and agglomeration of light and small-scale manufacturing industries by market forces with the aggressive support of local governments up to the lower level. The idea of bottom-up industrial policy is to make every regional states rely on domestic economic growth factors (entrepreneurial talent, independent technology and free capital accumulation) to derive industrialization. Domestic economic driving forces are cultivated by market oriented reforms and local institutional innovations. 

Bottom-up is not only hierarchical. It is a concept which refers to place (the question of where to industrialize and why there). The rationale for industrialization is not based on “one size fit all” places as in the case of developmental state model. The bottom-up policy stresses local specific interventions that are necessary for exploiting the full potential of the local endowment structure. To upgrade the local endowment structure, to uncover opportunities and risks, the local government should conduct feasibility studies. This study helps the local government to figure out which industries to support within specific area for the purpose of local economic transformation. The Integrated Agro Industrial Park project in the state of Oromia is best example of bottom-up approach to local economic transformation. 

Over and above the establishment of agro-industrial parks and cluster promotion, the bottom-up industrial policy identifies instruments that promote systematic and harmonious relationship between local stakeholders (private sector, the local government and the youth or part of the population that is growing rapidly). The formation of association of local entrepreneurs, workers and youth helps to build relationships of trust and interdependence among stakeholders. Unexpected consequences of interventions can easily be understood and rectified through applying a systematic and network relationship among local actors. 

For bottom up policy to work, it is necessary to get top-down support. Local economic transformation has to be integrated with national and regional development programs particularly in the areas of private sector development, financial sector development, and public investment in infrastructure. The central government has to ensure domestic macro-economic and financial stability and sustainable public debt positions.


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tsegaye.tegenu@epmc.se (Tsegaye Tegenu (PhD)) Commentary Sat, 15 Dec 2018 00:00:00 +0000
Ethiopian Renaissance End of the Road in Sight? http://www.ethiopianbusinessreview.net/index.php/commentary/item/6046-ethiopian-renaissance-end-of-the-road-in-sight? http://www.ethiopianbusinessreview.net/index.php/commentary/item/6046-ethiopian-renaissance-end-of-the-road-in-sight?

Not much is being said about the ‘Renaissance Movements’ in the world today, especially in Western Europe where the movement was born. However, the story of the Ethiopian Renaissance Movement currently seems to stretch either too long or is on the verge of sudden death. A number of authors have defined the renaissance movement as a bridge between the middle ages and modern history. However, in Ethiopia’s case, it seems to assume a reverse meaning.

I had an opportunity to visit Addis Ababa recently, after a gap of 15 months and what I saw was so unique and diverse that no documented historical movement can co-relate. The markets have expanded. There are multiple players doing same kind of business. Infrastructure has improved, albeit not enough to cater to the burgeoning population. Except for capital cities, including regional capitals, there is no urbanisation due to an exodus of the rural population to the few urban centres. Construction boom is visible – new, glistening skyscrapers are mushrooming alongside antiquated bars and nondescript restaurants and meat shops. Amidst this “development brouhaha” I tried to understand the undercurrents.

Government is Everywhere

Ethiopia has a distinction of being one of the few countries in the world not to have been colonised. Consequently, Ethiopians take pride in evolving on their own. However, the average Ethiopian has realised that in the era of globalisation, this concept does not work and is therefore, trying to break free in business and development. Sadly, the institution that is shackling Ethiopians is the government. 

The tax regime, foreign exchange laws and public debt viability has hindered growth in virtually every economic sector. On the micro level, an entrepreneur is just not able to pursue his priorities of growth and innovation as he has little time left out of his daily schedule after dealing with governmental challenges. Ethiopia offers 36 months of sunshine for companies. It means an enterprise can live healthy for first three years. Once the tax authority audit kicks in, the enterprise is guaranteed to close and/or flee if owned by foreigner – such is the degree of inflated tax claims, cost of tax audit settlement and the resultant mental torture. 

Capital is scarce and foreign exchange availability is very poor. Thanks to the foreign exchange regime - it takes almost a year to open a Letter of Credit. With all the forex controls at the cost of choking the business, the local currency (Birr) has continued to depreciate at 8.40Pct annually during the past decade –the worst currency depreciation in sub Saharan Africa. 

Currently, Ethiopia has 17 commercial banks, 17 insurance companies and 35 micro finance institutions. However, low capital base and even lower risk appetite, the ban on foreign banks as well as financial institutions to enter Ethiopia and the financial sector administration being pursued by the government has led to lowest economic multiplier effect chocking businesses. Interest rate spectrum is skewed - big business gets cheaper credit whereas loans if any, to micro and small enterprises are priced at over 22Pct.

The story of public debt is no different.  Government takes credit for maintaining the 10-year annual average public debt to gross domestic product (GDP) ratio at 45Pct. However, when seen from the point of productiveness of public debt, Ethiopian economists have grudging concluded that an average Ethiopian has ends up being public debt ridden on a year on year basis rather than enjoying better standards of living. 

The first and second phases of the Growth and Transformation Plan (GTP I & II) have been colossus failures because they were planned by authoritarian rulers to serve what they deemed good rather than what is a combined good at micro and macro level. Ethiopian power sector is a classic case study wherein millions of borrowed funds are being spent on building power transmission network to export cheap hydro power to neighbours while capital city, the regional cities and growth centres are suffering daily power outages. Despite garnering huge share of public debt, public infrastructure productivity is low. Consequently, the overall industry value addition rate is mere five percent of GDP as against 20Pct in sub-Saharan Africa. This has had a cumulative effect on the social sectors as well.

The government is quick to claim double digit economic growth. However, at the micro levels, 10-year annual average headline inflation rate has been over 15Pct. So, who is enjoying the growth? Is Ethiopia governed by “state capture” syndrome? 

Truth Vs Hype

Since the change of leadership in April 2018, muted voices in Ethiopia are finding higher decibel levels. A part of Ethiopian intelligentsia sees a new resolve in Prime Minister Abiy Ahmed (PhD) and his administration to junk the age old Ethiopian Renaissance theory propagated by the erstwhile rulers. They say liberalisation is on the way. However, liberalisation has to be coupled with privatisation which is diagonally opposite of Marxist economics. World’s fastest growing economies: India and China have embarked on “minimum government maximum governance”. Can Abiy do it or will he continue to sing the “Ethiopian Renaissance” song? 

During the recently concluded Armistice Day celebration, French President Macron made a defining speech. He said “patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism and is leading to protectionism”. Who understands this better than Ethiopians? For the past two decades, the Ethiopian economy is being directed from behind the façade of Ethiopian nationalism by an alliance of ruling elite and economic elite. This very process has created institutions like Metal and Engineering Corporation. 

Many Ethiopians currently are saying things are changing under the leadership of Abiy. The government of the day has to globalise Ethiopia. There are no role models in Ethiopia and hence the Prime Minister has to bite the bullet of “accelerated globalisation” on social and economic front. There will be pain and despair for two years. The Premier has already pledged to carry forward his agenda with love and forgiveness. If the common Ethiopian sees financial inclusion, he will support the government and patiently wait for good times.


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Austine@gmail.com (Austine Sequeira (PhD)) Commentary Sat, 15 Dec 2018 00:00:00 +0000