we have plans to transform

“We have Plans to Transform in to Multinational Company.”

Buzuayehu T. Bizenu, a father of six, is a Group Chairperson of East African Holding, a de facto industrial conglomerate with 17 subsidiaries. His company is engaged in the manufacturing of fast moving consumer goods, tea processing, printing and packaging, transport, real estate, cement production, and coal mining. Although Buzuayehu has structured and re-established the company almost 25 years ago, it is his grandfather who founded the business more than a century ago, making him the third generation in a family of entrepreneurs. After his father inherited the business and diversified into milling and agriculture (coffee), his fledgling enterprise was nationalized by the Dergue regime in 1974.

While this was a major setback, the family’s dreams and aspirations were not curtailed as entrepreneurship was deeply engrained in his soul from an early age. Soon after, Buzuayehu was able to pick up after his father, although this was an extremely difficult task under communist rule. He fled to neighbouring countries to establish trading and distribution posts, opening offices in Djibouti, Kenya, Uganda and Tanzania. He moved to Ethiopia after EPRDF took power in 1991. Attracted by a favourable private sector and industrial development policy, he quickly transitioned from trading to manufacturing and agribusiness.

Buzuayehu built Ethiopia’s first private soap factory followed by the acquisition of a flour mill in 1994 and opening of the first private tea estate. He also established the first private industrial park in Ethiopia in 1997 to consolidate his expanding manufacturing activities. He further acquired Dire Dawa Cement in 2005. Now transitioning into the fourth generation of owner-mangers, his company is one of the biggest conglomerates in Ethiopia, creating job opportunities for more than 5000 individuals and a five billion birr annual turnover. His company also paid an aggregate of half a billion birr in taxes, making it one of the largest taxpayers in the country last year.

Buzuayehu always believed in the merits of free enterprise and capitalism. Capitalism can solve major societal problems in a sustained and win-win manner better than any other systems ever created, he believes so.

Undoubtedly, Buzuayehu is a successful business tycoon. He believes the recipe for his success is the pursuit of professionalism and transparency, which breeds trust and confidence according to him. It is such a spirit gained through institutionalisation, learning, and performance based culture that helped him climb the ladder of success. Even after being named as one of the five Ethiopian billionaires by Forbes Magazine, he believes that his company is still far from achieving its vision. EBR’s Samson Berhane sat down with the visionary business leader to learn the core business values that led him to success and the next big thing for his company. The following is an excerpt. 

You run a family business that has a legacy panning over a century. Tell us what the journey looks like.
The history of our company goes back to the end of the 19th century. It was our grandfather, Bizenu, who started the business. At that time, he was engaged in traditional business activities selling items like domestic animals and ivory. His children, including my father, followed his path and took over the business, moving it a step forward. They were involved in coffee washing, grain grinding, and coffee milling. And, in the southern part of Ethiopia and Addis Ababa, he was involved in real estate development.

However, our family’s assets were nationalized when the Dergue regime took power in 1974. But they did not take away our entrepreneurial sprits, knowledge and mindset. We passed through this challenging moment with patience and hard work. We are proud to keep the business through all the changes of different ideologies and regimes over time, given that there is only a 30Pct succession rate of family businesses to second-generation and 3Pct to third generation internationally. Of course, we have not done as per our capacity, but we have succeeded in maintaining the family legacy.

After the Dergue regime nationalized your assets, where did you get the start-up capital to engage in business again?
The 17 years during the Dergue regime was the most difficult time for our family business. Though the majority of our assets were nationalized, we retained some assets like our coffee milling machines. Despite the challenges, we kept our involvement in the trade of different items. Additionally, we rented out some of our assets that were not nationalized. As a result, we had some cash in hand even back then. But the most important thing was, the Dergue was not able to take away the family’s enterprising qualities, which is the main recipe for the success of any business.

Capitalizing on this, we had no fear when we re-established our company [in the 1990s]. Our father’s wisdom in managing businesses helped me identify the right path to climb the ladder of success.

How about after EPRDF came to power in 1991?
To be frank, it has been better since then. They introduced good laws because they knew the failures of Dergue regime and they came to power at a time when the cold war was over. They were not aware on many things during the first few years, but then they introduced policies to encourage industrialization. There were many supports and protections for industries. The ideology, however, later collapsed because that protection and government involvement extended beyond the time limit. This could have been avoided had the economy been opened sooner.

You have opened many successful businesses. What were the major reasons for success?
Our business philosophy has played a vital role for our success. Industries could be passed on to the next generation. However, to make it sustainable it has to be properly structured and institutionalized. We have done that in our businesses and deployed a highly decentralized system to perform our day-to-day activities. We hired experts and skilled manpower from the outset. We were also very transparent, which has helped us a lot to be very successful.

The contribution of the industry sector to the GDP is very small and running an industry is also very challenging. As a result, many are rather interested in joining the service sector, making it the biggest contributor to the economy. How come you choose the difficult path of joining the industry sector?
After re-establishing our business in 1991, we believed that the industrial sector is sustainable and very helpful for our country. We had the opportunity to involve in the trading businesses and the informal sector. But, we thought that that would kill our innovations and creativity because it creates and sustains fear. You can’t be innovative if you fear. The industry sector really needs innovation to make real contributions to the economy. Even if the journey has been tough and challenging, it is finally paying off. We have employed cross-subsidization methods and relied on skills and expertise of professionals to be successful. Profit has always been secondary in our business philosophy. We focus on sustainability.

Some experts argue that Ethiopia should provide lower corporate tax rates for manufacturing than businesses engaged in trading. They say this would encourage investment in the manufacturing area. What’s your experience on this?
Our journey has not been full of comfort. It was very challenging. But we only had two choices: either join the largely informal trading sector or the industrial sector, which is very sustainable and can bring real change to the country in the long run. We know the trading sector is lucrative. Nonetheless, as profit had never been our primary target, we preferred joining the industrial sector. With such spirit, we have set up the first privately-owned agro-processing company, processing tea and producing its own packaging material.

We implemented backward integrations to make our business more successful and are now working on forward integration. In fact, our slogan was ‘from bush to brand’. Joining the industrial sector enabled us build assets and benefit from transfer of knowledge as well as build capable workforce. We don’t see everything from the perspective of profit. We focus on making our businesses sustainable; thereby building up knowledge, skills and good industry culture.

With regards to incentives, there are tax holidays from four to five years, of which we were a beneficiary. Capitalizing on such opportunities, we have imported duty free machineries, received preferential loans, and had the privilege to access land for free to setup manufacturing plants.

Cash shortage has been a major problem for many businesses in Ethiopia. Many are also being challenged by the lack of access to finance. In the western world, such problems are solved by going public, which means selling stakes to potential investors.

Liquidity shortage is a common problem that many industries and businesses in Ethiopia face. It is mainly the result of macroeconomic imbalances. In fact, this is why I have been an ardent supporter of privatization in Ethiopia as it is crucial for technology and knowledge transfer, and will thereby bring in a considerable amount of foreign capital. But it is not the only source of capital. I say policy makers must come up with other alternatives after consulting with private sector players and economists. For instance, we can start by exploring why neighbouring Kenya has a sufficient amount of foreign currency reserves. We are not supposed to go overseas to understand why foreign currency is a big issue in Ethiopia. We can learn a lot from our neighbours. I recommend the liberalization of the financial sector because it can improve access to finance and foreign currency.

But can the local banks survive after the liberalization?
We have to see that from the perspective of citizens and the country as a whole. If the country’s economy does not transform quickly, we won’t survive as a country where unemployment is very high. To avert this, the country also needs to have a very good work culture and better resource and knowledge. This can be achieved by liberalizing the economy. If what we care about is the well-being of few investors, liberalizing the economy will have an adverse impact. However, the reverse is true if we want to benefit more than 70Pct of the youth population, many of whom are unemployed.

Finding the right resources, human resource and knowledge is a global problem. So, to avoid such problems, Ethiopia must understand the fruits of full-scale liberalization and act accordingly, even with its adverse impacts in the short run. The foreign companies would create thousands of job opportunities and improve our work habit, and thereby spur technology and knowledge transfer. Of course, doing so does not mean that we can face any competition. It is true that we are not capable of competing with companies in neighbouring Kenya, let alone multinational companies. As the saying goes, the fittest will survive. But eventually, I am sure that we will learn from our mistakes and become a strong competitor.

You have said that Ethiopian investors would face stiff competition if the economy is fully liberalized. Keeping that in mind, how can Ethiopian investors compete in the global arena, while they don’t have the capacity to compete with foreign companies in their own country?
Local companies will only be challenged for two to three years, but eventually they will learn and restructure their businesses accordingly. In the long term, they will start developing a global thinking. I know finding the right human capital is a big problem, but we can bring it from the global market and this will later enable us achieve tech and knowledge transfers.

Capital flight even by local companies is very common in Ethiopia. Many investors have accounts and houses in Dubai. Such a practice is not common among Kenyan investors, who usually reinvest what they earn in their own country. Not only that, Ethiopia is relatively well-off considering the amount of resources it loses to contraband. For instance, gold, coffee and grains smuggled by contrabandists, adversely affect the competitiveness of the country in the global arena. Policymakers need to study the main reason why traders choose illegal routes. Be that as it may, wealth creation in Ethiopia has long been seen as a sin. It must be known that creating wealth is a wonderful thing.

Two years ago, you were listed among top five Ethiopian billionaires by the Forbes magazine. Tell us how much tax you have paid, how many jobs you have created as of Last year. Also tell us about projects in the pipeline.
To be frank, I do not believe that there are billionaires in Ethiopia. I was mentioned in the Forbes listing, but it was in relation to local investors.

We have created job opportunities for more than 5,000 people. We have paid an aggregate of half a billion birr in taxes last year. And our turnover was close to five billion birr in the fiscal year.

The country used to get more than USD600 million from the export of mined commodities; now that has dwindled to less than USD100 million. As an industry insider who has been engaged in cement production and coal mining, what do you think is the major reason for the decline?

It is a policy problem. Now gold is leaving the country illegally. Economists should study why minerals and other important items are leaving the country illegally. It must be understood that illicit trade cannot be controlled using only security forces. But it can be averted using good economic policies. For instance, now a dollar is being traded for around ETB31 in the official market, while it is ETB40 in the parallel market. This is a simple reason as to why traders prefer illegal routes to export their items.

Additionally, foreigners prefer to import items from neighbouring countries. This is because of the bureaucratic hurdle in Ethiopia. For instance, Saudi traders usually prefer to buy livestock from Somaliland even though the cattle come from Ethiopia. If you liberalize the market and open capital markets, there will be a free flow of capital and the economy will be driven by the market. For instance, in Kenya, the parallel market has no place as the forex market is liberalized. The gap between the official and parallel market is less than two percent there. Ethiopia can learn from Kenya.

Cement industries were unable to access raw materials because the local youth controlled input supply sites following the political unrest in recent years. How did this affect you?
We have all faced it but have been mitigating it through short term solutions. Our machineries stopped production for a long time because of that. We have been facing such problems over the past five years, but we are hoping that it will be solved as we have entered into this transition period. The Government is improving the investment and economic policies. But that will never be fruitful unless it works on ensuring peace and stability.

What benefits do you provide to communities in which you operate besides job creation? Particularly, the problem of fair benefits from the wealth of natural resources in the mining sector is becoming unnerving.
We have introduced inclusive benefit policy that would enable the local community to become shareholders of the company. But there is no legal framework on this aspect. We have planned for the local youth to mine coal while our role will be limited to marketing it. We are discussing with regional states on this strategy for all our industries. We have presented this strategy to the State of Oromia, but we could not move further on it due to the instability over the past five years. The issue of inclusiveness is critical and needs innovative strategy.

What about corporate social responsibility (CSR)?
We are establishing a foundation to streamline our CSR activities. CSR is an [important] concept but difficult to implement in Ethiopia’s existing business environment. It requires a good legal framework. We will allocate two percent of our profits to CSR. CSR is critical for inclusiveness and sustainability. I believe CSR should be mandatory. Some countries like India are successful in this aspect. But there is no such corporate culture in Ethiopia.

Tell us about your business philosophy.
I wanted to be an industrialist, which is critical for a country. I believe in transparency, which is also our family’s culture. It has given us courage, capacity and confidence. If you take an illegal benefit for yourself, you will become afraid and will need a god-father in the government. That hurts a company. The philosophy of our family is ‘never take home unclean money’.

I do not engage in operational works at all. My role is at the corporate level in the board. The company is well structured and decentralized. I work on compliance, policy, investment, guidance and coaching, which are all my passion. I participate in major business engagements and meetings in the company to share my experiences and use the platform to train the management.

A business that has a godfather doesn’t have to hustle. They know the government’s next direction in advance and this is advantageous. Is it not tempting?
We have discussed this at family platforms. Following such a path is beneficial for short term only, but it is costly and not sustainable in the end. You get fear from that: the most damaging threat for a company and entrepreneurship. My children have taken my realistic wisdom in this aspect and have avoided that threat. Entrepreneurship survives only through innovation. A person in fear cannot innovate. If you can avoid ‘back-scratching’ with the government, you can be innovator. That is why we bring only the best experts in the country and from abroad to build an innovative institutional capacity. The policymakers also appreciate you after seeing that we are serious about it.

So you are saying the wealth you created is clean.
I have created a 101Pct clean wealth.

How do you manage your time since you are also a family man?
Our company is highly decentralized and very well institutionalized. Much of the job is done by delegation. I have not signed a cheque in 30 years. Nowadays, we meet virtually. I focus on issues at the highest levels like policy and strategy development. We work at the board level, leaving the work for the management and [the professionals]. I have ample time and I use it for innovation, discussion and ideation.

If you have time, why don’t we see you in private sector advocacy works like promoting the interest of the private sector through the chamber? You also shy away from the media.
It is difficult to contribute under the existing structure and the policy of the chamber. Why would I go to the chamber if I cannot bring about real changes? You go and get stuck in an already structured system, which cannot take in new ideas. If you go to Kenya, you are highly sought after if they believe you can bring change and influence. If you are wealthy in Ethiopia, you are influenced by the political power. But in Kenya, it is the idea and wealth that influences the political system. The political structure is a highly limiting factor as well.

In any case, are your companies’ members of the chamber?
We are members and we also support them. But if you ask what change and influence the chamber brought practically, it is very [questionable].

Tell me about women’s role in your management.
That is one of the biggest limitations we have in our companies. Women are very committed, transparent and disciplined. But our culture brings more men to the front. Currently we have understood these cultural distortions; and we are working to improve. We are preparing women successors.

What are your weaknesses?
I think I am over patient.

You named your company as East African Holding. Do you have ambitions to go after foreign markets?
Going global is a matter of survival in today’s world. Yes, we have plans to transform into a multinational company. In fact, that is a big opportunity that [Ethiopian investors] have missed.

You had East African Tiger Brands before; and now you have started East African Lion Brands. Tell me about it.
We used the Tiger brands at a time when we had a joint venture agreement with a South African company. But after the company left because of the recurrent foreign currency shortage in Ethiopia, we purchased their shares. Thereafter, we started using our former Lion brand.

What is the next step for East African Holding?
We have many interesting ideas and projects. We want to be a global company and shine in sub-Saharan Africa. We can contribute a lot to the economy if it is opened. Ethiopia has the potential to become like [South] Korea or China. We hope our company will dominate East Africa, just like Dangote succeeded in West Africa.

What kind of books do you read?
I usually ready autobiographies of successful people. But the book that interests me most is ‘Conscious Capital,’ written by John McKay. I am even commissioning the translation of the book. It is almost like my Bible. It is about wealth and clean-minded capitalists that changed the world. There is nothing that has impacted and changed the world over the past 200 years, like capitalism.

The Ethiopian government used to argue that neoliberalism has failed even in the west, where it was created.
That is debatable. For instance, we could not even supply enough the simplest things like milk, egg and chicken in Ethiopia. Chicken is very expensive in our country. Those items are very cheap, if you go to Kenya. Food is not a problem in Kenya or USA, but it is for Ethiopia. We have been talking about famine for over 40 years. Ethiopians has unbelievable intelligence and the country is endowed with natural resources. Neoliberalism could have helped us exploit that potential better. We have tried socialism and developmental state philosophy over the past 45 years, and both have proven incapable.

What can businesses in Ethiopia learn from you?
They must engage in investment, entrepreneurship, innovation, transparency, job creation, and tax contribution.
Ethiopia is at a very critical time. One of the most dangerous things for Ethiopia is the fact that [the vast majority of the] scholars and the educated have no wealth. That is why everybody turns to social activism after school these days. Ethiopia’s civil servants are also the poorest in the world. You cannot change a country under such scenarios. These people cannot innovate and protect the system unless they become [better of]. I would focus on these areas, if I were a politician.

8th Year • Dec.16 – Jan.15 2020 • No. 81

Samson Berhane

Editor-in-Chief samson.b@ethiopianbusinessreview.net

Leave a Reply

Your email address will not be published. Required fields are marked *

Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.

2Q69+2MM, Jomo Kenyatta St, Addis Ababa

Tsehay Messay Building

Contact Us

+251 961 41 41 41