Interview 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://ethiopianbusinessreview.net Tue, 21 Aug 2018 17:24:15 +0000 Joomla! - Open Source Content Management en-gb We are Devising Incentives to Involve the Private Sector. http://ethiopianbusinessreview.net/index.php/interview/item/5928-we-are-devising-incentives-to-involve-the-private-sector http://ethiopianbusinessreview.net/index.php/interview/item/5928-we-are-devising-incentives-to-involve-the-private-sector We are Devising Incentives to Involve the Private Sector.

SNV Ethiopia is responsible for managing the National Biogas Programme. In the first and second phases of the programme, SNV Ethiopia managed to distribute 18,000 bio-digesters over the last 10 yearswhile in the third  and scale up phases the organization plans to distribute 36,000 bio-digesters. EBR sat down with Worku Behonegne, country director of SNV Ethiopia to learn more about the Programme.

EBR: SNV implemented highly successful Biogas programs in Nepal and Vietnam. It distributed close to 200,000 bio-digesters in less than five years. But in Ethiopia the distribution of bio-digesters has not surpassed 20,000 in the last ten years. What are the reasons? 

Worku: It is based on the circumstances in these countries. In Nepal, there was already awareness and distributed digesters. In Vietnam, before we went, they were already using digesters because they have large scale pig farms and a well-developed horticulture sector. Private sector involvement in Nepal and Vietnam was also high at the time SNV started. 

But in Ethiopia, we designed the program almost from scratch. We created awareness and trained the youth and started distributing digesters. In Africa, especially in Ethiopia, the first phase was slow. The second is better. And now in the third phase we can see gradual improvement. 

The use of biogas will take off when it is implemented together with other projects in dairy, fodder production, and farming. Currently, we are working with some 65,000 farmers, both those who are agriculturalists and pastoralists, who have huge dung piles. Our plan is to include them in the National Biogas Program (NBP). Even better, we are preparing to increase the number of farmers from 65,000 to 150,000. 

In Ethiopia, the private sector has a limited role in expanding the use of biogas unlike Nepal and Vietnam. 

Once we initiate demand and train the youth, we hope private sector interest will increase. We are devising incentives to involve the private sector, especially in the importation of bio-digester materials, distribution and construction of digesters, at large scale. 

In the past ten years, the NBP launched two consecutive projects but up to 50Pct of the digesters distributed during phase one and two are not functional. How do you evaluate the standard of digester technology in Ethiopia, compared to other countries? 

Capability is a concern. The soil type and the skills of masons affect the functionality of digesters. It is difficult to find quality masons in remote areas.  But the design of bio-digesters is improving over time. At the national level, there is technical committee, and once an improved design is tested and approved by them, it will be distributed.

In the third scale up program, SNV is involved in both the technical side and fund management, unlike previous phases, when you were involved in just the technical side. Do you expect different performance?

It means we will be involved in every detail. We will implement a result based approach and try to reach the target of distributing 36,000 digesters and benefitting 180,000 people within the next five years, without delay and without compromising quality. We will be involved in detailed action, rather than managing the system. We need to investigate why the program did not move faster in the first and second phases. We need to identify which stakeholders are pulling back. Then we will take corrective action. We will make sure that the program is run by lower administration levels.. Our continuous task will be making the whole system work. 

Where do you think the system became stuck? The Ministry of Water, Irrigation and Energy (MoWIE) has bureaus at the woreda level. The Ministry of Agriculture, Livestock and Natural Resources (MoALNR) also has extension workers down to the lower levels of administration. 

The problem is a lack of awareness both on the part of the implementers, and the farmers. Their attitude did not change when it came to the practical stage. But the demand from households is mounting, and to help satisfy it, there is a national steering committee, led by the state minister of MoWIE and with stakeholders from MoALNR. 

There are large scale livestock farmers and horticulture farms. Have you started working with them?

So far the focus has been at the household level. We are adopting the experiences of other countries to start large scale operations by partnering with livestock and horticulture farms. Now we are preparing to test the viability of the project.  In the third scale up phase we’ve planned to construct and distribute 40 large scale bio-digesters of above 10 cubic meters each.


6th Year . June 16 - July 15 2018 . No.63


 

 

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info@ethiopianbusinessreview.com (Ethiopian Business Review) Interview Thu, 02 Aug 2018 04:24:00 +0000
The Government has no Motivation or Capacity to Regulate the Private Sector. http://ethiopianbusinessreview.net/index.php/interview/item/5923-the-government-has-no-motivation-or-capacity-to-regulate-the-private-sector http://ethiopianbusinessreview.net/index.php/interview/item/5923-the-government-has-no-motivation-or-capacity-to-regulate-the-private-sector The Government has no Motivation or Capacity to Regulate the Private Sector.

Elias Geneti has been the president of the Addis Ababa Chamber of Commerce & Sectoral Associations (AACCSA) since 2014. Having received his masters of science in soil engineering in 1992 from the Ukrainian Agriculture University, he returned to Ethiopia in the 1990s. Elias took a job as a business development officer for ODA Share Company, ending up as deputy Chief Executive Officer, before setting up a trading company to export oil seeds and pulses in 2005.

Elias served as the president of Ethiopian Pulses, Oilseeds & Spices Processors-Exporters Associations for eight years. He sees better prospects for the private sector in the years ahead and believes the recent measures of the government to privatize key state-owned enterprises is a sign of radical change. EBR’s Samson Berhane sat down with him to discuss chambers, the benefits of privatization and challenges of the private sector.

 

EBR: The recent decision of the ruling party to sell some or all of the shares of certain key public enterprises seems to be a short term solution for the crises that have plagued the country for over a decade. Although the ruling party has hinted that liberalizing other sectors will follow, do you believe that it can be possible without even having a roadmap?

Elias: I don’t consider the recent measures a short term solution. Rather, they are critical measures. To understand this, it is crucial to look at the level of the national economy. Currently, the Ethiopian economy is based on neither socialist nor capitalist principles. Although it is considered a developmental state, the government’s major role makes it seem socialist. On the other hand, the involvement of private sector, however small, makes it somehow capitalist. 

In fact, according to a study conducted by the Addis Ababa Chamber of Commerce and Sectorial Associations, the share of the private sector in the economy is around 25Pct, whereas the rest is contributed by the government. The enterprises, which are the main reason for the rise in the government’s contribution to the economy, were supposed to have been privatized a long time ago, because the government is both the policy maker and one of the participants in the market. Usually, when the government becomes a major player in both the economy and politics, the sustainability of development will be compromised. That makes privatization obligatory, not optional.

For example, China has sustainable and steady growth, not because the state has the biggest role in the economy, but rather as the result of the efficiency of the private sector and its contribution to the economy of the nation. Likewise, Ethiopia cannot ensure sustainable development by maintaining the status quo towards the development of the private sector, especially at a time when the economy is in danger.

There are three reasons that can support my argument. Firstly, partially or fully privatizing public enterprises is crucial to continuing and finalizing the already started mega projects. Secondly, even though these public institutions have huge capital accumulation, they are not effective. Had the private sector been given the opportunity to run them, their revenues would have tripled or quadrupled.  Finally, privatization would play a major role in bolstering service quality and enhancing infrastructural development. Hence, the recent decision of the ruling party is a good start, if not a radical change. 

But if we look at the experience of other countries, such as Guinea and the United Kingdom, privatization brought about bad consequences because it was not implemented properly, or prepared for. 

The recent decision of the government signals the change that is about to come in the structure of the economy. I expect liberalization to be the next step. We must learn from Kenya, which has many telecom providers, making competition stiff, fast and dynamic. There is nothing to deter us from creating the same environment in Ethiopia. 

Privatization can be taken as a mechanism to allow many telecom, electricity and airlines services providers to flourish. That will lead to fast growth, competitive prices, efficient services and higher future tax. Meanwhile, the public and the state must have confidence that the private sector can run the economy.

In Ethiopia, the demand and supply must eventually determine the market. The role of the government, which has been the cause for the failure of the market system, must diminish step by step. To make that happen, Ethiopia must change the status quo. Creating awareness among the public is also essential, because there are people who think price and service delivery would be adversely affected. 

The major barriers of the private sector in Ethiopia are corruption, shortage of finance, inefficient government bureaucracy, shortage of foreign currency, as well as unavailability of land. The control of key sectors by the government had been rarely mentioned as a challenge.  

Businesses have no alternatives to escape from corruption, extended bureaucratic hurdles and service inefficiency, because the government is the only provider of utilities, which exposes the country to corruption and other related challenges. 

Do you think the government is ready to allow and facilitate competition among the private sector in key sectors?

That is the problem. The government has no motivation or capacity to regulate the private sector now. That is why a smooth transition is essential while gradually transferring ownership of key sectors to the private sectors. The legal framework, monitoring and control mechanisms should be well articulated. 

Meanwhile, the government should revise its way of appointing government officials. It is common to see a person who has no background in trade or business assigned to run institutions that supervise businesses, because the government prioritizes political affiliation over professional experience. I am afraid the ruling party is not ready to make that change now. But irrespective of the government’s attitude, professional experience is another area that needs attention, because it is a must to develop the capacity to regulate big multinational corporations, which are likely to be the buyers of public enterprises. 

Regulations also need to be fixed. For instance, foreign currency shortages arise due to poor regulation. While there are millions of dollars transacted on the black market, the country’s foreign currency reserves are depleted because of the poor regulation mechanisms. 

Both the first and the second Growth and Transformation Plans did not clearly stipulate how to raise the contribution of the private sector to the economy. Many argue chambers and sectoral associations, which are supposed to be the voice of the private sector, should have persuaded the government to do that. 

The government considers small scale farmers, who constitute 80Pct of the population, as  part of the private sector. As a result, officials ignore corporate businesses. Although empowering smallholder farmers is important, it should be noted that corporate businesses are crucial for wealth creation. They have the potential to create more job opportunities than the government and smallholder farmers. This should have been taken into consideration. 

So, why did you fail to make the government realize that?

We cannot be strong while the private sector is weak and vice versa. We have a government that has no desire to see strong institutions that represent the interest of the private sector. The reality is that there is no favorable environment. Instead businesses organized under the umbrella of chambers, the government prefers to deal with businesses separately. For instance, businesses under Hedasie [unions created by the government] were supposed to be members of the Addis Ababa Chamber and Sector Associations (AACCSA)

During my tenure as president of AACCSA, I tried to narrow the bridge between the government and the chamber. I proved that it is possible for a country to develop with cooperation between government and private sector. Unlike when we first started, the impact of the Association on economic affairs of the capital now has greatly improved. The City Administration’s doors seem more open to us than ever. For instance, the Addis Ababa City Administration bought ETB650 million worth of shares in the Addis-Africa International Convention and Exhibition Center, which is under construction. Likewise, the Administration provided land for the construction of our headquarters. Not only that, they have also finalized its preparations to expand the Addis Ababa Exhibition Centre, allotting an additional 10 hectare of land and spending more than USD346,000 to undertake studies for it. Such commitments are a sign of progress in terms of paying attention to the private sector.

Although there are some developments in some areas, many chambers and sectoral associations, with the exception of AACSA, are still fragile. Some attribute that to their establishment proclamation which they say does not correspond with the existing situation. 

The proclamation was enacted 15 years ago in a way that satisfied the government’s wishes. The law is complicated and in favor of the state. It considers small and medium enterprises (SMEs) as sectorial associations. That might be a holistic approach to transform SMEs to large manufacturers. The government, however, uses it for political gains, leaving the sectoral associations and enterprises disorganized.  

The law also has problems related to transparency, accountability and hierarchy. We are now working with the government to amend the law. In doing so, the involvement of the government in the activities of chambers and sectoral associations will be reduced. Also, the amendment will enable chambers to enforce a structure and chain of command. It will also incorporate ways to create cooperation among chamber and sectoral association. 

Will the issue of membership be addressed in the amended proclamation? There are some individuals that say that AACCSA membership should be mandatory. 

Making membership mandatory has its own pros and cons. It depends on the country’s development. If it is mandatory, it should be made that every sector comes to the chamber to get trade licenses, as is practiced in many developed countries. In fact, the responsibilities of chambers go as far as collecting taxes, which, in Ethiopia’s case, is handled by the Ethiopian Revenues and Customs Authority. When it membership became voluntary in Ethiopia many decades ago, it was reasonable because the term businessperson was not clearly defined at the time. The chamber was established to collectively voice the concerns of certain businesses. Making membership mandatory would have created a mess back then. 

Nothing much is different now. Except for issuing certificates of origin, AACCSA doesn’t provide any services, while similar institutions in other countries handle more than half of the available services to businesses. If the chambers were allowed to provide similar services, there would be no need to make membership mandatory. But chambers need to have the financial resources and knowledge to do that. For the AACCSA, for instance, it is impossible to handle 200,000 businesses because there is a finance and skill gap.  

Over the past two years, the country has been plagued by unrest and violence, which has adversely affected businesses and resulted in a drop in investor confidence. Have you noticed any changes after the appointment of the new Prime Minister?

Although the damage has been minimal, the protests were a big challenge for businesses. The economy was also greatly affected by the protests. For instance, in four exhibitions organized by AACCSA, there was a decline in the number of foreign participants. But with the coming of the new leadership, there seem to be good things on the horizon. Investor confidence has improved since then. Furthermore, the fact that the government has compensated businesses that lost millions because of the unrest has contributed a lot to the rise in confidence. 

The lack of insurance against risks related to political unrest contributed a lot to the insolvency of some businesses during the protests. Since business always involves uncertainties, the insurance industry should be able to respond to that. However, insurance companies rush to cut prices, instead of introducing new products. 

Before I reflect on that issue, it is first important to address the existing capacity of insurance companies. The insurance industry in Ethiopia is really backward. The regulation also doesn’t follow global trends. In fact, motor insurance policies contribute the lion’s share of the premiums written by insurance companies. This makes the loss ratio higher because most of the insured cars in Ethiopia are old and imported. They can’t introduce a new policy without creating a network with multinational reinsurance and insurance companies. 

For instance, I own a company that exports oilseeds. Our buyers in Texas usually demand that we present bring Cost, Insurance and Freight certificates. But we are unable to do that because there are no insurance companies that can insure my product until it reaches the destination. So I take the risk and export the products without insurance. 

Although the insurance companies want to work with international reinsurers to cover the gap, they don’t have the capacity to do that. There is also a knowledge gap in the industry. For instance, I was the board chairperson of an insurance firm, yet I have not bought a life insurance policy or insured my house. The same goes for majority of the population.

One of the major challenges of the private sector is the traditional tax system. Even in the midst of all the issues people are facing, the government plans to increase the contribution of tax to GDP to 17Pct. Is this justifiable?

That is not reasonable. The regulatory body is very weak and corrupt. We see some people selling products in Merkato without being taxed, while others are forced to leave the business after dealing with heavy tax bills. This could have been solved if the country had a trade policy, which is important to ensure accountability and transparency. Tax authorities tend to leave big traders untaxed and get tougher on small businesses. We live in a country where businesses that fulfil their duties are tactically penalized. 

Related to that, recently businesspersons and officials charged with and convicted of corruption were released. That has created some confusion among the public. 

I believe justice should come first. If anyone steals what belongs to others, they should be penalized. However, the recent cases might not be only about corruption. I think there are many issues that are hidden to the public. There might be political motives behind the arrest of the released people. At a time when ethnic based fights are common, releasing prisoners to bring about national reconciliation is a wise move. 

While there are attempts to reduce the involvement of state in the economy, there are still conglomerates such Tiret [an endowment company affiliated with the Amhara National Democratic Movement] and Effort [an endowment affiliated with the Tigray People Liberation Front], that are affiliated with the coalitions of the ruling party with huge capital. Constitutionally speaking, the party is not allowed to be involve in investments to avoid conflict of interests. 

This was caused by a lack of a clear definition of the private sector. Ethiopia is trying to copy Korea where the involvement of the state has been huge. The establishment of the Metals and Engineering Corporation is a showcase. The same is true with EFFORT, Tiret and other conglomerates. It is a way of controlling the political economy of the country. But I believe the institutions that are affiliated to political parties will not be a threat to the private sector unless they are given a preferential treatment.


6th Year . June 16 - July 15 2018 . No.63


 

 

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Samson.b@ethiopianbusinessrevew.net (Samson Berhane) Interview Wed, 01 Aug 2018 19:24:00 +0000
Heritage Preservation is not as Crucial for the Government as Reducing Poverty http://ethiopianbusinessreview.net/index.php/interview/item/5907-heritage-preservation-is-not-as-crucial-for-the-government-as-reducing-poverty http://ethiopianbusinessreview.net/index.php/interview/item/5907-heritage-preservation-is-not-as-crucial-for-the-government-as-reducing-poverty Heritage Preservation is not as Crucial for the Government as Reducing Poverty

Ethiopia has lost many ancient cultural heritages and treasures to plundering and looting, and it is common to find ancient Ethiopian artefacts in various western museums. Although there have been initiatives to facilitate the return of these stolen heritages in the past, the outcomes have not been pleasing. 

Recently, Tristram Hunt, Director of the Victoria and Albert (V&A) Museum said the quickest way for Ethiopia to get back its artefacts from the V&A would be through a long term loan, referring to items stolen from Mekdela by British forces in 1868. The displayed treasures include a gold crown, a gold chalice and a royal wedding costume, among others. Ethiopia launched a formal restitution claim to have the treasures returned in 2007. 

Government officials and scholars have voiced their apprehension, echoing that the return of historical treasures should not be up for discussion.  Yonas Desta, Director General of Ethiopian Heritage Authority has been one of the most outspoken figures in the negotiations emphasizing that any treasure is only meaningful to the owner, not to the looter.

Yonas has been actively participating in heritage conservation and management since 2010, when, during his time as a director at the then-Ministry of Trade and Industry, he conducted a study about heritage management in Ethiopia. Former Prime Minister Hailemariam Desalegn, offered him a chance to lead the then-Authority for Research and Conservation of Cultural Heritage (ARCCH). EBR’s Samson Berhane sat down with him to discuss his firm position towards the country’s lost treasures, heritage management and their contribution to the economy.

EBR: In response to recent remarks by Tristram Hunt, Director of the Victoria and Albert Museum, who suggested a long-term loan of the Maqdala artifacts, you said that the government is not willing to accept the offer. Have you considered the country’s capability, or incapability, to care for the artefacts, if they are returned?

Yonas: In principle, treasures or books can be regarded as heritage artefacts when they are in the place where the history has occurred, irrespective of the country’s situation. So, whether or not Ethiopia has the potential and the resources to handle its artefacts doesn’t matter. Any heritage is meaningful to the owner, not to the looter. Moreover, accepting the British proposal may set the wrong precedent. All in all, the director of the Museum has the right to make any statement about the loan of the treasures. By the same token, Ethiopia can also reject any proposal that it perceives as immoral.

Ethiopia’s treasures, whether in England or anywhere else, are the heritage of Ethiopians. Of course, international conventions, to which Ethiopia is a signatory, have been put into place taking such injustices into account. This includes the 1970 convention enacted to fight against the illegal movement of historical artefacts.  Under these conventions, we will keep trying to get the artefacts back.

The British government is prohibited from returning items looted during both the pre- and post-colonial era by law. Have there been attempts to lobby for a change in that law?

The government has been exerting all efforts to return the looted treasures, including forming a committee in 2007, which included figures such as Endrias Eshete (Prof) and the late Richard Pankhurst (Prof), as well as people with connections with the two countries to return artefacts taken after the death of Emperor Tewodros II at the battle of Meqdela. But it has not been effective, primarily because the law, bureaucracy and procedure were tedious. There was even a time when the English government said that they didn’t have the items. 

To make things worse, almost all of the looted treasures are in the Victoria and Albert Museum, which is situated near Buckingham palace. It displays heritages that have attachments with British history. Therefore, it would be naïve to look at the director’s speech as an individual opinion, even though the British government hasn’t sent an official proposal. 

Many countries have made similar efforts to return their artefacts from Britain, such as India, which has repeatedly lobbied for the return of many artefacts, including a diamond worth USD 130 million, which was once the world’s largest. However, much of this work has borne no fruit. What makes Ethiopia different? 

Actually, the issue will be determined by the negotiations between Ethiopia and Britain, irrespective of other countries’ experiences. With regards to taking other countries’ experiences into consideration, I believe that there is no government in Africa that is as concerned about its heritage artefacts as Ethiopia, so Ethiopia can be at the forefront of that movement.

Ever since the separation of church and state during the Dergue regime, the outward flow of illicit religious heritages, like for instance, Tabot, replicas of the Tablet of Laws found in Ethiopian churches, has grown astonishingly. What measures are being taken to stem the flow?

Regrettably, that is a reality in our country. It is common to see Tabots and other religious artefacts sold on the international market. There are two ways to protect heritage artefacts; either at the source, or at the gateway. We have a Memorandum of Understanding with the Federal Police Commission and Ethiopian Revenues and Customs Authority to prevent the illegal movement of heritage artefacts in such areas. 

It is difficult to strengthen the relationship between the church and state in one day. It will develop through time. We have some cooperation in areas like computerization of heritage registration. However, most of the registration of religious artefacts is done on the basis of trust. We register what they tell us they have. 

Although this makes tracing the heritages difficult, we have no choice but to accept. In Ethiopia, there are more than 37,000 churches and a similar number of Tabots, if not double. Congregants are not even allowed to see such objects, let alone government officials or experts. Only selected priests are allowed to enter the inner sanctum where the Tabot is kept. This makes moveable heritages in religious institutions vulnerable to illegal trafficking. 

Other religious heritage under threat are the Rock-Hewn Churches of Lalibela. What preservation activities are being currently undertaken?

We executed a rehabilitation pilot project in Lalibela for six years. In June 2016, we examined the rehabilitation projects already undertaken on two churches and discovered that were some errors made in the 1950s which need to be corrected. Then we came up with an intervention to repair the most damaged part of the rock-hewn church. Structural repairs as well as other preservations were made during the project, but these are only temporary solutions.

Former Minister of Culture and Tourism, Hirut Woldemariam, said that preserving Lalibela would cost more than two billion birr. She even suggested that the public should contribute some of the costs as there was a budget shortage. That does not seem fair to the public who pay taxes to the government to handle such issues. 

The Minister’s speech was intended to show the severity of the damage at Lalibela. Even if we had the money at that time, we could not have started the project because we didn’t have the proper methodology yet.

Right now, we are setting up the methodology for the rehabilitation project. Its approval depends on the recommendations of UNESCO and the International Council on Monuments and Sites. After that, we will know how long it will take. But the maintenance will definitely be done in such a way that ensures it will last. 

Muslim heritages have been neglected during preservation efforts. Many of the artefacts are in the hands of private individuals, and many have been lost. 

We work in collaboration with all religions and religious institutions, including the Ethiopian Islamic Affairs Supreme Council.  We support them by providing expertise and resources to supplement their capabilities for research and archeology in the areas where the heritages are located. We also publish a document that lists these Muslim heritage areas. Site development and inspection are being done. One visible example is Al-Nejashi Mosque, which is as old as the Islamic faith. Although it has been neglected in the past, with the help of Turkey, the Mosque has now been revived as a well-known tourist destination. 

The country doesn’t have a defined plan to protect cultural heritages, even though clear targets have been outlined for many other sub-sectors. Does this show a lack of government attention and commitment? 

It is not as simple as setting a plan when it comes to the heritage sub-sector. The reverse might be true in other sub-sectors because it is easy to set a target, for example to increase the existing manufacturing companies to a certain level. In the same manner, knowing the heritages that we possess is important to design any plan or direction. Unfortunately, we don’t have that. In what world can we plan to refurbish or reconstruct without knowing where the heritage is? Yet, it would not be wrong to conclude that less attention is given to the preservation of heritages. 

Does this mean there is no legal and policy framework to manage heritages in Ethiopia? 

There is a cultural policy that was introduced in 1998. It was revised two years ago. This policy has a detailed plan of action and directions with regards to heritage management and preservation. 

So why do you think there is ongoing damage to cultural heritage sites, like the recent demolition of the two residences of Ras Abebe Aregay in Addis Ababa? 

Once a law is enacted, it is open to anyone’s interpretation. The legal interpretation related to heritages is very controversial. Various institutions might collide with each other while performing their duty. This was the main reason behind the demolition of Ras Abebe’s residences. 

Despite global recognition, the towns or cities in Ethiopia where tangible and non-tangible heritages have been registered by UNESCO have not yet seen any significant gains. It seems like the registering the heritages served to gain political legitimacy for the government and to build the country’s image. 

That is right. Actually, the reverse would have been surprising. Any rational tourist would want to visit places with better infrastructure and facilities. One of the criteria for the registration of heritages is their potential to attract tourists, but potential is not enough. The places where the heritages are located don’t have proper toilets, guest houses or clinics, which makes visiting them undesirable and expensive. So for an individual tourist, it is cheaper to visit New York City twice, instead of visiting the landscape at Konso or other tourist attraction sites in Ethiopia. 

If we take the experiences of other countries such as Thailand, tourists are able to find clinics or other services next to the heritage site. Actually, there are countries that offer the best medical service around heritage sites rather than anywhere else. 

But some heritage sites like Lalibela bring thousands of dollars into the country every day. Is it difficult to build infrastructure and facilities using the gains reaped so far?

Lalibela is a good example of what I was saying before. Four years ago, we constructed 11 toilets around the churches. But, when I went to visit the churches last month, none of them was functioning. It shows that we are at a critical stage. 

If these factors are the major reasons for the low contribution of heritages to the economy, why doesn’t the government allow the private sector to be involved in heritage management? 

That is what the country needs right now. A strategy is needed to allow the private sector invest in heritage management responsibly. But I have doubts about the readiness of the private sector. We have a private sector that tends to plead for help from the government, instead of standing on its own.  The Ethiopian Tourism Organization, whose primary targets are tourism destination development and marketing, was formed to help the private sector flourish in the tourism industry, including the heritage sub-sector, but this didn’t go beyond the paperwork. Private sector engagement has not implemented so far. There are many countries all around the world with few heritages, but benefit much more. 

So no heritage sites have been given to private sector management?

To be frank, there are no heritages under the government’s management either. The majority of the tangible heritages are under the management of churches and mosques. Private sector involvement can improve the situation. For instance, private entities that set up their businesses near heritage sites should contribute a certain percentage of their profits to the refurbishment and upkeep of heritage sites, since they get business from it too. We unfortunately live in a country where social corporate responsibility is considered a luxury. 

Everyone points the finger at the government, but the government has its own priorities. It’s understandable that heritages are not as crucial as issues like reducing poverty or feeding people affected by drought. Thus, businesses that benefit from heritages should be at the forefront of the rehabilitation process. 

There are some controversial monuments and statues. For instance, The Aanolee memorial monument, which was erected as a tribute to the Arsi Oromos who claimed to be victims of Emperor Menelik’s imperial expansion, is criticized for being an obstacle to unity. What is the Authority’s take on this? 

It is the people who make history, and build monuments and statues. The federal government doesn’t build monuments by its own will. The Heritage Management Authority has never given authorization to anyone to construct a statue. That is not its mandate; instead that power lies with regional cabinets and councils elected by the public. If a statue fulfills the criteria to be considered a heritage of the country, the Authority will make every effort to preserve it for the next generation.  In the case of controversial monument, it happens because there wasn’t a majority vote or consensus. There is nothing more crucial than the public’s interest.


6th Year . June 2018 . No.62


 

 

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Samson.b@ethiopianbusinessrevew.net (Samson Berhane) Interview Fri, 06 Jul 2018 18:47:19 +0000
Government Officials Have A Socialist Mentality http://ethiopianbusinessreview.net/index.php/interview/item/5890-government-officials-have-a-socialist-mentality http://ethiopianbusinessreview.net/index.php/interview/item/5890-government-officials-have-a-socialist-mentality Government Officials Have A Socialist Mentality

Tassew Woldehanna (Prof) has over three decades of experience in academic, research and consultancy services in the areas of child welfare, poverty and food security in Ethiopia and elsewhere. The 56 year old researcher has been involved in the national Poverty Analysis Report; a controversial study criticized for neglecting the facts on the ground.

Tassew’s academic life started at the Ambo Institute of Agriculture, where he graduated with a diploma in agronomy in 1983. He received an MSc in Agricultural and Environmental Economics and Policy as well as a PhD in Economics from Wageningen University in the Netherlands.

His career has taken him to many places, including spending time as a researcher at the Ethiopian Development Research Institute and at the Centre for the Study of African Economies at Oxford University, and the Department of Agricultural Economics at Michigan State University, USA. 

He joined Addis Ababa University (AAU) in 2000 as an assistant professor of economics. He also served in various leadership positions at the university including as college dean; and vice president for research until he assumed the post of president in February 2018. 

The process that led to Tassew’s ascent to one of the top jobs in Ethiopian higher education was unique. 

The Ministry of Education, for the first time, invited applicants to fill the post of AAU’s president through a competitive recruitment process. Accordingly, 22 applicants, including Fikre Desalegn (Prof.), brother of former Prime Minister Hailemariam Desalgen and president of the Ethiopian Civil Service University; and Masresha Fetene (Prof), who Tassew replaced as research vice president in the University, competed to replace Admasu Tsegaye (Prof.), who was assigned as Ambassador of Ethiopia to Indonesia, Malaysia and Singapore. 

Tassew was finally selected by the Ministry from among three finalists, including Jeilu Oumer (PhD), AAU’s serving academic vice president; and Bekele Gutema (PhD), Professor of Philosophy and Dean of the College of Social Sciences. 

EBR’s Samson Berhane sat down with Tassew, on the sidelines of the seventh Tana Forum held in Bahir Dar last month, to get his take on the current economic and political situation in the country, and his work at AAU.

 

EBR: You have been working on the Poverty Analysis Report, which comes out every five years, with the Central Statistical Agency for the last decade. But the report has been criticized for disregarding the facts on the ground. The latest Interim report reveals that poverty has declined to 23.5Pct over the past five years, while the country is experiencing its second worst drought in five years and the cost of living keeps rising.Tassew: It would not be wrong to conclude that poverty has declined over the past five years. In fact, the government’s target was reducing poverty to 20-22Pct.  The government spends over ETB30 billion annually to fund food assistance programs as well as to modernize the agricultural sector. The pastoral community development projects, which include safety net programs, helped to improve living conditions in pastoral areas. The construction of major infrastructure development projects, such as dams, roads and buildings, have benefited low-income households as well as creating opportunities for skilled laborers.

Currently, annual public expenditure accounts for 18Pct of the gross domestic product (GDP). In particular, around three percent of that was spent on [poverty alleviating projects]. This, coupled with a surge in private investment helped to reduce poverty. So taking all of this into account, poverty should have declined by more than what we reported. Several factors undermined the government efforts to reduce poverty, including inflation, which was above 30Pct when we first started the study. This increased the number of people living in poverty, contrary to what the government had planned. 

At present, landlessness is becoming common in rural areas, while unemployment skyrockets in urban areas. Similarly, inflation is going up, especially after the recent devaluation. On top of this, many private businesses are severely affected by the foreign currency shortage. Is it possible to reduce poverty under such conditions?

The country has been in a very challenging situation for the last three years. The biggest hurdle was the political unrest. Unemployed people and university graduates were involved in violence and protests. Although it is difficult to know the exact figure, this does have an impact on poverty levels, as does the recent displacement of almost a million individuals.

However, with the advent of the new leadership, the country is more stable now. So we expect positive changes in the economy, and we are already seeing that. 

On the other hand, the foreign currency crunch is still a headache. The government is trying to provide a solution using devaluation, yet this has created inflationary pressure. However, the inflation has been below my expectations. I believe the devaluation will reverse the foreign currency shortage in the long term. Meanwhile, it will prompt short term inflation and reduce the chance of getting people out of poverty.

The government believes soaring inflation is caused by hoarding. It even formed a high level committee to intervene. Similar administrative measures were taken a few years ago. Do you think this works? 

To ensure a stable market in the long term, the government should enact good policies, instead of intervening and dictating how businesses should operate. Market intervention might be a short term solution to control hoarding. Still, it is difficult to use such mechanisms, as it is normal and right for businesses to hoard products when there is a surplus supply and sell them at a relatively higher price when shortages occur. For instance, in the crop market, farmers accumulate their outputs and sell them in the summer when there are shortages, which should be encouraged because it stabilizes the market during shortages. But hoarding practices as a result of devaluation are inappropriate. 

Globally, it is customary to hold a buffer stock to safeguard against unforeseen future shortages. This is not what is happening in Ethiopia now. The government’s recent measures prove that there is a lack of knowledge about how the free market works.  Government officials have a socialist mentality, and they usually undertake actions based on the principles of that ideology. It is only in Ethiopia where price-cutting is perceived as a strategy to stabilize the market. Additionally, the government does not implement preventive measures before economic problems occur. Rather, it tends to take action after the problems get worse. The government should have known that hoarding would happen. But their actions, including shutting down businesses, show that they have not understood how the free market works.

Some policy makers and government officials think devaluation can solve the export crisis, and the foreign currency crunch, even though Ethiopia is an import dependent country. Do you agree?

I am an ardent supporter of devaluation. Coupled with the rise in saving deposits interest rates, it can help the country to achieve a positive balance of payment. If the purchasing power of the local currency decreases and the government does not take proper action, such as devaluation, in the end, those who have invested in the export business will be in a crisis and the country will suffer from a decrease in production capacity.

Ethiopian exports have been stagnant over the past five years. If the government had devalued the local currency at that time, instead of ignoring it, [the country would have earned better revues from export]. The government decided to devalue the birr by 15Pct at the last minute, when things reached a breaking point. The accumulated nature of the problem left the government in a desperate situation, so it had no choice but to devalue. 

The lack of good governance has hurt exports as well. To become competitive in the foreign market, the government should provide solutions to challenges that businesses face. Bureaucratic hurdles are another headache. The few public institutions responsible for promoting the export sector show that the government hasn’t paid attention to the problem. Overall, concrete research should be conducted to identify the root causes of the export sector to provide [better] solution. 

But there are research institutes and think tanks that can conduct that kind of research. 

I have not witnessed concrete studies being conducted in these institutes. The right institute would be the National Bank of Ethiopia. I know the central bank, and Addis Ababa University, have done some research on the issue, but it has not had much influence. Most of the studies are based on the works of the International Monetary Fund and World Bank, instead of being done independently. It is hard to know whether such research projects are being carried out the right way. 

Don’t you think that Ethiopia needs huge policy reforms to narrow the huge current account deficit? 

When a policy changes, it takes time to see its positive impacts. Meanwhile, more reforms to tackle the foreign currency shortage are expected from the government. 

The other concerning matter is remittances. Ethiopia has a potential to generate a huge amount of income from remittance, but the country doesn’t have a policy designed for it, and that needs to emerge through time. 

One of the main problems when it comes to remittances is the expanding informal channels along with black market operators. The Prime Minister recently suggested that eliminating those who operate within the black market, such as those found around Ethiopia Hotel in Addis Ababa, would boost the remittance flow in the formal channel. Do you agree?

I personally don’t think we can abolish the black-market system so quickly. Even if it is possible to remove those operating in the black market from a given area, there is a high chance of them going somewhere else. The ones found around Ethiopia Hotel only possess the capacity to sell up to few hundred dollars. But currency conversions worth millions of dollar take place underground. 

Black market operators will continue to exist as long as there is a mismatch between the demand and supply. Some experts suggest that the foreign exchange market should operate on the basis of free market principles. What’s your take on this?

If we do leave everything to the market, the crisis we’ve see in Zimbabwe will also happen in our country. However, a shift to the free market policy is essential because when the market changes every day, the consumer, the producer and the market should adjust automatically. We have not reached that point yet, as we need a strong administration capacity. 

Another concern with the rise of the black market is the issue of money laundering and terrorism financing. Recently, the European Union Commission blacklisted Ethiopia as one of the countries where money laundering and terrorism is soaring. 

Obviously, there is an illicit financial flow in Ethiopia. It is linked to the existing situation of neighboring countries such as Somalia, where the economic and political situation is not stable. As a result, traders in such countries use Ethiopian banks to formalize their income. On the other hand, some Ethiopian citizens want to hide their money outside the country. 

In the long run, such acts should be discouraged by Ethiopia because it is associated with the stability of a neighboring country, which can undermine its role in the African Union. 

There have been similar problems elsewhere. For instance, in a discussion with the business community, the Prime Minister urged investors to bring back the money they put in foreign banks. The government should investigate the factors that contribute to illicit financial flow. 

The African Continental Free Trade Agreement to which Ethiopia is a signatory was signed on March 21, 2018 in Rwanda. While Ethiopia’s foreign currency situation and balance of payment have been worsening, how do you see the impact of such agreements?

Taking such realities into account, organizations such as the Africa Union should help countries solve their internal crises to make the recent continental free trade agreement workable. No doubt it will increase the welfare of African people, but it depends on the peace and stability of the signatories. Furthermore, the Union should persuade the leaders of Nigeria, South Africa and Egypt, which have refused to be the part of the agreement. 

But don’t you think the money laundering and terrorism financing issues should be dealt with before the agreement?

This is like the chicken-and-egg dilemma. I believe both can be addressed  simultaneously. 

There have been various dialogue platforms, such as Tana Forum, trying to offer solutions to these issues. Although various policies have been formulated from the discussions, we don’t see them implemented. 

The African Union, which has been tasked to handle such tasks, is not a powerful institution. Instead of serving its purpose, it became a platform where leaders get together without informing their people about their achievements and failures. Indeed, its inception, through the idea of Pan-Africanism, should be applauded, but engraved in the people of Africa. We all come to various meetings such Tana Forum each year to participate but there is no implementation in the end. 

You were appointed as the President of Addis Ababa University recently. How do you plan to solve the complex bureaucracy, deteriorating quality of education and poor student teacher relationship? 

The University is aware of these problems and we are working to solve the bureaucratic hurdles through digitalization of basic services, such as registration. The records of students who graduated over the past 50 years will be automated, so they will be able to access their data without even coming to the University. 

With regards to the quality of education, it is a common problem across all level of education in the country. 

I acknowledge that AAU should produce graduates that are confident enough to tackle problems with the know-how, experience and ability to work anywhere in the world. Efforts are underway to achieve this. Furthermore, we are currently supervising lecturers to make sure that they do not miss any classes. Compared to five or six years ago, the relationship between students and lecturers is now in good condition.

One of the reasons for the surge in unemployment is because students are perceived to lack practical knowledge. Was that taken into account while reforming the University?

Yes, we know that very well. That is why we are attempting to provide practical education. We are now having meetings with the private sector to allow our students to intern at their companies. 

In fact, as I am also one of those who are working on the road map for the education sector, I am a witness to the problem. The educational system in Ethiopia lacks practical studies. There are some skills that one needs in life, like decision-making, team work and tackling problems. Higher learning institutions in the country aren’t able to give these life lessons to students. We need support from the government because when there is an increase in the number of students, we will need more resources.

Similarly, most universities are not independent; they are still being given directions by the Ministry of Education. A university should be measured based on how many of its well-equipped graduates are able to get jobs. There should be a system that measures the activities of universities and their outcomes. I’m sure that our new Prime Minister will push towards such changes.

The number of universities has reached 43 currently from a few two decades ago. Yet, employment opportunities are not keeping pace with the number of graduates. Critics say that the government must strike a balance between the growth of higher learning institutions and employment opportunities.

I beg to differ on this. The government should even double the number of public universities to become a middle income country in the next decade. Not all the youth that need to go to universities have the chance to do so. This shows the importance of increasing the number of universities that provide quality education. Ethiopia is in need of graduates who are innovative, instead of those who just chase after jobs. Meanwhile, the government has to encourage graduates to engage in investments by getting rid of bureaucratic challenges and create linkages with the private sector. 

Now you have become president of the biggest university in the country, and the job is tough and time consuming, how are you going to manage your research projects?

In my stay at AAU for 18 years, I have been teaching and handling several research projects, while still serving in different positions inside and outside AAU. I have been participating in at least four or five research projects on an annual basis. But, I don’t think I can continue to be active in research projects because of my new position at the University. Being the president of such a huge institution requires time and dedication. Additionally, there are several problems that need my attention at AAU. Still, I will continue working on big research projects such as the poverty analysis report. 

Tell us a little about your personal life

I got married before I joined Haromaya University, and had a daughter soon after. Now I have two children. One of my children is currently working as a lecturer, and the other is pursuing her degree in Information Technology Engineering. 


 6th Year . May 16  - June 15 2018 . No.61


 

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Samson.b@ethiopianbusinessrevew.net (Samson Berhane) Interview Sun, 03 Jun 2018 16:43:23 +0000
"Prizes are not Sustainable tools to beef up Remittances." http://ethiopianbusinessreview.net/index.php/interview/item/5892-prizes-are-not-sustainable-tools-to-beef-up-remittances http://ethiopianbusinessreview.net/index.php/interview/item/5892-prizes-are-not-sustainable-tools-to-beef-up-remittances

Ever since the Commercial Bank of Ethiopia introduced prize linked saving promotion mechanism seven years ago, many commercial banks have followed suit by launching similar promotional schemes. This includes the almost ten year old Bunna International Bank, which started offering prizes, ranging from smart phones to a tractor worth more than a million birr, to its remittance customers. EBR’s Samson Berhane sat down with Tadesse Chinkel, president of the Bank, to discuss the results achieved from such promotional tool so far and the way forward.

EBR: It has been almost three years since Bunna adopted a remittance lottery program as a key promotional tool. What factors pushed the Bank to do so, instead of pursuing other promotional methods?

Tadesse: Prize and lottery promotional methods are the best way to collect foreign exchange when there is a stiff competition in a given industry. It is crucial to encourage customers to use formal channels whenever they receive money from their loved ones living abroad. Our aim is to let customers know that they have a chance at winning prizes, which means they can encourage the remittance sender to use our bank. In other words, it is a convenient and cheap way of advertising our service through word of mouth. It’s a win-win situation for both the bank and its customers.  

In the banking industry, whenever a certain bank adopts a new product or marketing and promotional tool, others tend to follow rather than creating their own. The same can be said of prize linked saving and remittance lottery programs.   

That is true. For instance, we started using gifts as a promotional tool after witnessing the success of Commercial Bank of Ethiopia (CBE), which was the first to use such methods. At the time, when CBE first introduced the scheme, we saw our customers switching to them. That had an impact on deposits as well as gain from foreign exchange. We were then pushed to adopt the same strategies to bring back our customers. It would not be fair to sit and wait while other banks became successful by adopting these mechanisms.

But, can the gains be worth giving away something like a tractor?

Yes, because it is a critical issue. It might be difficult to quantify the benefit as we did not have a disaggregated data. But for sure, the income that we earned without using lottery programs is lower than our income generated after we adopted the tool, let alone its benefits in raising the amount of customers and deposits.

Do you believe such promotional schemes can be sustainable solutions to raise remittance flows?

Remittances are a big source of income for millions of individuals. But its importance is underestimated. For instance, other African countries, including Nigeria, Sudan, Egypt, as well as Asian countries such as China and India, get billions of dollars from remittances every year. Boosting remittance flow goes hand in hand with encouraging saving as well; many people send money home to build houses as a security for the future. But, prizes, lotteries and gifts are not sustainable promotional tools to beef up remittances.

So, what is a viable way?

Prizes are temporary solutions to attract people who choose informal transfer channels as opposed to the formal ones. Unless banks and the government work to raise peoples’ awareness about the benefits of using the formal channel, using prizes might even destabilize the market if the tool is implemented for a longer period. Most importantly, a nationwide study should be conducted to discover a sustainable way of bringing people from using informal channels to formal ones. 

There are bankers and experts who argue that using prizes and lotteries can lead to unfair competition.  They criticize banks for selling foreign currency at a rate higher than the ceiling set by the central bank. 

Even though prizes and lotteries can be employed to weaken the black market in the short term, I fear it might encourage unfair competition in the long term because it will distort the foreign exchange market. Obviously, showering gifts on customers mean the banks are paying more than the ceiling set by the central bank. 

While apprehension over the use of prize linked saving and remittance lottery programs as a promotional mechanism lingers, what attention has the central bank been giving the issue?

So far, I have not seen any effort exerted by central bank. The regulatory body tends to turn a deaf ear to it, although it is aware that there are concerns over the usage of gifts, prizes and lotteries as a promotional tool. 

In its latest study conducted on the remittance flow in Ethiopia, the International Organisation for Migration suggested that measures should be taken to allow undocumented migrants to send money via formal channel. Have there been any efforts to make that happen?

Yes, we are trying to partner with agencies licensed by the Ministry of Labour and Social Affairs, to set up a platform where migrants can easily send their money via formal channels. In doing so, we can reach undocumented migrants as well. But, most importantly, to ensure sustainable remittance flows, Ethiopian citizens abroad should trust the government, and there is no reason why they shouldn’t if theyhave opportunities for safe political and social involvement in their country. We know that there are people with political motives who are calling for a remittance boycott against the government. To change the situation, I believe the government should have discussions with people who live abroad. Otherwise, it will have a significant impact on future remittance flows.

Prize linked saving programs have proved to be an efficient way of mobilizing more deposits. For instance, CBE, in five rounds of prize linked saving programs, has attracted more than two million customers. Is Bunna using a prize-linked saving program? 

We have not yet decided to adopt prizes as a deposit mobilization strategy, although there are banks that have found it effective. Nonetheless, the most important thing is delivering service to our customers in the way they want. I know most of us [commercial banks] use business-as-usual approaches towards deposit mobilization. In order to stay afloat in the banking industry, medium banks, including Bunna, have to come up with new ideas. In fact, we are in better shape than the big banks were at our age. To keep this speed of growth, we are trying to move in line with the country’s current situation. For example, our services are provided digitally to attract the younger generation. Other services targeted to certain segments of the population, such as women, will be also implemented.

Do you think using prizes and lotteries as a promotional tool instigates unfair competition in the banking industry?

I do not think it will cause unfair competition because even though providing incentives to customers’ means banks are paying more than the interest rate, the banks have the right to pay whatever interest rate they want on deposits, as long as it is rewarding. For instance, there are times when banks pay three or four times of the minimum interest rate in case of fixed time deposits.

Can we say banks use lotteries and other such methods to reach more customers with fewer branches because the cost of opining new branches is getting higher?

No bank would stop expanding branches because it started using lotteries as a promotional tool. To begin with, it is a regulatory requirement to expand branches by 25Pct annually, which has been par for the course over the past three or four years. What’s more, in the long term, expanding branches would help to mobilize more deposit and collect more remittance than lotteries and prizes. 

Economists have linked the aggressive use of lotteries and other promotional tools with the country’s unstable macroeconomic situation, including low saving rate and negative balance of payments.

The currency crisis has been so challenging especially in the recent years and it got worse after the political instability reached its peak. On the other hand, we haven’t seen any significant changes after the birr was devalued last October, in spite of the government’s hopes. 

The higher difference observed in the official and parallel markets is also another factor exacerbating the foreign currency crisis. Although the interest rate offered in the two markets narrowed four years ago, it started getting wider, especially after the political unrest started in the state of Amhara, Oromia and Ethiopian Somali. Whenever instability flourishes, people tend to convert their money in dollars or other foreign currency because they lose their confidence in the local currency. That is the moment the black market thrives and banks grapple with a shortage of foreign currency. Even the central bank failed to narrow the gap. Nonetheless, with the restoration of peace and stability in the country, we hope the problem will be resolved. 

The rate of investment surpasses the rate of saving enormously in Ethiopia. This is despite the fact that commercial banks registering remarkable success in deposits mobilization.  

Individuals’ deposits have been showing a significant increase every year, despite unrest and intense competition in the banking industry. But it’s a different story among large investors. In fact, most investors in Ethiopia don’t have much deposit because they have an issue of liquidity. Most of them use their deposits for their day to day operations.

So, does that mean there is a cash shortage in the economy?

Yes, of course. The shortage is a problem faced by almost all major economic players. It was highly felt during the political unrest when individuals and investors withdrew their money from banks as they lost confidence in the country.


6th Year . May 16  - June 15 2018 . No.61


 

 

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Samson.b@ethiopianbusinessrevew.net (Samson Berhane) Interview Sun, 03 Jun 2018 13:56:39 +0000
"there is no urgency to change the incentive policy" http://ethiopianbusinessreview.net/index.php/interview/item/655-there-is-no-urgency-to-change-the-incentive-policy http://ethiopianbusinessreview.net/index.php/interview/item/655-there-is-no-urgency-to-change-the-incentive-policy

Ethiopia offers financial incentives such as tax reductions and holidays, as well as custom duty exemptions to companies engaged especially in manufacturing activities. But incentives are given and monitored in a scattered and uncoordinated manner. To address the issue, the Ethiopian Revenues and Customs Authority (ERCA) is currently establishing a directorate that will follow up and monitor the proper use of incentives, which have been exposed to abuse. EBR’s Ashenafi Endale sat down with Mulugeta Beyene, director of the newly established Manufacturers and Duty Free Support Directorate at ERCA to learn more about the government’s plans to enforce proper usage of incentives. 

 EBR: What are the major incentives provided to businesses? 

Mulugeta: One way of supporting investors is by offering duty drawback. This method allows exporters to recover the duty they paid while importing raw materials immediately after they export their final product. 

The other is the voucher scheme. Under this mechanism, companies that fulfill certain criteria can import raw materials after registration, without paying taxes. These companies, however, are expected to export their products within a year. In case they encounter issues outside their control, which prevent them from exporting within that time, the law allows them an additional year. If they fail to export within the extended time frame, the company will have to pay the tax, plus an additional penalty. 

Under the bonded export factory scheme, the factory is secured by ERCA, until the company exports the items it produces with duty-free imported raw materials. On the other hand, in the bonded warehouse scheme duty-free raw materials will be stored, without payment of duty, until they are sold to companies that export the final product. 

What are the incentives provided for non-exporting businesses?

The government provides second-schedule incentives. They give import privileges to businesses that produce items that substitute imported products.  Custom duty exemption is also given to investors engaged in agro-processing and construction, whether they export or not. 

The other type of incentive is tax holiday, especially for investments in the agriculture sector. The extent of this incentive depends on the location of investments. For instance, investment projects in remote areas receive higher incentives than projects in the center of the country.  Investors also get priority when accessing loans.

Another fundamental incentive that gives businesses the biggest competitive edge is the quality and on-time delivery of services from government institutions. The single-window-service installed in various industrial parks can be mentioned in this regard. 

But there are companies engaged in the production of goods which substitute imports that pay duties when they import raw materials.

Businesses involved in the production of goods locally that substitute imported commodities and receive second-schedule incentive enjoy customs duty exemptions of 30Pct or more when importing raw materials. This means they have to pay some duty. Exporters, on the other hand, import raw materials duty free. This is because Ethiopia has to increase and diversify the country’s exports. But we also need to give due attention to import substitution. 

We have seen products that are imported duty free being sold on the local market. What are the reasons? 

There are circumstances under which manufacturers can sell export-destined products on the domestic market, even after using incentives. For instance, if the item produced is substandard, or if the company is carrying out trial production, export-destined products can be sold locally, even if they are produced in industrial parks.

Like I explained, a company that imports raw materials under the voucher system can get an extension for one year, If they don’t extend, they pay the necessary tax plus a penalty. After paying they can sell the raw material on the local market.

Incentives under the bonded factory system, on the other hand, have less opportunity to be abused because they are under the control of ERCA. But the voucher system has no such control so it is particularly exposed to abuse. 

If companies are abusing incentives why doesn’t the government make adjustments?  

Until the government knows the real reasons for the abuse at the national level, it cannot make such decisions. As of now, there is no urgency to change the incentive policy just because some companies are abusing it. 

Companies that work on value addition, especially assemblers, complain about the lack of incentives.  

Do you think that the incentives given to these companies are sufficient?

In the current situation, very few investors are interested in investing in the manufacturing sector. Therefore, the government provides more incentives even for businesses that add very little value to products locally. For instance, if an assembling business is hiring people, it should receive incentives, but with close monitoring.  

Yet, businesses that manufacture from scratch should receive better incentives. It is unfair when companies that add little value compete with those who manufacture from scratch. By the way, this is one of the basic challenges Ethiopia is facing in terms of supporting companies engaged in the production of goods that would otherwise be imported. The solution cannot be provided by ERCA alone. So we are creating a partnership with the Ministry of Industry, which approves and monitors incentives for businesses in the manufacturing sector and the Ministry of Finance and Economic Cooperation, which devised the incentive policy. 

ERCA conducted checks on items imported by investors entitled to duty free privileges.  What did you find out? 

For example, assemblers of refrigerators are beneficiaries of second schedule incentives. They import the components, assemble them here and sell them locally, which should be encouraged. But a significant number of assemblers were caught importing the complete refrigerator, with only the door removed from the main body.  We have seen containers stuffed with complete products, especially transformers, refrigerators, and TVs.

A committee was formed after the checks. What kind of strategy is it crafting?

The strategy involves creating a clear and common standard for each sector. Creating awareness among investors will also be part of it. A significant number of investors get into trouble because of lack of awareness. Thirdly, follow-up is needed, which in turn needs compiled data and information. 

Many government institutions are involved in the approval and monitoring of incentives. How do you coordinate all that?

The methods we have been using so far have their own advantages as well as challenges. To tackle the challenges, there has to be a flow of information among various institutions. We are building a central database, which will help in doing research, implementing proper follow-up and monitoring activities, and taking punitive measures on businesses that abuse incentives. 

Has the government conducted assessments to find out the impacts of incentives? 

I have no information on whether an impact assessment based on well-compiled data has been done. 

So, what are the justifications for going forward with the incentive policy?

If you look at the expansion of the economy, it implies investment is growing. The spread of infrastructures in different corners of the country shows the incentives are working. The private sector could not grow this much without incentives. The investments that receive incentives are also creating job opportunities. 

Recent reports from the Federal Ethics and Anti Corruption Commission and the Office of the Auditor General underline the lack of proper monitoring mechanisms in government institutions such as ERCA. 

How does ERCA follow up on incentive abuse?

First, ERCA has its own follow-up mechanism, through the Intelligence Affairs Directorate. We investigate businesses based on tips forwarded by individuals. We undertake Post Clearance Audit and tax audits. If an abuse is discovered under these mechanisms, the company will be penalized. We are still taking action against companies that import vehicles, rebar and other items duty free and sell them on the local market.  But the existing follow-up mechanism needs a modernized database, technology and coordination with all other stakeholders. 

The forgone money from duty free exemptions in the first six months of the current fiscal year has fallen to ETB34.25 billion from ETB36.97 billion in the same period of the last financial year.  

What is the reason? 

Research and impact assessments are needed to identify the reasons. The Authority is conducting studies to that end, in addition to investigations undertaken by other institutions like the Federal Ethics and Anti Corruption Commission.  Until the assessments are finalized there is nothing I can say. 


6th Year . April 16  - May 15 2018 . No.60 


 

 

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ashe@gmail.com (Ashenafi Endale) Interview Wed, 16 May 2018 15:00:00 +0000
"In Ethiopia, Assertive women are called authoritarian" http://ethiopianbusinessreview.net/index.php/interview/item/657-in-ethiopia-assertive-women-are-called-authoritarian http://ethiopianbusinessreview.net/index.php/interview/item/657-in-ethiopia-assertive-women-are-called-authoritarian

Born in Aksum, in the state of Tigray, Selome grew up with parents who were both teachers. This contributed to her outspoken and outgoing personality. After completing her primary and secondary education in Addis Ababa, she went to Addis Ababa University during the Dergue regime. But she didn’t finish her studies. Instead, she went to Eastern Europe and enrolled at the University of Belorussia, in the then-Soviet Union. After her third year, Selome dropped out and went first to West Germany, and then South Hadley, Massachusetts where she graduated with a Bachelor’s degree in International Relations. 

She moved to Boston, Massachusetts, working in the Ethiopian Community Centre as a Refugee Programme Coordinator for a few years, and went to Washington DC to work in the Ethiopian Community Development Council. There, she was recruited by the EPRDF-led government which took power in Addis in 1991. She was invited to return home and work in the Ministry of Foreign Affairs as a press counsellor. Soon, she was assigned to assist in setting up the Ethiopian embassy in Washington DC and worked in the Embassy for six years as Press Counsellor and then Political Counsellor.

Upon her return home, she became the first general manager of Ethiopia Radio and Television Agency (ERTA), after the Agency was detached from the then-Ministry of Information. Despite criticism, Selome introduced influential television programmes such as ‘Aynachin’ which were able to challenge government officials and hold them accountable. Unlike its conventional practice of serving as the mouthpiece of the government, ERTA during her tenure became an institution servicing public interest. 

Selome also served as the government’s spokesperson during the Ethio-Eritrea border war in 1998. Since then, she has been vocal about issues related to women’s empowerment, and masterminded Yegna, an all-female acting and pop group established with the aim of reaching and empowering young women. EBR’s Samson Berhane visited her workplace, Emerge Consultancy, where the mother of two is producing a new radio show, to learn about Selome’s career trajectory. 

EBR: You helped to reopen the Ethiopian Embassy in the United States in 1991. It is public knowledge that during the Dergue regime the diplomatic relationship between Ethiopia and the United States was not smooth. What did you do to improve it and how challenging it was?

Selome: The biggest challenge was the dire diplomatic relationship between the two countries. Since our country was starting a new era [in 1991], new ideas, including ours, were highly appreciated. There was excitement on both sides to advocate and witness change. 

We were able to establish our base in Washington DC, but there were many opposition and supporting parties and even those with no weight on diplomacy. These people would share their impressions of our country as a whole. One of the barriers at the time was convincing them to come together for the betterment of Ethiopia. 

The other challenge was that many countries from all over the world were lobbying in the United States, including many European and Middle Eastern countries. It was hard to be noticed among that crowd. We were facing a communication problem. Having a platform to present your ideas was essential. Back then, most countries had lobbying firms; we had only 11 employees. But it wasn’t as difficult for me since I was educated and lived in the United States, and I was able to understand the societal values.

What role did the Embassy play in motivating Diasporas in the United States to invest in Ethiopia? 

One of our main tasks was to meet with the Diaspora community and discuss various topics. For instance, the late Prime Minister Meles Zenawi came to America twice to meet with the Diaspora, as did various other politicians. We also published an Amharic newsletter to be distributed to every Ethiopian-born person in the US. Its main topic was not political but to advertise the opportunities available in Ethiopia. To my knowledge, most Ethiopians don’t need a lot of convincing to return to their country. However, there were reasons for them to stay as well, whether because they have already built a family there, the bureaucratic procedure in Ethiopia or lack of knowledge about the opportunities being provided in their country. 

Many politicians claim that those times mark the deterioration of the trust between the Diaspora community and the Ethiopian government. 

I don’t agree with such claims. In the 1990s, Ethiopia was overwhelmed with unrest and turmoil, so opportunities that weren’t even available to citizens couldn’t be given to the Diaspora community. 

Do you believe that the current relationship between the Diaspora community and the Ethiopian government is healthy?

No I don’t. There are three categories of Diaspora community. Some of them are not involved in politics at all. Others call themselves activists by advocating their political beliefs, whereas the remaining become involved in politics, forming and joining political parties. I hope the government will be able to engage such forces constructively. Currently, we are witnessing no engagement from both sides, just criticism against each other. 

Soon after you concluded your assignment in the US, you became general manager of the Ethiopian Radio and Television Agency (ERTA). Some claim that you were an authoritarian leader during your time there. 

I don’t measure the success of my stay at any workplace by whom I please but by what I achieve, and what new ideas I bring to the table. I believe that ERTA reached its peak success during my tenure. It was then that programmes that were highly appreciated by the public such as ‘Awdeseb’, ‘Aynachen’ and ‘Seket’ were broadcast. Close to 15 years after my departure, and years after the programmes were off the air, studies are being done to bring them back. 

I created an environment that enabled people to create those kinds of programmes. I encouraged competition; I think it is the key to perfection. I remember I was once asked by the media why I didn’t appoint the heads of the newsroom, instead of the employees choosing their own leaders. [I think this shows] I wasn’t authoritarian. In Ethiopia, there is a huge problem of calling assertive women authoritarian. On the other hand, if a man does the same, he is called strong. I would say my leadership style at the Agency was transformational because my decisions were disruptive. I didn’t necessary care about the status-quo. 

What was the reason for your departure from ERTA? 

The main reason for my leaving was the involvement of government officials on the board of ERTA. When board members started to be selected from government offices, a conflict of interest started to surface, which was against the Agency’s independence. The Agency’s establishment proclamation states that it should be public institution that operates independently. 

Do you think those conflicts of interest still persist? 

Since government officials are still on the board, the conflict of interest continues. In the mean time, both the government and the people are feeling the loss. 

Following your resignation from the ERTA, you served as executive director of the Network for Ethiopian Women’s Associations (NEWA). What were your achievements?

Meaza Ashenafi [a prominent women’s rights activist; cofounder and first executive director of the Ethiopian Women Lawyers Association] offered me the job of the executive director. I was tasked with realizing what they had planned for years- establishing a network which connects women. I believe one of the biggest achievements was forming NEWA. Then, it started to get the attention of funding organizations. Soon after, I gave up the post, but I continue to serve NEWA as an advisor on a voluntary basis. If we look at what the Association has done so far, it streamlined funds allocated to support women in different aspects. This enabled NEWA to support many civil societies, even small ones, such as the Ethiopian Media Women Association. 

The Association also fronted campaigns for gender rights and publicized victims like Aberash Bekele [a 14-year-old Ethiopian girl who was abducted and raped in the traditional custom of telefa and subsequently arrested after killing her captor in self-defence].

We are witnessing a greater number of organizations engaged in women’s issues.  Do you think the effort by these organizations is enough?  

The organizations working on women’s empowerment are still insignificant, both in number and visibility. But what should be applauded in our country is the youths’ tendency to organize and fight gender inequality as a movement, through social media and other platforms. This is inexpensive, sustainable and it helps anyone engaged in women’s empowerment not to be dependent on funding organizations. 

What are the inefficiencies observed on the government’s side in addressing women’s issues? 

The government is weak in the implementation of its own policies and laws. There is no accountability, or tools that measure the effectiveness of government officials assigned to increase women’s participation in the economy and ensure gender equality. There is no follow-up in educational institutions to see if they are striving to raise female enrolment. There are also no indicators that show the trend of women’s participation in public institutions. The Ministry of Woman and Children Affairs is very weak in administration, structure and follow-up. 

What is your view towards the application of affirmative action to improve women’s participation? 

Affirmative action is always controversial. However, it is important to look at what happened in the past to know whether affirmative action is appropriate in a given country or not. I believe affirmative action is needed until gender equality is attained. But it should be lifted after ensuring equality. Affirmative action should not be implemented in work places because it destroys competence. Instead, it is important to build an institution comfortable for both genders and free from sexual harassment. But it is important as a nation to reach a consensus on how long to implement affirmative action. 

Civil societies were active in supporting the women’s empowerment agenda before the amendment of the charities and society law in 2009. 

I have been against the law since its inception. It doesn’t make sense when such measures are taken by a government, which gets more than 30Pct of its [national budget] through aid and loans. The fact that similar laws apply to all types of civil societies makes no sense. The government should have first assessed if there are beneficiaries, such as women and children, who would be affected by the enactment of the law.  It is clear it was prepared without conducting studies. 

It was a deliberate action taken by the government after the 2005 election.  Looking at what happened after the law (the political unrest and instability that rocked the country) would help to understand its toxicity. Speaking generally, it should be lifted as soon as possible. 

You have been criticized for using an intervention that revolves around the women’s acting and pop group known as Yegna, which some claim has less effect on empowerment in developing countries like Ethiopia. Do you agree? 

Considering the number of years it was active, I believe it was effective. It has only been on air for a few years. For instance, during the recent Adwa Celebration, it was hard to find a place where Yegna’s song “Taytu” was not playing.  It has a huge number of listeners in Amhara state and Addis Ababa. Many relate the characters in the radio drama to their own lives. But as it was aired in only a few areas, it is too early to know its total effectiveness on girls’ lives. It was effective enough in creating awareness about gender equality.  

According to statistics published by the then-Girl Hub, 10 million people have listened to the radio drama or have listened to it at some point, even if they don’t listen to every episode. Is the figure not a little exaggerated?

Is it? There are 100 million people in Ethiopia.

We spoke to some people who took part in the study that generated those statistics, via the Sub-Sahara Training and Research Centre. 

Data collectors had to make a lot of effort and travelled great distances just to find radio listeners.

In fact, it was [Girl Effect] who carried out that study. Sub-Sahara just carried out the research portion [data gathering]. 

What we found out was that   in many places, there were no radios. If there were, the father would control it, not the children, and especially not the daughters. So, we did two things. We distributed flash drives with the episodes to mini-media clubs in 3,000 elementary schools in Amhara state . We also worked with Women’s Development Army; women organised in groups of 30 people each. 

What has been the overall performance of the programme? 

It has brought awareness of girls and the issues that affect them. Second, girls have found virtual friends with whom they can identify. The radio drama has brought up major topics, like early marriage. Above all, I think the major success is its popularity amongst men and boys, especially in the state of Amhara. 

If it has had this kind of effect, why did the Department for International Development (DFID) withdraw its funding?

Do you think this was the reason DFID withdrew funding? The Daily Mail that diminished our activities didn’t come to Ethiopia, conduct a study and go back and report. The Daily Mail is a right leaning paper, everyone knows this. It was saying that funds shouldn’t be wasted in Ethiopia to create the Ethiopian Spice Girls. But they never said it didn’t have an impact.

I have seen some reports that stated the effect of Yegna was not what was being reported.

The Guardian recently wrote an article that Penny Mordaunt, Secretary of State for International Development of the United Kingdom, recently said the programme was performing well. So the withdrawal of the funds is strictly related to the UK’s internal aid politics. However, in spite of DFID’s withdrawal, we still have other contributors. 

But some programmes have stopped. For instance, the radio drama has stopped. What are the other activities that ended? 

The work we were doing with mini-media in different schools, which for me was the most important, because that’s how you make a lasting change, has stopped. The work we did with various Women’s Development armies in the state of Amhara was cut off when the funding stopped. 

Why don’t you find other sponsors for these programmes? 

First, the brand Yegna is owned by Girl Effect, not me. So, I can’t just pick it up, find another funding source and move on. Girl Effect is looking for another source of funding, especially individual donors, which is much better, because when an individual believes in what you are doing and gives you money, you have the freedom to do what you believe in. 

Are you looking for domestic or international sponsors? 

Aid is always aid. The best thing would be if it was funded by donors from our own country, and that is what we must explore. It could be in kind, it wouldn’t need to be in cash. If we could use their infrastructure, most of our expenses would be reduced. That is what would make it sustainable. 

You have been running Yegna as a project manager. Did your role reduce with the scaled down activities? 

It is not that my role has been reduced; it is just there is nothing to administer. In the past, we were carrying out many projects. It was not just a talk show and a drama. So we had 47 staff. There was a bigger role for me. Right now, there is only script writing. I help with content development and writing, but there aren’t the same activities as before.


6th Year . April 16  - May 15 2018 . No.60


 

 

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Samson.b@ethiopianbusinessrevew.net (Samson Berhane) Interview Wed, 16 May 2018 09:00:00 +0000
"I Am Hopeful That [Ethiopia] will find A Good Leader." http://ethiopianbusinessreview.net/index.php/interview/item/633-i-am-hopeful-that-ethiopia-will-find-a-good-leader http://ethiopianbusinessreview.net/index.php/interview/item/633-i-am-hopeful-that-ethiopia-will-find-a-good-leader

Kebour Ghenna Desta is a household name in the Ethiopian business community. He served as President of the Addis Ababa Chamber of Commerce for four years, from 1997 to 2001; and also as President of the Ethiopian Chamber of Commerce. Not only that, Kebour is a multidisciplinary professional known for his active role in media leadership, having established the oldest English business newspaper,  Capital, in 1998. He also founded and still serves as the Executive Director of Initiative Africa (IA), a non-governmental organisation known in recent years for organising the Addis International Film Festival (AIFF), Ethiopia’s annual week-long event showcasing documentary films from around the world. 

A regular guest speaker at high profile continental and national business and social gatherings, Kebour is known for popularising the tag word loosely translated as ‘it is possible’, which later became a key note identifier of Haile Gebreselassie, Ethiopia’s most famed athlete-turned-business mogul.

Kebour is also Executive Director of the Pan-African Chamber of Commerce and Industry (PACCI), a non-profit apex organization of national chambers. The continental body, currently based in Addis Ababa, was established in 2009 to promote public policies that foster continental economic integration, competitiveness, and sustainable growth. 

He has had a front-row seat to the developments and challenges of the private sector for over two decades, and regularly reflects about the sector and overall development endeavours in the country on social and mainstream media platforms. EBR’s Amanyehun R. SiSAY met with the soft spoken and optimistic business leader to discuss the political turmoil that has been plaguing Ethiopia in recent years. The following is an excerpt:

EBR: Other than business and investment, you are active in civil society, arts and the media. You’ve been in the IT business too. What are the benefits of such an interdisciplinary approach?

Kebour: Some people like to work on and excel in one area at a time. Personally, I like to try new things, especially when it is connected with my [existing] work. I have had the chance to work on many different types of projects and that is how I want to continue. 

The only field you aren’t involved in seems to be politics. 

Politics is a tricky field. It shouldn’t be entered into without due consideration. You need people, like supporters and advisors. So, there is a lot to think about before going into that field. 

So do you think you might try it?

There isn’t anything I would say is an absolute no. That’s not to say I will, but if someone has the will and means to go into politics, I don’t think there is anything to stop them.

How do you see the current political situation in Ethiopia?

Firstly, there is not much more I can say about it that is new. But I do have faith in the people. There is fear, clashes between ethnic groups, and there are many rumours going around, including that the country might disintegrate. I feel we are not at that point at all. But, there are situations that could lead to that point. One of the issues is corruption. The perception about the spread of corruption is high among citizens. The other is the right to speak freely and having an inclusive system; we are very behind on that front. 

Especially after 2005, the government tightened its grip on opposition political parties, civil society, and the media. Many argue that this is why [the country] is at this critical juncture. What is your take?

Due to the lack of political discourse and discussions, the only ideas being entertained ended up being those of the ruling party. And to say that the ruling party represents all of the country is very difficult. 

The ruling party managed to bring Ethiopia out of the dangers posed in the early 1990s to this point. Do you think the party can take the country to its next chapter? 

Currently, what exists is being eroded and what was instituted is not being allowed to grow. I can’t say that it’s too late. But, I think that’s premature; party leaders have to use the opportunity they have. I don’t think there is a force bigger than the ruling EPRDF when we look at it in terms of organisation. The problem is that power doesn’t last forever. It fragments. Look at the Soviet Union, it had the largest military and was a feared country but it fell apart because it didn’t use the opportunities available to it at that time. 

What do you think is the main ingredient missing in Ethiopian politics at the moment? 

I would say that it is a good leadership. There is a leadership crisis and the country is now in a very worrying situation. In the past, when leaders pass away or lose power, the country manages to get one to fill the void, even if it is not immediately. The situation today seems similar. [But], I am hopeful that [Ethiopia] will find a good leader. 

 What kind of leader do you hope for?

A pragmatic and honest leader who is also supported by the majority of the citizens. 

You’ve pointed to the EPRDF as both the source of the problem and the solution. Don’t you think that providing solutions to the problems is beyond the capabilities of the party?

The EPRDF has the capacity to solve the problems. But that doesn’t mean that it should solve every [problem] alone. It has the financial, organisational and human resources to [mobilise other stakeholders] to solve the problems.

In my opinion, the constitution needs to be looked at, because it has not unified [the country]. Rather, it is leading us to division.  

Even though amending or changing the constitution is considered a taboo by the government, the experiences of many countries reveal that many benefits come from the flexibility [to amend the constitution]. For instance, gay marriage wasn’t mentioned in the constitution of the United States because it wasn’t an issue at the time. But, following judiciary procedure, the Supreme Court made it legal later. This shows that in order to accommodate the demands of the new generation, the constitution should be amended.  

Do you think activists and protesters who voice their concerns can bring change in Ethiopia? 

It is necessary for every individual to be interested and involved in the matters of the country. However, many believe that circumstances that allow for that kind of involvement do not sufficiently exist in Ethiopia. Of course, those who are able to sacrifice and bring change in any country are few. Our country doesn’t have enough organised manpower in political terms. Even if they exist, they are not strong. The reason is not hidden. It stems from fear. 

For a long time, people all over the country have been voicing their concern about the deteriorating situations in the country; but it seems no one is listening to these voices. 

The fundamental institutions, like the parliament and courts are supposed to listen to public grievances and instruct the executive to take corrective measures. Unfortunately, the parliament isn’t in a position to listen to public grievances. This is precisely because it was not set up that way. In fact, the parliament, the judiciary and the executive are almost inseparable in Ethiopia. 

If the government cannot listen to the people, it is hastening its demise. 

Do you think the unity of the country is at stake? 

I don’t think that our unity will break down at any time. A country that has existed for centuries will not break down over an experience of 25 years. It will not happen.

Recently, you wrote an article entitled “Destroy Addis Ababa – Adios Ethiopia” that criticises the government’s move to enact legislation that legitimizes the special interest the state of Oromia has in Addis Ababa. Why do you oppose the move? 

Addis Ababa is not just the capital city; it’s where citizens who come from every

corner of the country live. That is why a specific ethnic group can’t claim it. The city only belongs to its residents. This is what I wanted to portray. I think one of the biggest mistakes the EPRDF has made is that it neglected the things that could unify, and focused on things that could divide the people. Even the kebele/citizenship identification card magnifies the thing that divides us the most.

Compared to neighbouring countrieslike Kenya, Uganda and Rwanda, how far behind do you think Ethiopia is in terms of providing a suitable environment for the private sector?

Many African leaders who have witnessed the growth of Ethiopia have expressed their admiration. The economic transformation that took place in the past 27 years is not something that can be easily overlooked. The country registered remarkable achievements in improving access to education, health facilities and other infrastructure. 

In regard to the private sector, if you refer to the Ease of Doing Business Index published by the World Bank, you will find that there are many African countries that are doing much better than Ethiopia. In fact, Ethiopia is among the bottom countries in the index. In Rwanda, it only takes [a few] hours to open a business. But in Ethiopia, it takes up to six days. This is because one is required to appear in person to get a license and start a business. In many African countries, you can do that without going to government institutions. Even most government institutions in this country that are responsible for issuing licenses and collecting taxes do their work manually, whereas many other African countries have adopted semi-automated and fully automated working processes. 

Automating work procedures needs a reliable internet connection. However, due to the government refusal to open up the telecom sector, this is not possible in Ethiopia. 

Even with government ownership, the sector could still be opened to others in different ways. I don’t think the fact that the telecom sector remains in the hands of the state is the problem. Look at the Ethiopian Airlines. When you look at its operations, it is no different than any private company. In fact, it is excelling because of the government support. Why can’t that be a model for the telecom sector? 

While locally owned small and medium businesses complain about taxes and lack of credit, foreign investors receive massive loans and in some cases, don’t even have to pay corporate taxes for up to 14 years. Can you reflect on this?

Beginners in business are usually young and they lack finance. They should start small and grow slowly; but there isn’t a system that allows this. In many cases, the local investors struggle and open  businesses, only to close them after a while. The taxes that are levied on them aren’t clearly set out. I think, the government’s approach right now is to sweep it under the rug and see if people forget it. There isn’t a policy or environment that will encourage business, and I don’t see much desire to change. 

In your opinion what is the major thing the private sector wants from the government? 

The private sector wants the government to stop interfering [in their work]. I would even prefer if the Ministry of Trade could be closed. You may ask this question to the business community, does the Ministry of Trade support your businesses, or does it hinder your growth? Most would say the latter. So, the government should avoid creating stumbling blocks that restrict the expansion of the private sector.

Many, including the government argue that the private sector is too weak to play its rightful role in the country’s development; do you share this idea?

I can’t say that the government officials don’t care or aren’t trying to improve the country. They have good ideas and are sometimes able to put them into practice. For instance, in large scale farming, there was a time when the government was incentivising businesspeople to go into that sector. It went on for some time and then it stopped. When you ask why, they say that the investors were using the funds for something else. So, the weakness is not because the private sector is not striving. Rather, it is because of the government support [system]. 

But we have seen the government supporting the businesses it wants to support. For instance, it extends billions of birr financian in credits for Micro and Small Enterprises.  

Exactly. But, most of the projects initiated by private investors stack up after some time.

Why?

Because of a lack of a comprehensive support system. 

On top of the lack of support, the government accuses the private sector of under invoicing and tax evasion, as well as not contributing to job creation.

These malpractices emanate from weak policy and insufficient implementation. So the government has to look at itself. When it says there is malpractice, the question should be which policy is enabling it to continue? Business people look at their own gains. If there is a loophole, they will use it. The problem is the policy that created the loophole in the first place. 

The government accuses the private sector of focusing more on profitable areas such as imports and other services, rather than manufacturing and agriculture, which are more value and job creating sectors. In fact, the government labels such practices as rent-seeking behaviour. Is the private sector at fault for being a rent-seeker?

It can’t be a fault on the part of the businessperson. The government has made it easy for rent-seeking practices to [flourish]. The first thing is to figure out where the problem lies. You can’t instead blame those who are pursuing their own profits. That’s what it means to be a businessperson.

The private sector avoids investment in manufacturing and agriculture because of the huge profit potential in the service sector. How should a government incentivise businesspeople if it wants to divert their resources from a relatively easy sphere to one that is more complex and risky?

Engaging in the manufacturing sector especially requires experience; there are a lot of ups and downs and it requires getting your hands dirty. What we see now is that finance and incentives are being availed to those who have little to no experience. So we can’t expect results from businesses like that. Rather, the government should look at companies with proven track records. 

There has been in-fighting in the Chamber and some say that this has prevented the private sector from presenting a united front and protecting its interests. What are your thoughts on that?

I don’t see any problem with the fighting. It’s supposed to be like that. It isn’t supposed to be a monologue. For example, there are importers in the chamber who want the government to remove tariffs. There are also manufacturers who want the tariffs to stay in order to protect their industry. These two groups would obviously disagree on the issue. This is a sign of democracy. 

What kind of leader would you say you are?

There are two kinds of leaders. One that leads from the front and one that leads from behind. I believe that everyone should have leadership qualities. We have to be able to bring that out of people. True leaders are those who are persistent, hardworking, and get up no matter how much they fall.  That is the kind of person I want to be. I don’t know whether I am such kind of leader.  But that’s what I aim for.


6th Year . March 16  - April 15 2018 . No.59 


 

 

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aman.rs@ethiopianbusinessreview.com (Amanyehun R. Sisay) Interview Sun, 15 Apr 2018 03:00:00 +0000
Ethiopia... Must Meet [Investors] Half way http://ethiopianbusinessreview.net/index.php/interview/item/617-ethiopia-must-meet-investors-half-way http://ethiopianbusinessreview.net/index.php/interview/item/617-ethiopia-must-meet-investors-half-way Ethiopia... Must Meet [Investors] Half way

Since 1826, Pittards has been making high quality leather in England. The company set foot in Ethiopia in 2009 when it took over the management of the state owned Ethiopian Tannery. Two years later, the company bought the factory and started supplying leather to the four companies under Pittards Products Manufacturing (PPM). EBR’s Ashenafi Endale sat down with Tsedenia Mekbib, managing director at Pittards Ethiopia, to learn more. 

 EBR: How do you evaluate Pittards’ achievements in Ethiopia?

Tsedenia: Pittards had been buying rawhide and skin from Ethiopia since 1909, because it knew the quality of the raw material. In 2009, Pittards agreed to take over the management of the former Ethiopian Tannery Share Company in Modjo. In 2011, Pittards managed to buy the factory when the government privatized it. This was at a time when many western companies were heading to Asian countries such as China. Pittards’ decision however, was to come to Ethiopia—which was cost effective. Starting in 2011, Pittards established four factories in Addis Ababa and created vertical integration in the value chain. The company produces leather garments such as jackets, bags and gloves. Recently, Pittards started producing footwear. The company employs 800 people in Modjo, and another 800 in Addis Ababa. 

Since Pittards has accumulated immense experience in the sector, the company is helping Ethiopia by facilitating the transfer of skill, knowledge, and technology. The company now exports USD20 million to USD25 million worth of items per annum. 

How much money has Pittards invested in these factories? 

Pittards invested close to USD5 million, total. 

What percent of its installed capacity does Pittards utilize? 

The company has an installed capacity of processing 12,000 pieces of sheepskin and 1,000 pieces of cattle hide per day. Our actual production during the initial years of our operation was 50Pct of the installed capacity. Currently, this figure stands at 80Pct as we process 10,000 pieces of sheepskin, and 800 pieces of cattle hide per day.

Was the quality of Ethiopia’s rawhide and skin as advertised?

The main reason the company came to Ethiopia was because the availability of quality hides and skins in highland areas. The sheepskin found in this area has unique substances and features needed to make gloves and other fashionable leather goods. 

In reality, Pittards found that the unique quality was highly eroded because of poor handling. This is because the primary focus in Ethiopia is on meat; hides and skins are seen as waste instead of as useful by-products. 

Out of the total rawhide and skin supplied to the company, what percentage would you say is defective?

It depends on the location the hide and skin is coming from. If it is from highland areas, up to 80Pct of the hide and skin meets the quality standards. Yet, this is seasonal. The quality deteriorates and the share of defective raw materials reaches over 50Pct during summer because parasites attack the animal skin. You get better quality supply in the dry season that follows January. In terms of availability, there is no problem. We can find 12,000 pieces of hide and skin on a daily basis if necessary.  

What are the specific places in the highland and lowland areas that supply good quality hide and skin? 

Hide and skin with clean surfaces and low parasite effect can be found in Gojam, Gonder, and Jimma. Larger surface hide and skins can also be found in Jimma and Shashemene.  There is huge potential in the production of hide and skin in the country but the leather companies are failing to expand their operations to make use of the tanned skins. The critical challenge is the lack of chemicals needed in every value addition process. In Ethiopia, these chemicals are expensive and take a long time to import. There is no local production of chemicals. Even though there was a plan to establish bonded warehousing in the country, it has not happened. We cannot operate at full capacity and undertake expansion projects unless the chemicals reach our factories on time. For instance, Pittards mostly imports chemicals from Spain, Germany and Italy.  But 90Pct of the time, the imported chemicals arrive after much delay. 

How many types of chemicals does Pittards import and what is their share of the total production cost?

Close to 53 chemicals are imported for various production levels such as dipping, tanning, finishing, and colouring. The cost of these chemicals constitutes 30Pct of our total production cost while other raw materials constitute 60Pct. 

How do you evaluate the demand for Ethiopian leather products in the international market?

Pittards has been around for over 200 years and has globally recognized brands as clients. We have buyers in the United States, the European Union; and countries such as United Kingdom and China. We have strong relationships with leading brands in footwear, and golf and industrial gloves among others. So there is no problem when it comes to demand.  Our main problem is meeting the large orders that come from these countries, on time. 

Pittards employs unique technologies because it invests in research and development by creating strong and well integrated relationships with universities, especially with the University of Northampton. This allows the company to produce quality manpower by equipping workers with knowledge, skill, and advanced technology.

In this way, the company develops different technologies and new leather products every year. In addition to manufacturing basic products, the company also produces high-tech and specialized products, like water and fire resistant products, and leather seats for fighter jets. So Pittards has managed to diversify its market coverage. 

Does Pittards supply the local market?

Our main target is export. We export 90Pct of our final products, and 10Pct goes to the local market. Shoe factories like Anbessa, Tikur Abay, OK Jamaica and Ramsey use our products to manufacture shoes. We also have an outlet inside Hilton Hotel.  

How many orders do you receive from international buyers annually?

It stands around close to 14 million square feet of leather from sheepskin and seven million square feet of leather from cattle hide.

Considering the difficulties in accessing quality raw materials and the growing demand for your products at the international market, how do you see the future?

Although there are problems related to raw materials, slowing operation is not viable because there is great demand in the international market. In addition, there is fierce competition from India, Pakistan, and South East Asian countries. Since the level of industry in Ethiopia is light manufacturing, the availability of skilled manpower, technological advancement, knowledge, and strong work culture impacts our competitive edge in the global market.   However, we have seen accelerated growth in the last six years, despite these challenges. So I see a bright future.

Many foreign companies operating in Ethiopia complain about the lack of skilled manpower in the country. What is your experience in this regard?

Over the years we have established links with Bahir Dar and Kombolcha universities. Every year we take mechanical and electrical graduates from these universities.  Most of the students have good grades and discipline. But because they do not have work experience, we give them training to develop their skills.  I see them become productive and efficient at work, after the training programs. We also send employees who have worked at the company for more than six years to the University of Northampton and other universities. This is because Pittards has long term plans to integrate itself into the local value chain and ultimately replace the entire management with Ethiopians. 

There were 50 to 60 expats working at our company in the early days. Italians and Chinese experts trained the local work force on machinery operation and maintenance while experts from the United Kingdom worked on the whole production processing.  They stayed a maximum of one year. Then they transferred everything to Ethiopians. There is no permanent resident expert now. They come only when they are needed. 

Do you agree with the government decision to levy export tax on hide, skin, and semi-processed leather products?

The government’s decision is to encourage local value addition, technology advancement, and to create job opportunities and earn more foreign currency. Yet, these targets can only be achieved by making the necessary preparation prior to the decision.  Systems like establishing bonded warehouses to insure quality and sustainable chemical supply should be in place. If these were done, it would be simple for the policy to achieve its target.  

Big international companies like the Chinese Huajian are coming into the sector with huge production capacity. 

Do you think this will have an effect on the existing companies, for instance, by raising the price of hide and skin, which is cheap at this moment?

The word cheap is relative. The price of hide and skin is directly related to quality most of the time. So considering its quality, the price of hide and skin is not cheap at the moment. Price increment without improvements in quality discourages new investment, as well as final buyers. Therefore, it is better to work on improving quality so that the final products can fetch a better price.  We must keep the balance between supply and demand. It is necessary to make sure there is adequate, good quality, and sustainable input supply for every newcomer in the industry. You must make sure the demand from the incoming companies does not affect existing industries.  Attracting new investment is necessary. But you must be cautious it will not come at a great cost.

How is the price of hide and skin, not considered cheap when goat skin is currently sold for ETB5 to ETB10, while cattle hide fetches less than ETB3 per kilogram? 

If the hide and skin had a clean surface without scars, scratches and parasite effects, I can say the price is cheaper because we can use the full surface area. But, if we buy it cheaper and discharge most of the hide and skin because of quality problems, it becomes expensive. I’d rather buy quality hide and skin at a higher price. The price of hide and skin should be compared with its usable surface area. The usable surface area of hide and skins in Ethiopia is mostly between 40Pct and 50Pct of the total area. In competitive countries like India, this figure is much higher. To say the current price is cheap, the usable surface area must be between 80Pct and 90Pct.  The surface area of the cattle hide found in Ethiopia is 24 square feet; in Latin America, this area is 40 square feet. Hides from Latin America are thick and strong, with clean surfaces; this is favourable for shoe manufacturing. That is why globally renowned shoe makers like Timberland source from there. We only get hide and skin that meet these criteria from a few areas.

Despite having one of the largest livestock populations in the world, Ethiopia is not benefiting from foreign investment in this sector, as much as other countries seem to be. What do you think are the reasons for this?

There are more than 100 million cattle, goat and sheep in Ethiopia. But the livestock resource breeding system is traditional. Had the agricultural sector been modernized, parallel with the mushrooming light manufacturing, it would have met the demand from leather industries, besides fulfilling the growing meat and milk demand from the growing population. Ethiopia needs to modernize the livestock breeding system; for instance, by opening ranches. There is little investment towards this. 

Do you have a plan to diversify your investment by establishing a ranch so you can source the best quality hide and skin?

Yes. Self-sufficiency necessary for the sustainability of our company. It simplifies our job and satisfies the needs of our customers. Of course being involved in everything can be a distraction. So we will look for partners.

How do you evaluate the investment climate in Ethiopia?

Because industrialization in Ethiopia is in its infancy, there are challenges, especially in infrastructure and power supply. China was at the same level 25 years ago. I believe industrialization is a process. The challenges we were facing five years ago have improved today. The main thing is sustainability and stability; everything else can come gradually.

Constructing industrial parks and providing incentives is part of the effort underway to attract investment. But there are challenges investors face after arriving here. I believe they can be solved by closely working with the government. Experiences from countries like India, Singapore, and others, can help us. But the country needs to develop its own solutions based on our problems and socio economics. The government should caution every investor not to expect Ethiopia to look like China within days. But we must also improve our work culture, and meet them half way.

To what extent has the recent political unrest and violence affected your business?

Every country has its own challenges. We observed many of our customers were [concerned] when the government declared the State of Emergency last year. And although we were worried, we continued production and exports. We cannot survive as a business if customers lose interest. So we had to discharge our responsibility to build the country’s image, by telling them everything will be fine and bringing them back. 

Have you achieved your dream of building Ethiopia’s image by promoting Ethiopia’s leather brands? 

Ethiopian leather has unique feature especially for glove making. [The country] is more known for its sheepskin leather and Pittards has a long-term plan to develop and promote this segment.  We have tried leathers from Sudan and Yemen but only leather from Ethiopian highlands has the unique features we need. 

Currently, Pittards sells such leather products with ‘made in Ethiopia’ and ‘Pittards Ethiopia’ tags. We also promote them on our website and through different outlets. The promotion of unique and premium products from Ethiopia is ongoing. Our future plan is to develop the brands and divert the interest of the international buyers towards this unique Ethiopian leather. 

What drove you to this sector?

I believe leather can reflect Ethiopia’s culture. I spent most of my life in the United Kingdom. When I decided to come back, I was thinking about how I could promote Ethiopia and build the country’s image using its potential. I received my first degree in chemistry while I was in United Kingdom. Then I studied management and earned my MBA. Now, I integrate the science and management. I use both to solve challenges I face on a daily basis.


6th Year . February 16  - March 15 2018 . No.58


 

 

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ashe@gmail.com (Ashenafi Endale) Interview Thu, 15 Mar 2018 06:00:00 +0000
We could have seen at leas half of the successes kenya has [Achieved] if we got a timely response from the government http://ethiopianbusinessreview.net/index.php/interview/item/621-we-could-have-seen-at-leas-half-of-the-successes-kenya-has-achieved-if-we-got-a-timely-response-from-the-government http://ethiopianbusinessreview.net/index.php/interview/item/621-we-could-have-seen-at-leas-half-of-the-successes-kenya-has-achieved-if-we-got-a-timely-response-from-the-government We could have seen at leas half of the successes kenya has [Achieved] if we got a timely response from the government

Established in 1998, EthioAgri-CEFT is a private company operating under MIDROC Ethiopia Investment Group and engaged in the production and processing of various agricultural crops. The company owns two of the three commercial tea plantations currently operating in Ethiopia: WushWush and Gumaro, in South Western part of the country. The company began exporting tea to the global market five years ago and introduced Ethiopia’s tea to international buyers. EBR sat down with Isayas Kebede, general manager, to learn more about the company’s efforts to penetrate the global tea market and the challenges it is facing.

EBR: What progress has been made since EthioAgri–CEFT acquired WushWush and Gumaro tea plantations? 

Isayas: When the company bought the two plantations, operation stopped on both sites. Before the acquisition, a combined 1,800, hectares of land were cultivated. Excluding farm cost, we invested ETB296 million to restart operations, expand the cultivation efforts, modernize the farm management system, and replace old machinery. 

Before 2011, our effort was limited to satisfying the domestic market. Now we’ve become the first Ethiopian company to step into the global tea market. We achieved this by increasing productivity at farm and factory levels. We also started working with big international companies like Unilever, FiLLi, and Global Tea and Commodities. EthioAgri – CEFT also has a membership at the weekly Mombasa auction.

How is the company performing when it comes to penetrating the global tea market?

Our total production in 2014 was 500,000 quintals of tea, which increased to 700,000 quintals in 2017. In 2014, we exported 408,300 kilograms of tea and generated USD700,000. The export value reached USD3.2 million in 2017.

However, for us, this is regarded as a failure instead of achievement because we know what could have been achieved. There is huge potential for tea cultivation in Ethiopia and a growing demand at the international market. The sector can also hire a significant number of people. For instance, close to 8,000 people are employed in our two plantations—half of the 15,000 people EthioAgri–CEFT employs in total. 

How did you manage to expand the operations at the plantation into peripheral areas? 

After we expanded the tea cultivation at Gumero to cover 1,000 hectares, there was no room to expand further. So we started working with farmers located in the surrounding areas. We arranged a mechanism that allows farmers to cultivate tea on their own land and sell it to the company. This is an important step for the sustainability of our operation, and for the country.

The soil in the farmlands surrounding the two plantations is highly acidic and unsuitable for any crop other than tea. So we supported 385 smallholder farmers around WushWush to cultivate tea on 337 hectares of land. At Gumero, 241 out-growers are cultivating tea on 159 hectares of land. These projects are not only cultivating tea, but also creating job opportunities, as tea farming is labour intensive. 

How do you evaluate the acceptance of Ethiopia’s tea in the global market?

In the global market, there are various types of tea. Black, green, and orthodox teas dominate. However, new types like red and white tea are also entering the market. So far, our largest production is black tea. We satisfy 85Pct of the local demand for black tea, in addition to exporting it abroad. Although the company produces green tea, it is used to satisfy the local market only. As for orthodox tea, the company doesn’t produce this variety as of right now.

However, we are installing factories (with ETB26 million) to process green and orthodox teas. We will start exporting green and orthodox tea next year. Demand for green and orthodox teas is rising at the international market and both types have the potential to fetch premium prices.

We have enough tea plant seed varieties, which we have brought from different countries. All of our varieties enjoys international acceptance, which is the major aspect that increases our competitiveness. Our second competitive edge is the high altitude and the ideal temperature, which helps us produce the best quality tea.  We also use the latest technology at our processing factories.

As a result, Ethiopia’s tea is gaining acceptance in countries like England, India, Pakistan and China. It is also enjoying good reception at the weekly Mombasa auction. Furthermore, we also have contracts with Unilever to supply 800 tons of tea per year and 300 tons with FiLLi. 

What are the challenges of cultivating tea at farm level?

We spent nearly ETB69 million to develop the land currently farmed by out-growers in the surrounding areas.  We hired skilled labour for them and deployed our own tractors and supplied fertilizer, seed and technology. It is hard to do all this for them and still buy the product from them. The farmer needs seeds, fertilizer and finance, which nobody is there to provide, except us. So, we are forced to direct our own financial resource towards this endeavour. 

This clearly demonstrates the need to have a dedicated public institution that supports such activities from top to bottom. Of course, an authority was established few years ago. But, it doesn’t have branches at the lower level of administration. 

What kinds of support do you get from the government?

Technically speaking, in Ethiopia there is no one that has more experience and knowledge in the area than EthioAgri–CEFT. 

What are the factors that limit the company’s ability to expand its operation and engage in new endeavours?

The first is access to land. Although we submitted many land request proposals to Oromia and the Southern States to establish our own nucleus farm and then produce tea together with the surrounding farmers, there is limited response. Our plan was to establish processing factories nearby in order to process the harvested tea in a manner that saves time and reduces wastage. We could have seen at least half the successes Kenya has seen if we got a timely response from the government. 

Why do you insist on working with farmers in the surrounding area instead of owning your own plantations?

It is not difficult to operate on our own. The main reason why we started working with farmers is because our land requests were not addressed on time. If our proposal got a response the first time we submitted, we would have at this point, had our third large-scale tea farm reach harvesting stage. 

The second reason is climate change. Areas that are suitable for tea cultivation at this moment might suddenly be struck by drought and become unsuitable. As a result, we are forced to partner with surrounding farmers.

What are the challenges faced by the company in terms of infrastructure?

Power interruption is a big challenge. Activities like tea drying and fermenting are performed with the help of electricity. We also fire and steam when roasting the tea. But, because of power shortages and interruptions, we use generators most of the time. Cost wise, this has big impact on the company.


6th Year . February 16  - March 15 2018 . No.58


 

 

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info@ethiopianbusinessreview.com (Ethiopian Business Review) Interview Thu, 15 Mar 2018 06:00:00 +0000