Since the early days of modern trade there has been anxiety about the future of local businesses. It’s safe to assume that many Ethiopian companies haven’t experienced such a state of flux and uncertainty. Yet, as the economy positions itself to further integrate with the global economy and open its doors to more foreign investors, we must question the sustainability of continuing with the entrenched ‘business as usual’ approach as a long-term option.A telling reason is that we might not be the only privileged players in most if not all of the local market available for private firms as such. In fact, the news that Ethiopia is on the verge of accessing the World Trade Organisation (WTO) seems far from arousing anyone’s curiosity.
Established in 1994, the WTO is a formally structured organisation whose rules govern the business practices of its 161 member states. The institution is also charged with ensuring that world trade and finance are playing an increasingly important role in this era of globalisation.
Regardless of the claims that globalisation and free capital markets help developing countries through securing finance for international projects and fetching foreign direct investment, the WTO has attracted criticism due to depriving local firms either funds or expertise as well as technical or managerial capability to participate in the sponsorship of privatised projects or foreign-funded tenders.
Ethiopia’s accession to the WTO might also make it possible that native businesses will be deprived of the opportunity to grow to the extent that they might be at the brink of losing their immunity or protection from competitive threats.
This is mainly due to the Ethiopian government’s need to adhere to WTO-initiated agreements – like the General Agreement on Tariffs and Trade General Agreement on Trade in Services and the WTO Agreement on Government Procurement – that might result in lifting any preferential treatment that favours local manufactures, traders and service providers.
Although developing economies are given flexibility under these agreements – especially for opening up specific sectors, liberalising fewer types of transactions and progressively extending market access in line with economic status and structure – as a general rule, if a country allows foreign competition in a given sector, equal opportunities should be given to businesses from all other WTO members.
Literally translated, multinational corporations can reap the fruits of the booming Ethiopian market, often without regard to how these actions affect local businesses. Since foreign firms will take advantage of the economies of scale of their massive operations, they could come up with a staggering idea of financing public projects and have the potential of utilising full technological capabilities. The outcome will be a better opportunity to enter public-private partnership programmes or engage indirect infrastructure development projects – whichever can most effectively meet their market penetration needs.
Although there has been strong protection of some of the export, import, wholesale trade and manufacturing services, including relatively limited competition at the top-end of a few industries, in recent years we’ve witnessed that the role of a number of local private organisations are just a sub-set of major foreign counterparts. Meanwhile, alliances such as joint ventures are becoming less common, with little hope for transferring technology.
Despite the significant role that Ethiopian firms presumably play in a wide-range of protected areas, the sobering news is that most of the big manufacturing, supply and service contracts have been exclusively bestowed to international corporations. This means that nearly all of the native firms will also be profoundly affected while the privileged foreign contenders expand their business empires.
Where does this leave those local private firms that are unaware of the likelihood of losing the protections that have been afforded to them as part of the country’s development?
Despite some of service and manufacturing sub-sectors that continue to grow, it’s likely that the overall share of most Ethiopian firms will dramatically decline.
With the growing tendencies of some public tenders redrafted to align with the practices of foreign firms, depending on the speed of share penetration by them, the absolute value available to local firms will likely plummet, at least on a market-by-market basis. It will be very much a mixed bag of both solid opportunities and substantial problems for most market players.
This is due to the fact that there are a handful local business firms that plan to sustain their operations by adopting excellent management strategies, finely honed skill sets and considerable size to exploit economies of scale, growth share and maintain high profit margin. However, most Ethiopian companies need to face the fact that their current roles of being non-differentiated industry participants will leave them vulnerable to lose their market share and customers as well as weakening their current competing power.
Since the rising tide of overall market is not likely to ‘float all boats’, the unpleasant outcomes are inevitable unless business firms take positive action steps with a collaborative effort and strong government backup to the same cause.
Anticipating the future is not exactly rocket science except the courage it requires to recall what happened to Kenya after it liberalised its financial markets in the 1980s. In fact, little is known about the catastrophic outcome of Daniel arap Moi’s government liberalisation decision that left dozens of local banks bankrupt due to their powerlessness to withstand the marketing strategies of the giant international banking conglomerates.
Hence, as the likelihood of the proliferation of multinational and transnational corporations here shall change the existing scenario, rather than staying complacent at the cross-roads, it is high time for every Ethiopian business to protect itself from the likelihood of being swept away by foreign contenders.
Besides the tragic consequences of the globalisation of markets, outside pressures may come from rapid technological changes, the shift from an industrial economy to a knowledge- and information-based economy, changing value systems, competitors, declining profits, decreasing market share, scarcity of resources, regulations and problems with suppliers and customers. If these are coupled with internal pressures such as ineffective leadership, poor morale, traditional production or service delivery methods, highly politicised behaviour and lack of systems, the growing malaise will reach an unendurable point.
As the world business environment changes, so do the requirements for success and competitiveness. Because of the aforementioned forces at work, business leaders are called upon to play an important role in meeting these challenges. As a collection of individuals, people in an organisation have to be mentally prepared for the fact that change is inevitable. This is self-evident, but easier said than done.
4th Year • May 16 2016 – June 15 2016 • No. 39