Some Local Companies Have Bitten off More Than They Can Chew

Tewodros Shiferaw, 44, is a businessman with a huge appetite. The father of four lived in Japan and China for 12 years working as an exporter and importer, among other activities. In 2008, he came to Ethiopia and established Rosetta General Business, a company engaged in real estate development, hotels, import and export as well as media and communication. Tewodros, who is in the real estate sector, built 142 villas and transfered them to the owners on time despite the huge inflation at the time. However, not all his endeavours have been successful. In fact, two of his hotel projects in Addis Ababa and Hawassa didn’t materialise because the authorities couldn’t give him land on a lease basis. He is now more visible in the broadcasting industry. In fact, Tewodros was a partner at ARTS and a year ago acquired Nahoo TV, a privately owned entertainment TV channel operating in Ethiopia. EBR’s Samson Berhane sat down with Tewodros to learn about his successes and failures

EBR: You established a private airline company in Juba, South Sudan, instead of Ethiopia. Why?
Tewodros: Our plan was to be based in Ethiopia, not Juba. But, there is no room for a private company to get involved in the aviation sector in Ethiopia. We could not get a license. Everything is monopolized by Ethiopian Airlines. There wasn’t even room to do business in partnership.

It is also difficult to use Addis Ababa’s Bole Airport for private aircrafts. The maintenance costs are high. Although we had an agreement with Ethiopian Airlines, we get maintenance services from Kenya Airways because it is cheaper there.

In addition, getting loans is difficult in Ethiopia. After getting loans from abroad, I paid 20Pct and ordered two aircrafts nine years ago. However, the central bank refused to approve the loan. So 20Pct was taken by the aircraft supplier.

The aviation sector could be a backbone for the economy, but the government considers it otherwise. It could generate hard currency for Ethiopia. Ethiopia was among the few African countries to establish its own airline. There should be at least ten operators by now.

Do you think there have been changes?
The whole infrastructure and policy still serves only Ethiopian Airlines.

Many real estate companies were going through defaults and delays when your company Rosseta Real Estate was established seven years ago. Did you experience these kinds of challenges?
We managed to build 142 well-designed villas and transfer them to the owners on time. But we did not make a profit, because at the time the government had devaluated the local currency against the basket of major hard currencies. In fact, we lost close to ETB60 million due to inflation, which almost doubled the cost of the villas. We already had agreements with clients. So the company covered all the additional costs and delivered on time. Although there was no legal framework to govern the real estate sector, we kept our promise despite the fact that neither the government nor the banking sector was in a position to support us.

What is the status of your hotel project in Addis?
I brought an international hotel brand to Ethiopia with finance. I have been asking the Addis Ababa City Administration for land to construct a five-storey, five-star hotel for three years. I asked for a 6,000 square meter plot, which they refused. But foreign companies that came yesterday were given plots. We paid USD1.7 million for design of the hotel.

What about the hotel project in Hawassa?
The project was to establish an international five-star hotel that would create jobs for 2,000 Ethiopians. The regional authority gave me a plot in Hawasaa. When I went to start construction, the military force stationed around the area forced me to leave. I leased the land legally, but the military said the land belonged to them.

After some time, the city council said the military overstepped its power, so I brought American experts to conduct soil tests. But the military force imprisoned my employees in the military base. They did not touch the foreigners. Every time I went there, the military people threatened me. Finally the project failed. I lost over USD1.7 million.

Ethiopia is at the bottom of the Ease of Doing Business Index. What should the government do to improve this?
What I want to tell the government about reform is that government officials must expand their scope and look for capable business people outside their friendship circles. There are many people who can contribute a lot to this country.

Many projects given to local companies were unsuccessful and taken over by Chinese companies.
True. Some local companies have bitten off more than they can chew. If the government gives companies projects that are over their capacity, that is what happens. The local companies have been given projects they cannot complete, while we had no chance even to talk to the officials.

But do you think it is useful to give more attention to foreign companies than local ones?
I went to China to make money, and then I brought the money to Ethiopia. Similarly the Chinese come here to make money and they will take their money home. Believe me, if we had a level playing field, many Ethiopians could do a lot.

Ethiopians are not fools. I have proved myself in Japan, not in Ethiopia. I know Ethiopian farmers that are smarter than Japanese farmers. I lived in Japan for 15 years. A Japanese farmer is supported by many technologies, unlike Ethiopian farmers. If we could support agriculture, Ethiopian farmers could do much more.

The government has been adopting management philosophies like Business Process Reengineering (PBR) and Kaizen to provide efficient service to the private sector. None have seemed to work. What do you think is the problem?
Management philosophies like Kaizen work in countries where a large portion of the population are followers. Most of the Japanese population is followers while the rest are very clever leaders. Japanese do not question their leader. Even during World War II, their pilots flew aircrafts into Allied ships knowing they had no fuel to fly back home. That sprit still lives.

Comparatively, the Ethiopian population is largely hesitant and inquisitive. Therefore, a new system that can mobilize such a popular mindset is necessary. Though kaizen is good, copying everything does not work.

You are also involved in the coffee trade.
We started Golden Coffee Roastery on 550 hectares, to bring the vibe of those big brands like Starbucks to Ethiopia. We buy quality coffee from farmers and then process it in line with best international standards. Most of our customers are Chinese. We sell roasted coffee to registered customers. But the government doesn’t provide loans without collateral to help us to establish larger companies. The demand for value added coffee is increasing worldwide.

Do you think Ethiopia can generate more hard currency just by adding value to coffee?
More than many people think, but value addition is not encouraged domestically. The government plans to achieve USD2 billion from coffee exports, but they do not know how to achieve it. You have to find and support thriving companies to add value. You need to provide loans to purchase the coffee and provide machineries through lease purchase contracts.

For instance, the nation is currently building industrial parks. They focus on textiles and garments. Surprisingly all the input material is imported. What we do is just sew the imported textile and exporting it. Why does the government not exploit Ethiopia’s potential first? Why aren’t the industrial parks dedicated to processing coffee? If there is a sustainable power supply, machines and trainings, many investors could get involved. Advisors and quality control specialists could come from countries like Japan. Then who will refuse to buy processed coffee from Ethiopia? Unfortunately, in Ethiopia the cart always comes first before the horse.

Why has the private sector failed to overcome these problems on its own?
Japan buys surplus coffee from Ethiopia when the price is down. Japan has huge warehouse establishments for coffee storage. The warehouses can store coffee for a long time without changing any of its contents. But Ethiopians have no mechanism to store coffee when the price is down. In addition, there is a financial burden. First of all there is no company that can buy coffee in bulk and store it for specific period of time. Since companies export coffee after receiving loan from banks, they have a short time to collect and sell the coffee and pay the loan.

For instance, if the loan you took last year was around ETB200 million, and you are exporter, the interest rate is 16Pct, which means there is a ETB32 million loan on your back. So, I cannot stock and sell it when prices improve. Otherwise the interest doubles and the banks sell the assets they held as collateral immediately.

What support did you get from the Addis Ababa Chamber of Commerce and Sectoral Associations?
First, I do not want to be a member. We might pay membership fees just for the sake of saying we are members. I have encountered many challenges from business license renewal to tax. But the Chamber of Commerce doesn’t help many business people who are facing the same challenges as me. Last time, they sent me a letter asking to contribute to the construction of a headquarter they planned to build. How will it benefit me? What I want is the Chamber to protect my legal rights in front of the authorities.

Now you are in the broadcasting industry. First you got involved with ARTS TV and now Nahoo TV. What attracted you to the industry?
I thought I might change those problems I have been telling you about. I thought I might educate, and raise awareness in the country. I didn’t get into it to make money. I can make money with my own business. I have watched CNN and BBC for the last 25 years. It is all about horror and war. They do not show us developments in Africa. They show us the negatives. Then you ask yourself is Africa really in chaos?

But we see better performing countries like Rwanda. Yesterday, Rwanda was in ethnic conflict. Today they are leading in cleanliness of cities. Rwanda spent 30 million Euro to put its name on the sleeve of Arsenal’s football shirts just to attract more tourists. Yet, the Western media always portrays Africa as garbage. The same is true for Ethiopia. I wanted to create an option for foreign people to see the positive sides of Ethiopia.

Why did you leave ARTS and move to Nahoo TV?
We started the broadcast station as two individuals. Then it increased. The partners were involved in many professions. But broadcasting needs instantaneous attention. If your attention is taken by another business issue, you lose news in a matter of minutes. If that minute has passed, it is not news, but history. I do not care if I lose business for this purpose. At ARTS, I served at the board and management levels. We tried hard but we could not succeed as fast as I needed. Although many of the partners were involved, some were living abroad. Since it involved big money, we had to consult every partner for every decision, which caused delays.

At that time, Ethiopia was also going through unrest. It was necessary to establish an independent media to inform the people of what was going on. So I told my partners at ARTS to release me and allow me to do my own thing. It has been a year since I acquired Nahoo TV.

What should be changed to strengthen the broadcasting industry?
To grow better, the broadcast law needs to improve. The sponsor and promotion laws especially are the biggest bottleneck. Advertising beer is likely to be banned soon. Over ETB700 million in media revenue comes from the beer companies. So I think the media industry as we know it will diminish if beer ads are banned.

Of course, alcohol damages health. I have been arguing against beer companies that advertise that consuming their products will provide the chance of getting rewards such as houses, cars and other properties. But you can advertise and transmit an important message at the same time when you say don’t drive after drinking a particular beer. For me this can be the solution.

The other issue is that advertisements are monopolized by state media, especially EBC, and a few private media. The media was totally the mouthpiece of the government so the ads of government institutions were given directly to them. This is despite the fact that state media receives a large budget from the government annually. Independent media are in a precarious position.

There is a rumour that you have acquired Zami Radio.
We will reach an agreement with the owners of the station and it will be disclosed soon. We are not going to administer the station. The agreement will involve how to sustain the programmes that are running and other issues. Hopefully, it will be done within in a month.

You have been involved in many sectors. What do you think is your greatest accomplishment?
I tried many sectors just to become a role model, or an example, and show Ethiopians it is possible. I focused more on aviation for a long time. But we left because there were too many bottlenecks. We invested a lot but could not repay. There was too much damage, so we stopped. We also started mining and achieved many improvements. Then we opened new frontiers. Other Ethiopians are going down the path we paved. Real estate companies didn’t know they could lease land when we started. We took the first challenge and created a fertile ground for the next generation not only in real state sector but also in many other.

8th Year • Jan.16 – Feb.15 2019 • No. 70