Illegal and Counterfeit Imports Prevent Us from Investing in Ethiopia

When Finland’s Prime Minister Jyrki Katainen and Minister for International Development Pekka Haavisto arrived in Ethiopia on January 27 on a two-day visit, Jussi Hinkkanen, Vice President for Corporate Relations at Nokia Middle East and Africa was included in the business delegation of 27 executives from the country’s top moguls. Since September 2009 Hinkkanen has been responsible for Nokia’s governmental relations, corporate responsibility and innovation. He graduated with MSc in Industrial Economics and Software Sciences in 1998 from Tampere University of Technology in Finland, where both Prime Minister Hailemariam Desalegn and Jyrki Katainen attended their graduate studies.The majority of his nearly two decades long career has been with the private sector, with a five year stint in the United Nations and Mozambique as advisor to the country’s Minister of Science and Technology. EBR’s Amanyehun R. Sisay met Mr. Hinkkanen at the sideline meeting the Finnish delegation held on January 28 at the Sheraton Addis to discuss Nokia’s state of affairs in Ethiopia and the company’s plan for investment.

EBR: Could you please briefly introduce Nokia?
Mr. Hinkkanen: Nokia was founded in 1865. It is one of the oldest Finnish companies. During the early days it used to focus on different types of businesses such as forestry, paper, mechanical and rubber industries. It started working more with telecommunications during and after the Second World War.
The telecommunication sector gradually became bigger and bigger, through increased investments in the 1960’s and 1970’s. In 1991 it made a big decision to only focus on telecommunications. So, we sold every other business. Now for the past 20 plus years Nokia has been working on revolutionizing telecommunication and creating equal opportunities for everyone to have access to a means of communication and now more lately to Internet and value added services. We have been very much spearheading this technological revolution of connectivity. The first mobile devices in Ethiopia were Nokia handsets including those supported by Amharic language interfaces.
At the moment, the company is in transition so last September we decided to sell the mobile handset part of the business to Microsoft. The remaining part will continue as Nokia. Our company will continue to be a very strong entity on its own that will consist of three businesses; Nokia Solutions and Networks, which focuses heavily on mobile broadband technologies; the leading digital mapping and location Service Company, and what is called Advanced Technologies. This is the arm of Nokia that manages the patent portfolio and researches future technological disruptions, including sensors and next generation network technologies.

That means we are not going to see the Nokia mobile phones anymore?
You will see them. The Nokia brand is still going to continue on handsets. Nokia has licensed the brand to Microsoft for the coming years. The product will continue to be produced by the very same team that works for Nokia today. The basic thing is that the 32 thousand strong workforce that has been focusing on our devices and services will be moving now to Microsoft when the transaction is completed.

Why did you sell this part of the business at a time when the market for smart phones is flourishing? Aren’t you able to compete with other smart phone brands?
There are a lot of reasons behind this decision. Nokia has been going through a transitional period in the past three – four years. Despite the growing sales of Nokia Lumia smartphones that have gained popularity in many parts of the world, most lately in South Africa and Kenya, the transformation of the company has taken an excessively long time. It would have been difficult to invest in all of the business lines going forward. This way Nokia will secure a strong financial position for investing in the remaining businesses and together with Microsoft; we will be able to continue the good work that has started with the Nokia Lumia line of Windows Phones, as well as the mobile phone business.

Many people in Finland were not happy when you sold the business to Microsoft.
Nokia is a very emotional company for everyone in Finland. Though it is a private company it has still been seen very much as the Finnish industrial crown jewel. So people’s reaction around any announcement regarding Nokia has always been hotly debated. But as I said we believe that Nokia has a very bright future ahead of itself.

After Microsoft took over the mobile handset business, how is the market doing, particularly in Africa?
Nokia is still the leading brand in Africa and in many markets the most loved brand amongst consumer products. We are still the market leader in many of the African markets.

But when it comes to the issue of smart Phones, Nokia seems to be lagging; we don’t often see Nokia smart Phones in Addis Ababa.
You are right; we have had a very low presence in Addis Ababa for the past few years. But the current portfolio such as for Nokia’s Asha feature phones and full-touch smartphones, are selling well in Africa especially in Kenya, South Africa and Nigeria.

Africa has over a billion people and more than a quarter of that falls within the middle income bracket. This shows that the need for better mobile handsets in the continent is higher. But Nokia is not as strong in the rest of the continent in the supply of smart phones except in those countries you mentioned.
We are everywhere on this continent with a slightly lesser footprint in Ethiopia. This year globally is going to be the first year when we can see the same amount of basic phones and smart phones being sold. So this year is going to be the transitional year. I mean Africa’s smart phone market is going to be picking up extremely fast now for the next few years.
The volume of smart phones in Ethiopia is not that massive at the moment. But because you see smart phones among the elite professionals in the country, it looks like everyone is using them. But if you go into rural areas and see the vast population, most of them use very basic devices that will change over the coming two to four years because the prices of smart phones are coming down very sharply. But still the reality shows that most of the devices in the hands of users are relatively basic. This will change in the short run.
ICT in mobile technology has a massive impact on people’s lives. So the cheaper it is for users to get on board, the bigger the socio-economic impact will be. These days, more and more people have access to the Internet through mobile phones. Countries like Kenya, Senegal and Ghana are using it effectively to catalyze their development, by revolutionizing the way people access key daily services or improve their own skills and awareness of the world around them.

How does Nokia see Africa’s potential for business and development in ICT ?
It is already clear that Africa is the fastest growing continent in terms of how the mobile industry is transforming the way people interact and communicate with each other, not to mention have access to Internet and value added services, such as banking, insurance and education. So Africa is the future, Africa is extremely important, and it has been important for Nokia all these years. We still have the biggest presence in this continent in terms of partnership, retail outlets and distributing agents. Nokia is everywhere on this continent.

And where do you put Ethiopia in that map?
Ethiopia is one of those countries where we have weak spots. But you have to ask why that is the case? And the reason is largely due to the market environment not being supportive for investments; illegal imports prevent us from investing in the country. This is a big challenge that needs to be sorted out. Nokia sees Africa and Ethiopia as massively important for the future; it is our priority continent. But there is a need to enforce that the bulk of imports are legally done.

In the past, Nokia was the favorite mobile phone in Ethiopia for its durability and good network. But with the swamping of other brands in the market Nokia has actually gone down in the basic devices too, what happened?
Much of the Ethiopian market is dominated by illegally imported illegitimate devices imported via Kenya, Djibouti and Dubai. No import duties are paid for these devices and therefore it makes it very difficult to compete. The price difference between illegally imported and legitimate imports is so significant (25Pct minimum) that it is very challenging to conduct business in this environment. We are committed to complying with local laws and regulations and cannot support such an approach to business. The Government is currently losing tens of millions of dollars due to this grey trade.
In a similar manner the market is flooded by counterfeit devices that imitate the legitimate devices, but have been manufactured in small illegal and unregulated factories in China. The Government needs to be more stringent about preventing importation of these types of handsets.

Can you speak more in detail about this issue, including a solution you think can solve the problem?
I think the key thing here is the role of the customs authority. Customs is responsible for protecting the border and making sure that everything that is imported in the country is imported legally. There are different types of technical solutions for that. There are some countries that have used quite successful strategies to avoid illegal imports. For example in Turkey, your handset doesn’t work in the network before the tax is fully paid. There are different solutions that could be used.

Tell me about your discussion with the Ethiopian Prime Minister, other Ministers and the private businesses. I guess, you have discussed the issue with senior government officials?
Yes, we have talked about that with the Minister of Communication and Information Technology, Dr. Debretsion Gebremichael. A lot of positive progress is being made in this and other issues. But for Ethiopia to catch up with countries in the region that are moving very fast, it needs to implement these plans with urgency.
Ethiopia’s economy is growing fast and there are new opportunities for ethical players like the ones accompanying me on this business delegation. Finnish companies are interested in expanding their business partnerships to Africa and Ethiopia is clearly a priority for them. That is why they joined our Prime Minister on this trip. Finnish companies work by complying with local rules and regulations and by respecting local cultures as well. When it comes to Nokia we are also very respectful of local cultures, reflected by, for example, the use of the Amharic language on our handsets to improve user satisfaction.

What do you want the government to do to make it convenient for Nokia to invest in this country strongly?
It is very important that things are in order and that the business environment is constantly improving. My hope is that in the future the private sector and government really work hand in hand creating an environment where it is very easy, and safe to invest, where the forex rules and regulations have become easier to get your money in and out. From getting the business license to running your business the environment needs to improve. I know that the government is working very hard to make this happen in the next years.
Let us make the business environment better for both local and international companies to operate. Let’s make it less bureaucratic so that it is easier to get a license easy for innovators to get their products to the market not just ours but for local ones as well. The m-birr is an example, a local innovation, which could revolutionize mobile payments. The other one that needs improvement is the customs services. The government has to make sure that everyone complies with the same rules and regulations. It has to create an environment where we can be sure that same rules apply for everyone. Finally, which may be the most important part, let us work together in building the information society in Ethiopia. We definitely need to work hand in hand, both private and public sectors on equal footing. That is the way how we can be successful.

The network that your company has installed in some parts of Addis is now being replaced; does that mean the one you have installed was of low quality?
Absolutely not! with the growing number of mobile users, the network had to be upgraded. This is the normal course of business. The network wasn’t initially planned to accommodate all these users which grew substantially through the years. That is also why the government and ethio Telecom planned the expansion. We can all see how the mobile network is functioning; you need to have more capacity for the growing number of users. That is natural— and of course there is also a need to harmonize the technology. So I think that it is a good decision.
Several months ago, ZTE and HUAWEI, signed a 1.5 Billion dollar telecom expansion project in Ethiopia. Haven’t you been invited to participate?
Nokia was involved at the technical evaluation part of the bid; Ericson was also there. However in the second financial evaluation part of the deal, we were not there.

Why not, isn’t ethio telecom satisfied with your past performance?
No, the relationship between Nokia and ethio telecom is actually very good, and they are one of our key partners on the handset side. I know that Nokia and Erickson were part of the initial discussions with ethiotelecom about the tender. Nokia is very much focusing on mobile broadband markets around the world, including high speed networks and management of infrastructures. For many reasons, Nokia solution Networks has been pulling out from some emerging markets.

Why are you pulling out; hasn’t the business been profitable?
It is very difficult for Nokia, or any Western vendor, to compete with vendor financed companies such as the Chinese network equipment providers. It is very difficult, and one of the principle reasons for that is our government doesn’t provide similar type of financing as the Chinese government does. It is not also in accordance with the WTO rules.

If it is for reasons of the WTO regulations, both Finland and China are members of the WTO.
It is not only that but similarly to other Western economies the Finnish Government does not support individual companies such as Nokia. The same applies to Sweden as well.

In July 2011, Brad Brockhaug, head of sales for Nokia in Africa, said that Ethiopia will remain at the center of Nokia’s plan for investment in Africa. In fact he said that the company was considering opening a manufacturing plant. Do you have any news on this?
Following Mr. Brockhaug’s visit, Nokia has worked extensively with ethiotelecom. Nokia also opened up a Care Centre last year in Addis Ababa. We are still committed to invest in Ethiopia.

The Ethiopian Government has planned to establish an ICT park. Do you think that will change the country?
Let us be creative in thinking how to make ICT, a tool for national development in Ethiopia. You need to look at this holistically, you need to see at how you get the entire industry moving at faster pace; how to get the creative minds coming out of the Universities in setting up companies; how you get them to become creative solution providers for national challenges.
I met a young Ethiopian who is working with a community of 5 thousand software developers, but they don’t have a channel to take their innovations to the consumers. If we have young dynamic creative minds who can come up with solutions for your own national challenges in local languages, tailored for your local customs and so forth that is a big thing and I think the government has to pay enough attention to such young entrepreneurs. In Europe over the past few years the application development industry has created 800 thousand jobs; it is a massive industry on its own already. We see that it is the way to work with universities, graduates and developers that really can pay back. And this in my mind is more important accelerator for development than setting up small assembly plants.

Will you invest in the project?
I had discussed this issue with Dr. Debretsion earlier and we are of course careful in what is happening there and what other companies do. We are interested in reviewing our presence in the country. Together with Microsoft, we expect more focus on Ethiopia.

Let’s talk about corporate social responsibility and Nokia’s work in Ethiopia
Nokia has been investing in sustainability for many years, if you look at in the environmental rankings globally, Nokia has been one of the top companies. We are a Scandinavian company at heart and values such as social justice and sustainability are extremely important for us.
We have lots of projects going on in Africa including Ethiopia, maybe 25-30 projects in different countries ranging from education to health and so forth. EBR

2nd Year • February 2014 • No 12