Consultancy – the practice of providing advice and insight to businesses and non-governmental organisations – can be a lucrative endeavour. According to Bloomberg News, management consulting firms – a niche within a much larger sector – generated more than USD39 billion in the United States in 2013. This bodes well for Ethiopia, a country in which consulting firms are growing. In the last 25 years alone the government issued more than 2,000 licenses to businesses and individuals to engage in consultancy. The industry’s development, however, hasn’t been without challenges. Industry insiders say corruption and the lack of a proper, fair regulatory environment are roadblocks to the sector’s growth. EBR’s Tamirat Astatkie spoke with stakeholders and consulted research to learn more about the potential of the sector in Ethiopia.
Although its growth has been minimal compared to more economically advanced nations, the consultancy industry is gaining traction in emerging markets that are moving away from traditional economies. Since these countries often face capacity limitations in the public and private sectors, the benefit of putting up a strong consultancy industry is immense given each sector in emerging markets needs many different specialisations, from human resource management to technology and innovation.
A consulting firm is defined as an establishment with experts in different fields that offer wide-ranging knowledge on a specific subject matter or in-depth experience regarding operating a business. This knowledge can range from expertise on how to run an Internet start-up, ways to improve organisational and worker efficiency, or best practices when a business or NGO attempts to enter a new market or enterprise, among other areas.
Consulting firms – often reservoirs of business and management knowledge – may be particularly helpful in Ethiopia. Ahmed Kellow (PhD), Managing Director of First Consult, a firm that specialises in delivering business-oriented solutions to organisations in the development, business, finance, and investment sectors, says a more robust consulting sector offers a number of benefits to local enterprises:
“Companies may need to solve internal problems such as poor worker productivity but they don’t necessarily have the manpower to focus on them. Since companies still have to focus on their day-to-day operations, consultants serve as temporary and highly skilled employees.”
According to Vault, a New York-based company that provides industry-specific intelligence and advice, the roots of modern consulting began in the late 19th and early 20th centuries, when the first consulting businesses established in the United States studied manufacturing in an attempt to improve employee productivity.
The idea soon spread to other countries. According to the Institute of Consulting, a London-based professional association, the consulting industry in the UK began to flourish in the 1950s, fuelled by the arrival of US consulting firms, waves of new technology and management techniques, and increasing demand from clients for highly specialised skills.
In pragmatic terms, the role of a consulting company often manifests in identifying clients’ problems and offering suggestions to mitigate challenges; engaging in research and analysis through investigating sector trends, obstacles and opportunities; and training through teaching the clients’ employees.
Cognisant of the need for the preparation and implementation of industrial projects, the government established the Industrial Projects Service (IPS), a pioneering public consultancy institution, in October 1982. The agency was mandated to resume its operation as a public enterprise in line with the Public Enterprises Proclamation issued in 1992 and its organisational and operational mechanisms were restructured accordingly.
The IPS now offers comprehensive, multi-disciplinary consultancy services to industrial, agro-industrial and mining projects. Its services include the planning, engineering and project implementation of new ventures as well as conducting evaluation, rehabilitation and expansion studies for existing projects, with an emphasis on cost reduction, increasing production, streamlining an organisation’s set-up and improved workplace efficiency.
The flourishing of licensed private consultancy firms in Ethiopia is a relatively recent development. Taking the nature of services offered by consulting firms into account, public offices from various sectors are entrusted with the responsibility of issuing certificates of competence, which is a precondition to obtain a license for consulting services.
For example, the Ministry of Culture and Tourism (MoCT), the Ethiopian Management Institute (EMI), and the Ministry of Construction are responsible for overseeing consulting firms in the tourism, management and construction sectors, respectively. These three public offices have certified a total of 2,371 individuals and companies to provide consulting services over the past 25 years.
In addition to the increasing number of companies and individuals operating in the industry, stakeholders stress that there are more indicators that show the industry is thriving. For instance, foreign companies that used to hire international organisations are now employing local consultants. Additionally, local consulting firms are signing lucrative contracts. This is especially true of the construction sector, in which contracts can reach up to ETB30 million, according to industry insiders.
Consultancies vary in focus: they can be structured by topic, type of problem, or industry, with specialisations ranging from broad, structural issues to niche concerns. As a result, although there are many overlapping areas in the consulting industry, some firms specialise in one area – such as health care, development, defence or telecommunications – while others have varied departments.
This variation can come with positive economic effects, especially for businesses in developing countries. According to a study from the Stanford Social Innovation Review, (SSIR) “economic development efforts are best served by testing and refining assumptions about what works” through the interventions of consulting firms. Researchers found that Mexican businesses in the manufacturing and service sectors had “an average 80Pct increase in sales and an average 120Pct increase in profits for firms receiving consulting advice, compared to the group that did not receive the intervention.”
Some consulting firms specialise in giving advice on management and strategy, while others are known as technology specialists. Others concentrate on a specific industry area, such as financial services or retail, while others are more like gigantic one-stop shops with divisions that dispense advice on everything from top-level strategy to saving money on staples and paper clips.
For instance, B&M Development Consultants, which was established 18 years ago, focuses on monitoring, evaluation and impact assessment. “Since selecting a field of expertise is a major task for the success of consulting companies, we picked these areas considering our capacity,” Gadissa Bultosa, the company’s General Manager, told EBR.
They work with different government institutions, the private sector, UN agencies and NGOs, including EU and Word Bank funded projects relating to technological, social and economic studies.
On the other hand, First Consult offers services in a number of areas. “Our experiences range from, capital market advisory value chain development, microfinance product development, private sector growth strategies, agricultural marketing, human resource development among others,”says Ahmed.
Although the consultancy industry is promising, Gadissa says the early stages of operating a company are difficult. “During our first six years, we encountered many problems that challenged our survival,” he recalls. “It was hard to break-even let alone make profit during those days.”
This, according to Gadissa, was due to a lack of awareness about the nature and importance of consulting services among local businesses. “Private institutions [and] government offices were not aware of the need to hire such services at the time.”
However, some stakeholders argue that there is still relatively little demand from the private sector for local consulting services, despite some improvements in the public sector. “The problem starts from the clients. Many companies hire consultants without a specific need,” argues Ahmed. “These companies see consultants as a third party that verifies and approves their work.” As a result, he argues, clients tend to pay less for consulting services, which in turn limits the growth of the industry.
In addition to client difficulties, industry insiders say a lack of professionalism is another factor that hinders the development of consultancy firms in Ethiopia. The prevalence of what insiders call ‘briefcase consultancy firms’, which refers to one-man businesses that lack the infrastructure and resources of a full-fledged company, is also another problem that thwarts the growth of the sector.
“When a certain deal is made these briefcase consultants hire people to undertake that specific task only,” Ahmed explains. “When the job is done the people will be disbursed until another job is secured. With such inconsistency it is unlikely for the industry to thrive.’’
The other serious hurdle stakeholders mention is corruption. “In some government or non-government offices, it is unlikely to win the bid due to conspiracy between officials and consultants,” says Zerayakob Belete, Managing Partner of Nexus Investment Solutions. “Consequently, the genuine players suffer in frustration as a result of this unethical deed… [which will] impact the future of the sector.”
He says that frequent corruption is due to a lack of competence and professional integrity. “This is usually done in collaboration with some officials in the government office, who help them find jobs without proper qualifications.”
Insiders say that corruption is exacerbated by a lack of transparency regarding the relationship between consultants and clients. Those familiar with the industry often complain that the requirements for licensing are not up-to-date. “For instance, requiring Thedolite, a surveying instrument, and blueprints as criteria to license consultants in the engineering sector is obsolete, as they are no longer in use because they were replaced by digital Total Station Thedolite and different software,” says Asfaw Debebe, General Manager of Stadia Engineering Works Consultants. “There should be improvements in such areas.”
Still, the EMI requires that a detailed employment track record of applicants be obtained from all relevant institutions. “This takes a great deal of time and effort. This process should be improved significantly,” Ahmed suggests.
The Ethiopian Road Authority (ERA) is one of the public enterprises that work closely with consultants that provide designing and supervision services for its expensive road construction projects.
In explaining how the ERA selects consultants, Frew Bekele, Engineering Procurement Team Leader, states that when there are projects that cost more than ETB300,000, ERA advertises an Expression of Interest (EI) as per the Procurement Proclamation. “In order to benefit as many qualified consultants as possible, we float the EI for a number of projects at the same time, which helps us avoid projects being monopolised by a few consultants.”
In an attempt to strengthen local firms, he says that the ERA is introducing new selection procedures for consultants. “We used to evaluate consultants based on their prior experience, which weighs 60Pct of the total evaluation criteria. Now the emphasis has shifted to a company’s establishment, the number and qualifications of permanent staff, their facilities and equipment.”
Moreover, the ERA is developing a Company Profile Database, which evaluates and ranks consultants based on their status considering different parameters, including the aforementioned criteria. “We will award projects when we start fully implementing the database, which we believe enhances transparency, and will positively impact the efficiency of project implementation,” Frew explains.
On the other hand, once consultancy firms are certified and licensed, some argue that the monitoring mechanism of the pertinent government authority is weak and almost non-existent. “We don’t usually monitor the consulting companies, as we assume they are an authority in their areas of expertise. During the renewal process, we only require that they provide at least one recommendation that testifies to the fact that they have given service to an organisation,” says Tewodros Derebew, Coordinator of Tourism Service, Competence and Accreditation at the MoCT.
Furthermore, there is no clearly stipulated directive for those who did nothing within the time stipulated in the certificate. “Whether a consultant has given service or not has nothing to do with renewing the certificate of competence. We renew the certificate automatically upon request,” says Abenet Alene, Coordinator of Registration Competence and Licensing Core Process at the Addis Ababa Construction Bureau.
The proper regulation and development of a consulting sector cannot be overstated. While the aforementioned SSIR report notes the positive effects of consulting firms for overall economic development, the researchers also mention a study conducted in Ghana in which consulting services “generated some adverse effects”. These resulted, in part, from the fact that consultants, while well intentioned, did not think of the specific cultural and economic realities facing Ghanaian entrepreneurs.
As a result, the SSIR report notes that a country’s “policymakers can decide how best to support” the local businesses by thinking about sector-specific challenges and how consultancy may best address them. However, researchers argue that there should be a robust regulatory mechanism to gage the effectiveness of consultancy work vis-à-vis economic outcomes because “results showed that although the consulting intervention caused short-term changes in business practices, these impacts dissipated within a year after the consulting ended.”
In order to address impediments facing the sector, Gadissa proposes that the consolidation of a strong consultant association is paramount. “We haven’t been engaged actively in the association because of a lack of commitment among members. Most consultants don’t attend meetings and are not actively involved except for paying the membership fees,” he argues. “This is because all of us are highly engaged in the daily operation of our business.”
Regarding the prospect of the consultancy sector in Ethiopia as a whole, Zerayakob foresees its positive development, despite roadblocks. He says that the sector will aid in development during good and bad economic times by helping businesses throughout the country – both public and private – expand, diversify, and in solving problems by searching for pragmatic solutions to their challenges. EBR
4th Year • October 16 2016 – November 15 2016 • No. 44