Ethiopian Business Review

World-class runner Haile Gebreselassie is renowned for his athletic achievements: he’s broken 61 national and 27 world records, has two Olympic gold medals and was even the subject of a Disney film entitled Endurance. He has become a successful businessman; with a billion business enterprise that consists of  coffee plantation, schools, hotels, cinema, mining, automotive industry and real estate. Haile recently announced plans to open a Hyundai assembly plant in Ethiopia. EBR’s Amanyehun Sisay sat down with the runner-turned-entrepreneur to talk about his plans for the plant, other business ventures and his personal life. Next is an excerpt:

EBR: Before we begin talking about your business ventures, I’d like to talk a bit about your athletic career. Let’s go 20 years back, to 1994, the first moment that you broke 5,000m world record. How important was that victory for your running career?

Haile: Before I talk about my victory in 1994, let me tell you about what happened in 1993. I ran 5,000m in Zurich and I finished 13:05. The time was not far from the world record at that time, which was 12:58. I asked my manger [if I could] try to break the world record somewhere in Europe. He said “if you think about it, then Hengelo is the best place to do that; it is at a low sea level and the air is fresh.” 

It took almost a year to prepare. As the race started, a large number of the spectators started leaving the stadium because they didn’t expect something new in the race; rather they were interested in the long jump, pole vault and others and then when we reached around our ninth lap, the commentator was talking about how fast the race was. He was announcing that the record is likely to be broken. By that time, the spectators started to return to the stadium and it turned out to be a fantastic finish and a new world record was set.

Is the key to success in athletics similar to that of business? 

Both of them require discipline, commitment and hard work in order to be successful. I would say every career requires those things.

Much like your running career, you’ve had a lot of success as a businessman. Your enterprise consists of a number of business ventures. It’s my understanding that you’re thinking about establishing a complete knock down (CKD) car assembly plant here in Ethiopia.

Right now we are negotiating a deal with Hyundai. First we need to train our people. We could have started it last year, but if you ask me why we delayed it, it is because we wanted to add some hand inputs.  

We hope in the coming two years to start assembling cars by Hyundai’s standard. What our car assemblers are doing is not allowed in western countries. Previously Hyundai cars had been assembled in Sudan; now that factory is closed because it was not able to meet Hyundai’s standards. In order to get to this standard, we have sent many of our technicians to Korea for training. We will keep doing that for some time. At our inception stage we plan to assemble two or three cars a day. And, as Ethiopia is rich in hide and leather products, I want our cars seat to be made of those materials. I even want to use local materials for the mechanics of the car, such as battery, because the country is able to produce that. That is what we are preparing for.   

How much money have you invested on the automotive business so far?    

The capital is 50 million birr. But the assets are much more than that.  

But isn’t there the issue of spare part shortage for Hyundai brands?

Hyundai cars are famous for their fair price and good quality. We provide spare parts sustainably to our customers with no problem. There are used Hyundai cars that individuals import from Dubai and other countries. For them, we might not have spare parts. But for those of our own imports, we have parts in bulk supply.

Why did you choose Hyundai as opposed to other brands?

I have been travelling to Korea since 1992. I am fascinated by how Korea has been growing. I strongly believe that Korea have many best practices from which Ethiopia can learn a lot. 

You’ve now expanded your enterprise into the real estate market. Can you tell me a bit about that?

For your information, I started my business with real estate. I remember my first investment was on a ground plus one building. Since then I’ve been working to start my own real estate business. When I started travelling overseas, my interest to join the business had become intense. Fortunately my brother started getting involved in real estate and then we started working together. 

We used to construct buildings and use them for ourselves or rent them; however, five years ago we made a change in our approach and started constructing buildings and houses for sale around Ayat CMC [East of Addis Ababa]. We are constructing 38 townhouses and 16 apartment blocks with 220 units. The villas are almost completed. We are planning to start construction on four new apartment blocks.   

How much money have you allotted for this business?

The total amount of money that was allotted for this project is about ETB300 million.

You are transferring a 70Pct complete ground plus one house on 500 square meters of plot, for ETB3.5 million. Don’t you think that’s expensive? 

It is very cheap, compared to current real estate prices. The price includes value added tax along with the various technology systems that we installed in the houses. The cost of construction is soaring by the day, making huge profits in this business unthinkable. At this moment, making a profit margin of more than 15Pct is difficult in the real estate business.

But the price of cement has fallen by more than half.

Think of labour costs, it is the number one expense that has been increasing overwhelmingly during the past couple of years.

In Ethiopia, many real estate developers do publicity first, advertising their company even before starting construction. Why are you not advertising your real estate even after having begun construction?

Our venture is very small. Of course we plan to advertise the apartments. However, [for the town houses] we select customers by recommendation, because we think about creating a neighbourhood. If you bring people here randomly it might be difficult for them to live together. Furthermore, other companies have real estate that can be counted in thousands but ours is just limited to hundreds.

Let’s talk about another one of your business ventures: coffee. You have been criticized for deforesting a reserved forest. What do you say?

We have been receiving admiration for not damaging the environment. By its nature coffee trees need other big tress in order to be protected from the sun, so deforesting or cutting the big trees would not be a wise decision. Most commercial farm developers use machinery or bulldozers to clear land, but we are only using human labour.

Are you planning to export the coffee raw or processed?                      

This week I have been talking with one German company and experts in the company informed me that Ethiopia can benefit more by exporting its coffee raw than by processing it. This is because every country has its own coffee roasting and packing style, so the best way is to export the natural clean coffee. We hope to start exporting after three years.  

How many people have been displaced because of your coffee plantation? And how did you compensate them?   

No one has so far been displaced; not even a single person. The place was reserved for spices and coffee development a long time ago, so there was no one living in the area. The place is in a remote location; you have to travel down a difficult road of more than 10Km. Now we are building a road by using machine that we bought for ETB8 million.

However, there are two big rivers on the way to the farm, so we need to build bridges on both rivers. Constructing the bridges will be costly to us, so we need support from the government. Coffee plantation is an expensive and long-term investment and we need three years to start exporting. So far we are paying more than a million birr monthly in salary for all our workers in the farm. 

How much money have you allocated for the plantation?

It is ETB70 million now, but it will grow to over 100 million birr soon. 

Have you borrowed from banks, for this project?

No we haven’t. Borrowing from banks can be a tiresome process. The high interest rate is also another headache and I haven’t seen that kind of high interest rate in other countries. 

I think banks should consider reducing their high interest rates. When you have an interest rate of 14 or 15Pct, you are worsening the inflation rate because the borrower targets an increased amount of profit, like 30 or 40Pct, to pay for the interest rate. I have visited foreign countries and usually their interest rate is in single digit- 2, 5 or a maximum of 7Pct. 

You’ve also gotten involved in the hospitality industry – you have hotels in Hawassa, Ziway and Shashemene. The hotel business in Ethiopia is growing rapidly. Despite their increment in number, room service is expensive even by Kenya’s or Tanzania’s standards. Why is that?

Recently there was a tense argument between hotel owners and government about price revision. I don’t know about others, but I have hotels and I can’t say the business is lucrative; I am not getting enough as a return, even to continue the operation. The hotel business is really a challenging business.                  

How much did you spend on the resort in Hawassa?

It took three years to complete construction and the whole project is worth of ETB200 million. 

And its occupancy rate?

It is very low; an average of 50Pct.

Hawassa is one of the most famous tourist destinations in Ethiopia. Is it a marketing problem, a pricing issue or one of logistics?

It is cheaper to construct a room in London than in Addis Ababa, because here [in Ethiopia] you have to import everything. Look at the frequent power outage in this country; it has now become a daily business challenge.

For example, in Hawassa we have two generators because one generator doesn’t work alone for more than 24 hours. Is there enough water in the town? No. How about the telephone net work? Recently, we had no power for six days and we had to spend more than ETB60,000 for gasoline. You can’t replace or get this amount of money easily.

Tell me about your hotels in Ziway and Shashemene. 

The Ziway Hotel  has 40 rooms and it took more than 30 million birr to finish. The one we have in Shashemene is bigger and took more than ETB50 million investments. It has 52 rooms. All of our hotels have gymnasium, swimming pool and spa.

Let us talk about your investment in mining. Tell me the progress...

It is in southern part of the country in a place called, Gerja. The area covers 29 hectares. So far we have spent more than eight million birr in exploration. Also at this location we have constructed 16Km long road. Even if we haven’t started mining, the people were really happy for having the road. We have taken samples from the area by our Russian geologists and we have found an encouraging signs for a potential gold deposit. 

Could you tell me the reserve?

The study shows that we can get 800kg of gold deposit. We started it two years ago and the study will continue for three more years. We don’t know how long it will take to excavate the gold. Moreover, we are inviting international companies from South Africa to work with us, though they are not interested with our limited land. For this reason we have asked the government for additional land to expand our project to 200 square kilo metres.    

You are a share holder in Anbessa and Debub Global banks, right?

Yes, but our shares are small: ETB3 million with Anbessa and half a million with Debub Global. 

You are a share holder in these two banks; you do advertisements for Zemen, and also work with Commercial Bank of Ethiopia for the Great Ethiopian Run. Do you see any conflicts of interest? 

These things are different; for example, I don’t do for others what I am doing for Zemen Bank.  The advertisement I work for the Great Run is also limited by principles.

What is your net worth?

I think it is over a billion birr. It looks big when you talk about it in birr; it is just USD50 million. 

You’re well-known for having many business ventures, which we’ve just talked about. But what about your charity work? If I may ask what kind of business enterprise is ‘The Great Ethiopian Run’ for you?

It’s a satisfaction enterprise; do you know why? In the last 14 years, I have spent a huge amount of money. It has become a business just in this year for the first time. However I am really proud to be part of it, it is more than running. It is my number one source of satisfaction.

While we’re on the topic of giving back, do you feel the need to engage in social responsibility, like investing in areas where you conduct business?

Well, I do some projects as part of my social responsibility. But I don’t want to use it for public consumption. For example, in the place where I am searching for gold, I have built a road worth of ETB2 million. I built it for myself but the local people were happy, at that time I was happy too. 

By the way, I didn’t want to deceive the public; I built that road for myself. You can hear so many investors telling that they have done this and that for the public but I don’t agree with them. For example at our gold mining site, we have built a big camp which can shelter 500 workers, after that we built shops and now we are building a school, but I don’t want to talk about it because I am doing it for myself. I plan for thirty and forty years, so if you don’t provide school for your workers [children], no worker will come and stay there. Next time we have a plan to start clinics for our workers because they have to be healthy to work. The community might use these resources, but we construct them primarily for our own use. 

You have a school in Bahir Dar, right?

Yes! It is a very big school. It has 1300 students. Its name is ADM School; I named it after [all] my mother’s name- Ayelech Degefu Memorial (ADM). She died when I was young. [The school] is 13 years old and it has a branch in Assela. Both schools teach up to grade 10. Our students are high scorers academically.  

What is the biggest money prize that you got after winning a race?

One million dollar, when I won Doha’s Qatar 10Km contest in December 2002. It is the biggest; I got all this just in one race. In 1998 I have got a combined prize of more than USD1.5 million. So far in more than 20 years I have pocketed close to 20 million dollar. It is not a big deal; this is perhaps yearly revenue of Lionel Messi.

Before I go, I’d like to ask just a few personal questions. How do you spend your leisure time?

I spend it by playing with my wife and children. Sometimes we go out of town to YAYA village in Sululta [11Km north of Addis Ababa]. We play football there. 

Do you want any of your children to become athletes?

Yes, that would make me happy. My son is a football player and he plays very well. If you look at his legs you can see many injuries because he is very devoted to the sport.

But I want them to pursue their wishes as well. All I have to do is provide them with all they need, like education at the finest school. I want them to understand current global trends. Sometimes I plan to teach them about the Chinese way of development, because it is very important. 

Haile, are you really 41?  People argue that you could be much older.

People can say whatever they like. In Ethiopia it is very difficult to know the exact age of someone, especially in rural areas [because of a lack of documentation]. They use events and phenomena to refer the time one was born to know a person’s age. So roughly when I calculate the time my dad had told me I was born, I will be 41.

How much have you paid as a tax, last year? 

Marathon Motor alone has paid around ETB30 million as tax while Haile Alem International has paid around 15 million. Marathon had a turn over of about 270 million last year; I would say a sizeable part of that went to the government as import duty. 

In the coming five years we must be able to pay ETB100 million in corporate tax. If we are not able to do this it means we are not doing business. 

You do an advertisement for Ethiopian Airlines for free, right?

Of course, I do that for free. By the way, I pocketed the first salary of ETB53 from Ethiopian Airlines 20 or more years back. The Airlines used to provide a group of athletes recruited from several parts of the country jerseys and salary for more than two years. So I owe the Airlines a lot and I would like to do something now in return. I am even willing to do more than advertising. 

Do you plan to stop running?

I will never stop running. I run for health and for wealth. I may not run anymore for records, but I will keep running to keep fit and healthy.

2nd Year . July 2014 . No.16

Amanyehun R. Sisay

EBR Staff Writter

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