Diaspora Investors

Diaspora Investors Bring Skill Promise to Service Sector

Investors from Ethiopia’s far-flung Diaspora are helping shape the country’s economy. This is especially true of the service sector. According to the Ethiopian Investment Commission, Diaspora investors have implemented 421 businesses in the hotel and restaurant sub-sector since 1999. Studies suggest that a friendly business environment is likely to expand the influence of these investors, especially in the fields of healthcare and financial services. To that end, the government is pursuing policies to make investing easier for this community. But has enough been done? EBR’s Tamirat Astatkie spoke with business owners and government representatives to learn about the realities on the ground and what’s being done to make investing easier for the Diaspora.

Lily Kassahoun, 43, emigrated from Ethiopia to Djibouti at the age of 5 along with her 2-year-old sister because her father was relocated there. She lived in the tiny state until she was 18, and then moved to Ottawa, Canada for a total of 20 years. “In the first fifteen years, I attended college to train as a chef, and then I worked and managed a number of restaurants up until I bought my own. Then I managed my restaurant for five years,” she told EBR.
Although she visited Ethiopia a number of times while living abroad, the decision to permanently relocate came mainly as a result of her family’s influence. Upon consulting with family, she eventually decided to settle in Addis Ababa five years ago and run a restaurant. “I rented a building owned by my parents to open Oh Canada, a business that comprises a pastry shop, restaurant and bar which can serve 100 people at full capacity,” she says. “The business has created job opportunities for 60 people.”
Lily’s investment is among the 421 business projects implemented in the hotel and restaurant sub-sector by the Diaspora community in Ethiopia with a total capital of ETB2.6 billion between 1999 and 2016, according to data from the Ethiopian Investment Commission.
Government officials acknowledge that the Ethiopian Diaspora has emerged as a significant player in the on-going development of the country. This brings advantages to Ethiopia, including knowledge and technology transfer, investment and tourism and the promotion of the country’s image internationally.
“Most importantly, they serve as a bridge between Ethiopia and their host countries, especially in trade exchange,” argues Demeke Atnafu, Director General of the Diaspora Engagement Affairs at the Ministry of Foreign Affairs (MoFA). “Notably, Diasporas have also been playing essential role in the country’s progress. For instance, their contribution has surpassed the combined earnings from foreign direct investment and official development assistance.”
To better understand and facilitate the potential of the Ethiopian Diaspora, the government has taken various measures towards engaging them in the transformation of the country, establishing a structural arrangement in 2007. In 2009, it enacted the Ethiopian Diaspora Proclamation, which enables Ethiopians or people of Ethiopian origin who live outside the country to apply for a Yellow Card, which, inter alia, allows the holder to enter the country without a visa, work without a permit, and be eligible for state pension schemes.
Henok Assefa, Managing Partner of Precise Consult International, a company that specialises in investment support, project development, and management services, argues that the government has instituted far-reaching measures to make the Diaspora feel at home. “The Diaspora is allowed to invest, own businesses and property, like the average Ethiopian citizen,” he explains. “Their contribution is [especially] visible in the hospitality industry.”
It is not only Ethiopia that is recognising the potential of its Diaspora in the national reconstruction, rehabilitation and economic growth process. Many African governments are recognising the importance of their citizens and former citizens abroad in national and regional development.
This is because members of a country’s diaspora have helped other nations in their efforts to develop their economies. South Korea is exemplary in this regard. According to a study published by the Africa Development Bank (AfDB) entitled ‘The Role of the Diaspora in Nation Building: Lessons for Fragile and Post-Conflict Countries in Africa’, while the country was charting its own path towards reconstruction, its leaders “realised an industrialisation strategy was the most plausible route to eliminate poverty and create long-term economic prosperity in the 1960s.” As a result, a “cornerstone of the strategy entailed using its Diaspora in Japan as friendly troops or partners, who were persuaded to invest in the technology complex that would be established in Seoul.”
Within a few decades, this measure, among others, helped transform the Korean economy from a basic one (where most African economies have remained or retrogressed) to one driven by industrial processes, according to the study. The country’s economy grew from one that exported fish and plywood in 1961 to one that currently exports sea-going vessels, automobiles, and wireless communication technologies.
An engaged, active diaspora also helped India in its economic development efforts. According to a report by the Migration Policy Institute, India’s Diaspora has paved the way for major investments in the country. For example, according to the report, “Citigroup’s large number of Indian-origin senior executives has smoothed its way to becoming one of the two largest foreign banks operating in India.”
The report states that even though many developing countries, especially in Africa, have Diasporas that often don’t have “the inclination, skills, and knowledge to become direct investors in their ancestral homelands,” countries can still benefit from these communities. For example, these people can help “by buying shares in a fund, buying a bond, or putting funds into a deposit account in a country-of-origin bank. Senegal has established an investment fund for Senegalese abroad, which has financed 804 projects worth a total of 20 billion CFA francs (USD40 million). Non-resident Indian (NRI) deposit accounts have brought substantial funds into India — over USD40 billion by the end of 2008; amounting to between one-sixth and one-third of the country’s external debt.”
While much of Ethiopia’s Diaspora has invested in the service sector, the report suggests a conducive business environment encourages participation – even for small-scale investors – which can have far-reaching implications for improving other areas in which Diasporas tend to have expertise and work experience: healthcare infrastructure, education and financial services.
With this in mind, the Ethiopian government started to organise the annual National Ethiopian Diaspora Festival last year. This year, the Festival was held in August in Bahir Dar, the capital of the State of Amhara. “The government appreciates the burgeoning culture of saving in the Diaspora community that is accelerating the nation’s development,” said Tedros Adhanom (PhD), Minister of Foreign Affairs, who officially opened the 2nd National Ethiopian Diaspora Festival. “The business environment in our country is attracting more investors.”
A co-founder and general manager of Hollywood Hotel, Mehreteab Tessema, 42, agrees that there is an enabling investment climate, especially in the hospitality industry. “The booming hotel industry we witness today is the result of a good policy,” he affirms.
He relocated from Los Angeles to Ethiopia one year ago with his wife and two kids, co-founded Hollywood Hotel, near the Bole District Health Station on the way to Haya Hulet from Bole Medhanialem, which opened three months ago.
Prior to living in the United States, he lived in Israel for more than four years. “My hotel management training and the potential of the hospitality industry in the country were the driving forces that influenced me to invest in the sector,” Mehreteab told EBR. “When I moved back home from the US with my wife and two kids a year ago, I used the tax-free entitlement to bring my household furniture.”
Endalkachew Dotti, 51, who manages Blue Wave International Hotel, which is located at the roundabout of Saris Abo Church, concurs with Mehreteab. “My motive to begin a restaurant business is to assess the hospitality industry in Ethiopia,” he says. “I used my experience in the restaurant business as a springboard to engage in the hotel [industry].”
Married and a father of three, Endalkachew immigrated to Greece twenty years ago, where he lived for two years before moving to Vancouver, where he lived for 18 years. During his stay in Canada, he owned and managed retail shops and a restaurant. “When my wife and I decided to move back seven years ago, we reached to the same decision to run a business we know very well,” he told EBR.
Hollywood Hotel, which was established with close to ETB40 million investment capital, has 24 bedrooms and 20 staff, whereas Blue Wave International Hotel started operations with more than ETB30 million investment capital and has 26 bedrooms, employing 23 people. Both hotels have enjoyed the privileges of importing furnishings tax-free and are also entitled to import cars for business purposes.
Although stakeholders agree that Diaspora investment is increasing, exact figures demonstrating their involvement are difficult to ascertain. “We don’t have the exact data yet as to how many Diaspora engaged in the investment across the country,” Demeke says. “We are still working with federal government and regional offices to come up with the exact figures to prepare additional policies to engage the Diaspora even more.”
While the government attempts to streamline policies to engage the Diaspora meaningfully, studies suggest that it needs specialised expertise to implement engagement strategies.
For instance, the study published by the AfDB reveals that the Diaspora should be considered not just as sources of financing but development partners as well. In order to do this, the study suggests governments should prepare comprehensive strategies instead of ad hoc policies, which creates an unconducive environment.
For instance, Lily says although she prefers investing in a sector she knows well and is passionate about, the privileges offered by the government have been difficult for her to access and she is often unsure where to go when she faces bureaucratic or logistical challenges. “I [have tried] to contact Diaspora Engagement Affairs, but all my attempts have been unsuccessful,” she says. “I can say that I never experienced any support or preferential treatment as far as I can remember, except for getting permission to run the business.”
Many Diaspora investors say they face several challenges, such as a lack of timely response to problems, an absence of supportive policies, a dearth of infrastructure and lack communication with pertinent stakeholders.
Difficulties with infrastructure such as electricity and water were chief among the complaints lodged by investors. “After [waiting a long time] to receive a transformer [from the government], I reached the point where the investment I made would have collapsed if I hadn’t bought a transformer with my own money,” Lily told EBR in frustration.
Endalkachew has faced similar problems. The Hotel he runs has been half-dark since opening three months ago. He applied to get a transformer more than four years ago, when the hotel was under construction. In addition to this, the hotel has a problem with its water supply.
A lack of proper training, professionalism and the working culture are also impediments for the industry, as they result in inferior service delivery. “As the industry relies mainly on the flow of tourists, the poor service will have repercussion for the whole industry,” says Endalkachew. “Stealing trained professional from another business cannot be a lasting solution.”
Besides the vast difference in the business environment between Ethiopia and where the Diaspora used to live, Henok underscores that the hospitality sector is very much driven by quality service that requires a lot of attention. “It is often very difficult to find strong management and employees who have internalised the concept of service,” he argues. “The few that exist are being poached between establishments, increasing employee turnover.”
However, Henok considers the Diasporas that invest in the hospitality industry a good bridge to link Ethiopia to the modern world of global business. “Those Diasporas with a lot of education and experience help uplift the sector,” he stresses.
This is why experts like Henok call for the creation of a more favourable environment for the Diaspora community. “Ethiopia needs to further integrate into the global economy to benefit from the trillions of dollars of opportunity presented. The Diaspora’s exposure and connections can come in handy in many ways.” EBR

4th Year • August 16 2016 – September 15 2016 • No. 42


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