Muluneh Lema, is a founding member and General Manager of Mintu Investment Group (MIG) as well as President of the Ethiopian Millers Association. Educated in the US, he took the initiative to turn his family’s legacy of a candy factory and flour wholesaling into a gigantic group of factories. Under the group, companies engaged in the manufacturing, food processing, real estate, import, export, and pharmaceutical sectors, operate. Wakene Food Complex, Mintu Plast, Menoria Real Estate, Mintu Export, and Mintu Pharma are his leading companies. With ETB800 million in annual turnover, the group has doubled its investment capital to ETB1 billion over the last six years. Formed by four brothers, MIG succeeded mainly because the siblings specialized in different sectors.
The plastic factory has especially managed to substitute imports of plastic bottles and caps for water bottlers in Ethiopia. It has also substituted the import of PVCs and other plastic products used as construction and agricultural inputs. Wakene Food Complex, on the other hand, has the lion’s share in Ethiopia’s wheat and flour market.
Muluneh fears the impact of the ongoing war and piling sanctions will hyper-inflate the economy by next year. Numerous farm lands are skipping cultivation seasons due to the war, which he states is already creating a commodity shortage in the market. He also offered fresh insights into how commercial banks are failing to avail approved letters of credit for businesses. Muluneh argues the promises of the new administration are good but they cannot materialize soon enough, all the while fresh problems are piling up on existing ones. EBR had an audience with one of the dashing figures of the Ethiopian domestic investors’ scene.
What is the current capital and annual revenue of Mintu Investment Group (MIG)?
The total asset and capital of MIG currently stands at ETB1 billion. The annual revenue of the companies operating under MIG is around ETB800 million. The incomes of Mintu Plast PLC and Wakene Food Complex take up the lion’s share.
Does MIG face foreign currency shortages?
Accessing foreign currency has become an upheaval. We could have opened a diaspora account but instead, we have preferred to engage in export businesses to generate hard currency to finance our imports.
How much do you earn from exports?
We generated USD4 million last year which we plan to double this year.
How have you managed to use this hard currency to finance your import business?
Banks’ default is becoming a big problem now. Commercial banks in Ethiopia are refusing to pay our suppliers abroad in hard currency even after the central bank approved the Letter of Credit (LC). We could not even access our own export-generated forex. By law, we are allowed to use 70Pct of the forex we get for our own imports. But banks use our dollars for other purposes instead of paying our vendors abroad. Even with funds in our accounts, LC approval takes more than two months. Then, banks take up to eight months to effect payment as per the approved LC. It is irritating.
To solve this problem, some Chinese, Indian and Djiboutian suppliers are now coming to Addis Ababa to physically take cash payments in birr, exchange into the dollar through the black market, and repatriate back home. The reason why many commercial banks are failing to effect approved LCs is because they have no forex in hand.
But banks claim importers are not utilizing approved LCs?
Previously, importers were required to pay 30Pct of the LC amount’s equivalent in birr upfront, and pay the rest when the shipment arrives. But now, banks require 100Pct from importers in advance. It is difficult to find the total amount at once. This is the major reason why many importers are failing to use the full or partial amount of approved LCs.
What challenges do you face while exporting?
Through Mintu Export, we export coffee as well as oilseeds like sesame. During the initial years of our operations, we learned that 98Pct of Ethiopian exporters breach their contracts due to quality issues. As a result, we decided to install our own processing factory to solve the problem.
How do you see governmental policy regarding wheat importation and subsidization?
It has been ten years since the government started flour subsidies for the poor segment of society. Nonetheless, the imported flour has not been able to reach them. While very small amounts reach the poor, most of the flour is sold to commercial bakeries. As a result, the government stopped importing and supplying processing factories and thus, prices of wheat escalated by leaps and bounds as of last year.
I have never seen the price of flour increasing by more than ETB20 per quintal in my whole life. But this year, it increased by ETB150 in one go and is still escalating even now. We have no option but to accept smuggled wheat. However, the difference per metric ton is over ETB2,500 between government-supplied wheat and the informally available stock in the open market.
Why has the government’s policy regarding wheat failed?
The policy failed because the government couldn’t control the supply chain. Currently, very few flour businesses that manage to access wheat from farmers are operating.
What do you think is the solution to solve the wheat shortage?
Ethiopia has the potential to become the second-largest wheat producer in Africa, next to South Africa. But the country has up to now only utilized only 20Pct of its potential. If we could double this, it will be possible to substitute imported wheat.
The plan of the current administration regarding expanding large-scale wheat farming is great. But, maintaining peace and stability is critical to achieve this plan. There are commodity shortages and an economic crisis looming ahead next year because many agricultural lands are skipping cultivation seasons due to conflict and war. The impact of the war, as well as sanctions and displacement, will be more visible by next year. Businesses will also start feeling the blow.
Members of the Ethiopian Millers Association (EMA) have established a share company and requested land from the government to start cultivating large commercial wheat farms in Ethiopia. The former administration had accepted our proposal but we haven’t been able to access land.
The other alternative is for government to exit from the importation and supply chain of subsidized wheat. Instead, they should transfer the task to private businesses and allocate enough hard currency to facilitate smooth and speedy imports of the produce.
EMA and its share company have also proposed to the government to directly import wheat to supply to the poor. But the government does not trust the private sector to handle this task.
How do you evaluate the level of technology adoption in Ethiopia?
Sure, we have to adopt technology and innovation through time to compete internationally. There are around 500 flour processing factories in Ethiopia. But most of them lack the latest technologies. As a result, they remain local. In this regard, Wakene Food Complex is planning to install state-of-the art Canadian technology to process foods.
How do you see the playing field regarding local and foreign companies in Ethiopia?
Foreign factories operating in Ethiopia have more advantages because most of them operate inside industrial parks where all required services exist. Factories outside industrial parks lose 40Pct of their revenue due to power fluctuations, according to our study. This excludes the waste created due to power outages. Currently, MIG is building a substation with an outlay of over ETB5 million. In addition, we are forced to import power stabilizers from India to prevent fluctuation-caused damage to our machinery. The custom’s duty paid for each stabilizer is 200Pct of its selling price.
On top of this, foreign factories operating in Ethiopia enjoy tax- and duty-free privileges. Factories inside industrial parks beat us only because of such privileges. The only reason we have managed to stay in the market and compete with foreign factories is because we manage to hold on to some of our clients by selling on credit. If government ensures the provision of basic services and equally incentivizes local and foreign factories, we can compete on equal foot.
What costs do you incur due to power outages?
At this moment, waste products worth ETB15 million are stored in our flour factory’s basement. We built an 850-square meter basement to pile wasted materials caused by power cuts. Especially when it is a consumable item, we cannot recycle the waste. When the power goes out, hundreds of quintals of raw material turn to waste. Sometimes, the cost of power outage constitutes 90Pct of our expense.
What progress stage has your real estate development reached?
The real estate business has had a bad reputation in the past. Many house buyers lost their money. So, collecting advance payment from house buyers is difficult because of the trust issue. So, we invested our own money to develop and sell the completed product to home seekers. We have an arrangement with Awash Bank where buyers borrow money from the bank to buy the house and pay the loan in the long term. Big developers like Noah are now restoring the real estate sector’s image.
How do you evaluate the level of the manufacturing sector in Ethiopia?
Under current circumstances, manufacturing in Ethiopia entails loss.
Do you think Ethiopia is still a top FDI destination?
Ethiopia is not the primary choice for foreign investors at this moment except those who are extreme risk takers. In fact, Ethiopia is not even conducive for domestic investors at this moment. But this will not continue to be the case in the future. When everything settles down and peace is restored, Ethiopia will become a top investment destination. EBR
9th Year • Nov 2021 • No. 101