By Hadra Ahmed | IANS India Private Limited

Addis Ababa, July 14 (IANS) The Exim Bank of India’s line of credit (LoC) to African countries is growing in proportion to the Indian companies’ interest in investing in the continent, says T.C.A. Ranganathan, its chairman and managing director.

“The Exim Bank of India has been actively engaged both on behalf of the government of India and on behalf of Indian companies with Africa, with Ethiopia in particular,” Ranganathan told IANS here.

EXIM Bank has been extending credit in Africa for the past 15 years and in Ethiopia for about eight years. Till date, a more than $1 billion LoC has been provided for the development of three sugar companies in Ethiopia.

“We must assist Africa and partner with it in its development by offering whatever expertise we have,” Ranganathan said.

The bank has also played a major role in the establishment of the Afriexim Bank by giving advisory support on the framework and type of activities it should focus on.

Exim Bank has partnered in setting up the Global Network of Exim Banks and Development Finance Institutions (G-NEXID) under the auspices of the United Nations Conference on Trade and Development (UNCTAD).

“We were the first chair of this network and also have a small share at the bank,” Ranganathan stated.

During the second India-Africa Summit held in the Ethiopian capital in 2011, Prime Minster Manmohan Singh pledged $5 billion to African countries for their economic development.

“Trade finance is the first causality of a financial problem which occurs anywhere in the world. This financial support is mainly why we are actively and closely working with the governments of Ethiopia and other countries of Africa, to strengthen our relationship,” Ranganathan pointed out.

He said Indian companies have invested in sectors like agriculture, steel, textiles and pharmaceuticals in Ethiopia because the quality of governance and planning is very advanced and the government is clear about its priorities.

With the increasing diversification of India’s global trade towards other developing countries, the African region has emerged as an important partner for India. Ranganathan pointed out that trade with Africa has risen twelve-fold after 2000, from around $5 billion annually to $63 billion in 2011-12.

“Africa is a very strong focus as it is a continent that started developing very rapidly, especially in the the last four or so years. A lot of growth potential has been created and a number of activities are being carried out,” Ranganathan said.

Exim Bank has also extended a $300 million LoC to the Ethiopian government for financing the new railway line between the Ethiopian city of Asaita and Tadjourah in Djibouti. The LoC was signed in New Delhi on June 13.

The Bank will reimburse 100 percent of the contract’s value to the Indian exporters on the shipment of goods.

As per the agreement, the LoC will be used for sourcing goods and services from India.

“Exim Bank LoCs afford a risk-free, non-recourse export financing option to Indian exporters. Besides promoting India’s exports, the LoCs enable demonstration of Indian expertise and project execution capabilities in emerging markets,” Ranganathan said.

Exim Bank has earlier extended six LoCs aggregating $705 million to Ethiopia – $65 million for financing an electricity transmission and distribution project and $640 million for developing the sugar industry.

It has in place 168 LoCs in over 75 countries in Africa, Asia, Latin America, Europe and the Commonwealth of Independent States (CIS), with credit commitments of over $8.87 billion for financing exports from India.

(Hadra Ahmed can be contacted at hadraahmed@gmail.com)

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BY Mthuli Ncube | July 12, 2013

The fifth meeting of the BRICS countries (Brazil, Russia, India, China and South Africa) held earlier this year in Durban, South Africa, was seen as an opportunity for Africa to strengthen its ties with these major emerging economies.

The theme of the summit was “BRICS and Africa – partnerships for integration and industrialisation” with the goal to unlock potential for cooperation between the BRICS and Africa. In fact, Africa has demonstrated huge potential in terms of economic development prospects, abundant natural resources, growing consumer power and favourable demographics. The emergence of the BRICS as major global players has raised hope that a win-win partnership could foster the development of the continent.

In recent years, the BRICS have expanded their involvement in Africa. Their share in foreign direct investment (FDI) inflows and trade volume has surged rapidly. For instance, trade volume between China and Africa increased from US$10 billion in 2000 to $190 billion in 2012. The partnership between India and Africa, for instance, has significantly promoted the development of small- and medium-scale enterprises on the continent. Meanwhile, Brazil and Russia have been heavily involved in the mining and energy industry in Africa through public-private partnerships.

BRICS engagement with Africa

The BRICS are now Africa’s largest trading partners with trade expected to reach more than $500 billion by 2015, with 60% from China. The BRICS are also becoming significant investors in Africa, especially in the manufacturing and service sectors. With respect to foreign direct investment, BRICS countries have strengthened their presence on the continent compared with traditional partners, such as the US and Europe. In 2010, for example, the BRICS’ share in FDI inward stock and FDI inflows to Africa reached 14% and 25%, respectively. The share of BRICS countries in the total value of African greenfield projects reached 25% in 2012 compared with 19% in 2003. Trade between the BRICS and Africa rose to as much as $340 billion in 2012 –10 times higher than the value recorded in 2002. Currently, the BRICS trade more with Africa than they do among themselves.

Main motivations of the BRICS countries’ engagement in Africa

The reasons behind the BRICS countries’ involvement in Africa include their appetite for the continent’s natural resources, Africa’s large and untapped agricultural sector as well as the opportunity for investments and transfer of technology and knowledge targeting the growing middle class, which is estimated to include more than 300 million people.

Appetite for natural resources: For many experts, the engagement of the BRICS in Africa is essentially driven by the continent’s abundant natural resources. BRICS are major players in the exploitation of natural resources in many African countries including Angola, Democratic Republic of Congo, Nigeria and Sudan. Brazil and China are the most active in exploring and exploiting gas, oil and mineral resources in Africa. The presence of these major global players in the natural resources sector has brought large investments in various infrastructure projects in recent years to the continent. However, natural resources do not represent the main BRICS investment in Africa. According to the United Nations Conference on Trade and Development (UNCTAD), 75% of the value of BRICS FDI projects in Africa between 2003 and 2012 are in manufacturing and services. Only 10% and 26% of the number and the value of projects, respectively, are in the natural resources and agricultural sectors.

Africa’s agricultural sector: The agricultural sector is vital for African economies and it is hoped that it will continue to be an engine of economic growth for the continent. The engagement of BRICS countries in the African agricultural sector is motivated by the fact that these countries would need to promote their experiences in terms of agricultural development as a way to unlock the continent’s potential. Brazil, which is a leading global player in trading agricultural commodities, can be a model for African countries regarding agricultural development and can assist Africa in enhancing agricultural productivity and reducing the impact of food insecurity. The success of the Brazilian agricultural model is mainly due to the vertical integration of the sector, the strong support of the state and high levels of mechanisation. Fostering agriculture in Africa will be a major development tool to eradicate poverty and hunger over the long term. In that context, sharing the experience of the BRICS would boost Africa’s agricultural productivity.

Seeking diversification and new markets: Besides the huge potential offered by the African primary sector, the BRICS are attracted by the benefits of diversification of African economies as well as the possibility to enter into a large untapped market of one billion African consumers. Over the years, the BRICS countries have accumulated large amounts of reserves which have been invested mainly in the developed world. The persistence of the global financial crisis, which has hit developed countries particularly hard, is motivating the BRICS to shift a portion of their investments toward other emerging destinations in order to maximise returns while reducing risks. Hence, Africa may offer BRICS the opportunity to diversify towards new frontier markets. Moreover, investing in Africa implies access to a one billion consumer market with its growing middle class. In recent years, sectors such as telecommunications, financial services and retail have recorded high rates of growth in most African countries due to high demand by Africa’s middle class.

Implications for Africa

The strategic interest of the BRICS in Africa will strengthen the position of South Africa as a leading regional power and a gateway for other BRICS countries to the African market. As the BRICS are consolidating their positions in Africa through massive investments, this seems to create a new source of development funding for the continent.

South Africa as an influential regional power: South Africa joined the BRICS in 2010 after receiving an official invitation from the group. South Africa is by far the smallest BRICS country in both economic and demographic terms. South Africa’s GDP is less than a quarter of Russia’s, the smallest of the four BRIC countries (Brazil, Russia, India and China). Also, the population of South Africa, which is only 50 million, is far below Russia’s 140 million and Brazil’s 190 million. As South Africa accounts for one third of the sub-Saharan African economy, it constitutes an entry point for the BRICs to access Africa’s one billion consumer market. Inviting South Africa to join the BRICs was a signal by the most important emerging economies that South Africa is an influential regional power and gateway to Africa, which could also defend the interests of the entire continent.

New funding model and regional integration: BRICS countries can enhance the way African countries are financing their infrastructure. In fact, financing is usually available for projects in single countries rather than for those shared by a number of countries, such as intra-regional infrastructure. This model of investment does not help regional integration of African countries. During their last summit in Durban, the BRICS highlighted the need to establish a new funding model that promotes multi-country projects which, in turn, would accelerate the pace of regional integration. In order to enhance their global role in funding investments and to foster South-South partnerships, BRICS countries announced their intention to launch their own development bank, the ‘New Development Bank’. According to the BRICS leaders, this bank would play an important role in boosting the group’s investments in Africa. This initiative may benefit Africa as it will assist the continent to meet its enormous needs in terms of infrastructure.

Mthuli Ncube is the chief economist and vice president of the African Development Bank

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Ethiopia will submit an offer to the World Trade Organization on access to services such as banking and telecommunications before the next meeting of a decade-long accession process in September, a Trade Ministry official said.

Last year, Ethiopia submitted suggested tariffs on goods to the 159 member countries of the Geneva-based body for negotiation, Geremew Ayalew, head of the trade relation and negotiation directorate at the Trade Ministry, said in an interview in the capital, Addis Ababa. The Horn of Africa nation is now working on offers for 160 service industries, some of which are controlled by the state.

“That is the challenging part,” Geremew said by phone on July 11. “We have to decide which ones are open and which ones are not open.”

Ethiopia’s gross domestic product has grown an average of 9.1 percent over the past 10 years, ranking it as Africa’s second-fastest growing economy, after Angola, and sixth globally, according to World Bank data. The country plans to complete accession to the WTO by mid-2015, as set out in a five-year growth plan unveiled in 2010, Geremew said.

Government-owned enterprises monopolize telecommunications, power distribution and commercial aviation, while state banks dominate a financial industry that bars foreign companies. At the same, foreign and domestic private investment in manufacturing and agriculture is encouraged.

Vital Industries

A decision on whether to liberalize service industries will be based on government policy and through negotiations with WTO member nations, Geremew said. The state has previously said that the opening of vital industries won’t occur until the government is effectively able to regulate them and domestic businesses can compete with foreign companies.

Ethiopia is at “mid-point” in its bid to join the global trade body, Chiedu Osakwe, director of the WTO’s accessions division, said in a phone interview from Geneva.

“We have certainly not turned the corner to drive it toward an end-game status,” he said. “There is considerable work to be done to change gears and begin to turn this accession machine around.”

Ethiopia has yet to answer questions on its foreign trade regime submitted by WTO members in March 2012, he said. The process that concludes with Ethiopia making specific commitments on trade-related laws “goes on for years,” Osakwe said.

The government expects to accede to the WTO as a Least Developed Country, while retaining control of industries considered strategic, Getachew Reda, spokesman for Prime Minister Hailemariam Desalegn, said in an interview on July 12.

“There will be some wiggle room for LDC countries to retain policy autonomy in a number of areas, which of course will include the sectors we’ve so far not liberalized,” Getachew said. “There definitely will be a compromise, but the compromise will not affect our control over the strategic sectors.”

The WTO said last year the world’s poorest countries won’t be forced into making commitments on market access to services sectors that “do not correspond to their individual development, financial and trade needs.”

To contact the reporter on this story: William Davison in Addis Ababa via Johannesburg at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at  asguazzin@bloomberg.net.

Source: 

http://www.businessweek.com/news/2013-07-14/ethiopian-government-to-make-wto-offer-on-services-by-September

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BY Tielman Nieuwoudt | July 16,

A few years back I conducted a route-to-market project for a pan-African television network in Zambia. Our project took me to Chipata, the capital of the Eastern Province of Zambia. Chipata has an estimated population of less than a hundred thousand. But in Africa, population estimates don’t always tell the full story.

For one, population estimates for many African cities are notoriously bad. The numbers also do not explain a place’s significance. Chipata is on the Malawian border and is a transport and business hub. In 2011 a rail link with Malawi was inaugurated. Chipata also provides an access point to the Indian Ocean deepwater port at Nacala in Mozambique. This provides Zambia with an alternative to the port of Dar es Salaam in Tanzania.

As a manager in the 1990s for a multinational company in Ethiopia, my regional office was shocked when my assessment showed that if we excelled in distribution and went “everywhere”, we would likely only reach 12% of the population. The bulk of the population was not linked to any major road network. During a subsequent charter flight over Ethiopia, our trip revealed that Ethiopians were mostly rural.

Ethiopia has urbanised and developed significantly since the 1990s, as the new roadworks and flurry of construction in Addis Ababa so vividly demonstrate. However, according to IFPRI (International Food Policy Research Institute) in 2007, 38% of the population remains five or more hours away from a city of at least 50,000. This has significantly reduced from the 82% that fell into that category in 1984.

Over a third of Africa’s one billion inhabitants currently live in urban areas, but by 2030 that proportion will likely have risen to 50%, according to a recent report from UN-HABITAT. In the top ten list of urban growth cities is Ibadan (130 km northeast of Lagos), a city most executives would struggle to find on a map. The city is a key transit point between the coastal region (including Lagos) and the northern areas. However, urbanisation numbers remain controversial, and some countries’ data have been revised downwards in the past, for example like in Kenya.

There is, however, no denying the growth of African urban centres. Urbanisation will put additional pressure on African planners and poor infrastructure. While the great commercial centres such as Cairo, Lagos and Nairobi will remain the focus for many organisations, the 2^nd and 3^rd tier cities provide real growth opportunities and companies should avoid them at their own peril. As the saying goes in emerging markets, if you are waiting for things to be perfect before you enter, it is probably too late.

Tielman Nieuwoudt is principal of The Supply Chain Lab based in Johannesburg, South Africa. The Supply Chain Lab is a group of supply chain improvement specialists with a focus on factory to village supply chain solutions in emerging markets.

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        Slide Show link here:     http://www.slideshare.net/IDGConnect/ethiopian-business

By BiztechAfrica – July 17, 2013

A major continent-wide conference on banking and ICT will be held in the Ethiopian Capital Addis Ababa on 2 August, as the horn of African country emerges as one of the fastest growing economies in the world.

The Ethiopian Banking & ICT Summit 2013, which will highlight technical and business opportunities in the country’s growing ICT sector under the theme “Harnessing Africa’s Digital Future”, has been organised by Cyber Security Africa, a UK-based IT security solutions provider with offices in Kenya

The one-day event will bring together business players from both public and private sectors, including government officials, international organisations and local business leaders, Sammy Kioko, Cyber Security Africa Alliance Manager, said.

It will feature expert speakers from local, regional and international markets. Ethiopia has emerged as one of the continent’s most exciting new markets in the world, being the fastest growing non-energy-based economy on the continent at an average annual rate of 11 percent in recent years.

This optimism is supported by IMF’s projection of Ethiopia as the third fastest growing economy from 2011 through 2015, trailing only China and India. With continued market reforms, global integration, and pro-business reforms, Ethiopia is positioned for many more years of rapid growth.

“Africa’s second most populous nation is emerging as an important investment destination,” said Kioko.  “Almost non-existent before 2006, activity has picked up in recent months on the back of government efforts to open the country’s economy.”

Investment in Information and Communication Technology (ICT) in Ethiopia is considered to be one of the highest in the world, taking into consideration the prevailing poverty levels. Currently, Ethiopia’s “committed” investment in ICT accounts for 10 percent of overall GDP, and the government has invested over $14 billion in this sector for over the last decade.

Kioko says such huge investments require banks to understand the opportunities, risks and Security challenges in ICT services and products as they are the biggest consumers of technology. “Likewise, ICT practitioners need to know how they can work with bankers to protect their infrastructure.”

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Thursday, 18 July 2013

Ethiopia set up the Ethiopian Kaizen Institute (EKI) in November 2011 with the support of the Japan International Cooperation Agency (JICA), the Japanese foreign aid arm.  Kaizen was found to be suitable to the economic and social development policy and strategy the government of Ethiopia pursues. The Institute announced recently its plans to make Ethiopia the knowledge center for African Kaizen in the coming five years. For its implementation, various universities have already been selected to train post graduate students in the field of KAIZEN. Capital’s Eskedar Kifle sat down with Getahun Tadesse, the Director General of the Ethiopian KAIZEN Institute to discuss its accomplishments and plans in the future.

Excerpts: Capital: What does KAIZEN means? What are  its origins and how was the decision to implement it in Ethiopia taken?

Getahun Tadesse: KAIZEN is a Japanese leadership philosophy which employs an alternative system from western ways of leadership as it has its own procedures and techniques. It is a system of continuous improvement in quality, technology, processes, company culture, productivity, safety and leadership. To implement this system, all that is needed is to have a change of attitude and knowledge of the system. The application of KAIZEN started in the 1950s after the industrial revolution. Following the defeat of Japan in World War II, cheap goods were produced in the country and were unreliable, preventing Japan from competing at the international level, and nobody wanted to buy products manufactured there. This became a matter of great concern to the Japanese and they wanted to change the whole system. They decided to learn from the west and studied how countries in that region worked on quality control and they brought such knowledge into their own country. They mixed what they learned from the west with their own ideas and established a quality and productivity control system and implemented it at the national level. Through the implementation of KAIZEN Japan was able to produce goods that are sought out all over the world. Now ‘Made in Japan’ simply means high quality and standards. The philosophy was introduced in Ethiopia after the Tokyo International Conference for African Development (TICAD) held back in 2008. The late Prime Minister Meles Zenawi attended the conference and was aware of African countries that have been successful through KAIZEN, including countries such as Egypt and Tunisia. After hearing the reports on the successful application of KAIZEN in African countries and conducted studies, the PM approached the Japanese government and asked for cooperation regarding the implementation of KAIZEN in Ethiopia. Through the assistance of the Japan International Cooperation Agency (JICA), the government of Ethiopia transferred KAIZEN to the country, established an institution and then started to implement it.

Capital:  How do you collaborate with JICA?

Getahun: JICA provides technical assistance. They deploy experts to our country and conduct the required trainings. Right now there are around ten consultants working with us. It is all about capacity building. Capital: Through the capacity building trainings JICA provides, has the Ethiopian KAIZEN Institute managed to produce its own local experts who can train others? Getahun: Through the first project that lasted from 2009 to 2011, we have managed to acquire basic knowledge on how to implement KAIZEN and how to train people. We applied great effort and developed manuals and other helpful documents and used them to train employees in various companies on how to successfully implement KAIZEN. It has been only about a year since the institute came into existence and during this short period of time, we have set up a structure and trained numerous young people, accomplishing quite a lot.

Capital: Where has the institute implemented KAIZEN?

Getahun: We have given priority to strategic institutions, those that undertake investments on a large scale and are operating in the manufacturing sector. I can say that we have done a lot in the sugar industry. These industries are huge, not just in investments, but also in the number of work force they employ, which is in the tens of thousands. Producers such as Wonji, Metehara, Fincha and recently Tendaho can be cited as examples. In these companies we have worked a lot in the development of the KAIZEN work culture and continuous improvement. We provided trainings to everyone. Through these efforts, the companies have been able to register big changes and we have awarded them in recognition of this fact. Now we have started to get involved in the construction industry and the government’s low cost housing development project. The government wants to provide houses in a cost-effective manner to residents while maintaining a certain level of quality. We are working together to make that happen. Capital: Does the Institute approach companies or is it vice versa in regards to training? Getahun: The companies approach us for our services. Everyone wants to implement KAIZEN, but we do not yet have the capacity to provide services to all that are asking for it at once. Therefore, we have come up with a set of criteria to screen them.

Capital: What are the criteria? 

Getahun: There are two ways in which we go about it. If it is on a project level where JICA is involved, the companies need to be located and operating in Addis Ababa and its surrounding areas. This is because JICA consultants do not work outside of these locales. The second criterion is that the companies have to be middle and big scale companies and need to have a real desire to implement the KAIZEN philosophy. If the Japanese are not involved and the Institute is working on its own, we focus on industries that have been given priority in the Growth and Transformation Plan (GTP, which is currently the manufacturing sector, especially those companies whose products are thought to substitute imported products and whose products can bring in a lot of foreign currency to the country. We also work on helping Small and Micro Enterprises (SMEs) indirectly. We train bodies that do consulting works for SMEs. It can be said that we are overwhelmed by requests from different companies but we have to prioritize.

Capital: In the future, are you planning to offer your services to small scale companies?

Getahun: Right now, what we are planning to do is train institutions that support different industries. For example, for the textile industry there is the Ethiopian Textile Industry Development Institute (TIDI); when it comes to leather, there is the Leather Industry Development Institute (LIDI), and so on. We have to work with these institutes, because if we plan to reach every available company, we will never be able to cover all areas. We also have to branch out to serve industries located in other regions of the country and not just focus on Addis Ababa and its surroundings. There are many companies that operate on a large scale in different regions, especially those involved in agriculture. In the regional states, there are different managing institutes, and we have extensive plans to work with them so that they can effectively implement KAIZEN across the country. That is what we are planning to do in the near future. These institutions need to become knowledge centers, and they need to build their capacities to be able to assist the different sectors. KAIZEN philosophy is something that can be applied in all places, even at the household level; it can be applied on an individual basis also. Like I said, it is all about a change of attitude. It has to be implemented in schools, at the kindergarten level, primary and secondary education level and then in universities. It can be, and should be, applied in all things. It also needs to be translated into the different Ethiopian languages. For all this to happen, we need to build our capacity.

Capital: During its one year operation what would you say is its biggest accomplishment?

Getahun: The fact that the institute has been established by itself is a big accomplishment I believe. Then comes the way we have been able to train young people who we usually recruit right after school, and instructing and guiding them to become experts; they have gone on to consult big companies on KAIZEN, and that is a big accomplishment as well. Another thing we consider as a big achievement is the way we introduced KAIZEN. We extensively used the media. The promotion and communication work we have been doing has been successful and seeing companies implementing KAIZEN successfully and being recognized for it on a national level as performing a good job is a great accomplishment.

Capital: How many people have been trained by the institute so far?

Getahun: Over all, last year we managed to train around 11,000 people and established over 1,500 KAIZEN groups and out of these we have recognized 395 KAIZEN development groups for showing the most success in implementing the philosophy.

Capital: What is the difference between Business Process Re-engineering (BPR) and KAIZEN? Is the latter one better?

Getahun: After Japan became extremely successful with the application of KAIZEN, the country was able to penetrate the international market, especially the U.S market, with its products. That was when the U.S started to rethink its approach in production, and through that BPR came into existence, they had to re-engineer the whole system. BPR is also successful in this way. There are some basic differences between BPR and KAIZEN. When you look at the way KAIZEN works, its first focus is on people, changing people’s attitude and building their capacity. The Japanese say “Before we make cars, we make people”. This means first developing the human capacity, then KAIZEN looks at the overall process. When you look at BPR, the system first looks at the working process, then quality, production, and so on.

Capital: Why is KAIZEN better for Ethiopia?

Getahun: A lot of people ask this question. They say, at the beginning all the talk was on BPR and then now there is KAIZEN. It is a good question. When the government became aware of BPR, it brought the concept to Ethiopia and implemented it. It actually has been very successful in different governmental offices. In the past, it took a lot of time just to obtain a Kebele ID card. Now, it only takes a few minutes. This is one of the results of the implementation of BPR. The problem is not BPR in itself but, because it wasn’t implemented effectively, as it should be. That’s why it has not shown more progress. When the government discovered KAIZEN, it brought it to the country. So, it has not discarded BPR as such; we are just working together on the success stories of BPR and making it better through the implementation of KAIZEN. We were not able to bring the kind of change needed through BPR, but now we have been able to do that through KAIZEN. KAIZEN philosophy states that there is always a better way of doing one thing; it encourages people to choose the better way. Do not linger in status quo; it kills people and it erodes knowledge; therefore, there needs to be continuous improvement.

EKI FACTS

• The major objective of the institute is to carry out broad-based activities of ongoing quality and productivity improvement, thereby enhancing the expansion of competitive industries.
• The institute was established as a center of excellence to transfer, disseminate and customize Kaizen.
• In the short term, EKI will focus on transferring Kaizen from the origin without omission through the assistance of JICA, self-learning and practice. This shall be followed by dissemination and customization of the philosophy to the realities of Ethiopia.
• In the long term, Ethiopia KAIZEN shall be developed based on the practical experience gained.
• The roadmap of Ethiopian KAIZEN is simultaneous actions in capacity building, implementation and sustainability.

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• Abe Offers $32 Billion to Africa as Japan Seeks Resources
• The philosophy of continuous improvement
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• Corporation striving to boost sugar dev’t projects

Written by  Berhanu Fekade

-    Two projects being studied for possible irrigation of 11.3 thousand hectares

 
The Ministry of Water and Energy has appointed a state-owned local enterprise and a foreign consultancy firm to undertake feasibility studies regarding the planned construction of a hydropower-generating dam, with the capacity to produce some 1060 MW of electric power, The Reporter has learnt.

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• http://www.mowr.gov.et/index.php?pagenum=0.1&ContentID=92
• World Bank, AFDB to Fund $1.26 Billion Ethiopia-Kenya Power Line
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• Nile | China provides $1 billion for Renaissance dam Transmission lines
• Ministry constructing Rib and Gidabo irrigation dams
• http://www.skyscrapercity.com/showthread.php?p=105408244

By VICTOR JUMA

In Summary

Bamburi Cement, for instance, is fighting a Sh3.9 billion claim by KRA after an assessment done in February 2012.

The taxman is seeking to recover from the cement firm Sh2 billion in principal and another Sh1.9 billion in penalties and accrued interest on its corporate tax, income tax, VAT and withholding tax for 2007 to 2011.

Bamburi made the disclosure in its latest annual report where it said it expects to quash the claim in a legal battle.

Kenya Airways, Total Kenya and Airtel Kenya are other big firms that have had to fight multi-million-shilling assessments from the taxman that is facing off with numerous taxpayers in courts and tribunals.

                               vjuma@ke.nationmedia.com

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Ethiopia Related

• Government relaxes dividend tax collection plans
• Government to slash mining income tax
• Report Claims Tax Havens Cost Africa $38 Billion a Year
• Tougher standards to fight corruption in the resources industry
• Ethiopian Corruption Watchdog Arrests 51 Suspects
• How Big is Corruption in Ethiopia? $16.5 Billion Lost to Illegal Smuggling of Cash
• Oromia purges 82 individuals for corruption
• Ethiopian Federal Ethics and Anti-Corruption Commission Goes Big – ERCA heads detained
• HMRC to help Ethiopia and Tanzania collect taxes
• Transparency International cites defense corruption in Ethiopia
• Anti Corruption Measures Needed In Ethiopia – A Top Down Approach

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• Ethiopian Government to Make WTO Offer on Services by September
• AfDB signs a USD 100 million Risk Participation Agreement with Commerzbank AG to support Trade Finance in Africa (allanapotashblog.org)
• Africa’s economy ‘sees rapid growth’ (bbc.co.uk)
• African Development Bank and United Nations University sign memorandum of understanding on sustainable development in Africa (newstimeafrica.com)
• Ethiopia to stage regional Banking and ICT conference
• UNCTAD – Inter-African Trade Too Thin
• The reality of regional integration on the African continent
• Renminbi rising
• World Bank sees China, Ethiopia as good fit
• Li urges further Ethiopian ties
• Exim Bank of India extends $300-m credit line to Ethiopia for rail link
• Ethiopia builds infrastructure for growth
• African Development Bank to Launch 20 Billion US Dollars Infrastructure Financing Vehicle
• Djibouti to Raise $5.9 Billion From Investors for Infrastructure
• Africa 2013 endorses urgent action for Africa’s infrastructure development
• Africa: Stakeholders call for accelerated implementation of infrastructure
• AfDB infrastructure bond plan nearly ready
• BRICS plan development bank to fund infrastructure
• Kenya Plans to Sell Sovereign Bond to Fund Infrastructure Plans
• A role for PPPs in African infrastructure

• Africa has an opportunity to revolutionize agricultural productivity and end poverty
• But land governance needs to be improved
• A new report outlines challenges and describes solutions to scale up land reforms in Africa for shared prosperity

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• From policy to action: promoting equitable land ownership in Ethiopia and Rwanda
• Ethiopia Launches Land Administration to Nurture Development Program
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• World Bank Group: Access to Land is Critical for the Poor
• Expanding Land Deals Oblige Institutional Reforms
• http://r4d.dfid.gov.uk/PDF/Outputs/Mis_SPC/FinalReportSecuringLandRightsinAfrica3.pdf
• Africa’s food imports on the rise

Above pictured: Sheraton Addis, Addis Ababa, Ethiopia

Hilton Worldwide (Photo credit: Wikipedia)

Marriott International Inc. (MAR), Starwood Hotels & Resorts Worldwide Inc. (HOT) and Hilton Worldwide Inc. are turning to Africa, where a growing middle class and rising travel are fueling the fastest pace of hotel development in the world.

Marriott has increased the number of hotel rooms it plans on the continent by 55 percent from last year. For Starwood, revenue per available room in Africa and the Middle East is the highest of any region worldwide. The high-end Transcorp Hilton Abuja, in Nigeria’s capital, commands some of the steepest management fees in the world for its operator, according to Lagos, Nigeria-based hotel-consulting firm W Hospitality Group.

Hotel investors and operators, finding growth slowing in mature European and U.S. markets, are expanding in Africa as the continent is buoyed by increasing trade with countries including China and rising demand for services such as lodging. More than half of Africa’s countries probably will post gross domestic product growth of 5 percent annually through 2016, Economist Intelligence Unit Ltd. said.

“Africa’s middle class is almost as large as the entire populations of Russia and Brazil combined,” Hassan Ahdab, Starwood’s regional vice president for the African and Indian Ocean region, said in an e-mail. “The boom in sub-Saharan Africa is attracting business talent from the rich world.”

The sub-Saharan region includes Kenya and Tanzania in the east, Nigeria in the west, Angola in the southwest, and South Africa and Botswana in the south.

Young Population

Urbanization in Africa is being driven by one of the world’s youngest populations, said Trevor Ward, principal at W Hospitality, citing data from the International Monetary Fund. People of working age moving to cities has resulted in 40 percent of Africa’s population living in urban centers today, compared with 30 percent in India, he said.

The median age in Ethiopia and Nigeria is 18, compared with 37 in the U.S. and almost 46 in Japan and Germany, according to the Central Intelligence Agency’s World Factbook. Forty-nine African cities have populations of more than 1 million, with five of those home to more than 7 million, according to a 2012 study by London-based research firm Economist Intelligence.

Those demographic trends, combined with rising exports of oil and minerals from such countries as Nigeria and Angola, are lifting domestic and international business demand for lodging, according to Ahdab.

“Business schools, including the London Business School, are now getting in on the game and offering Africa-specific seminars, training and clubs,” he said. “For many of these business students, Africa is like India and China 10 years ago.”

Outperforming Asia

Growth on the continent is most dramatic in sub-Saharan Africa. Planned developments, which include new properties by luxury-hotel operator Kempinski in Nairobi, Kenya, are up 23 percent from last year by number of rooms, compared with a 9 percent increase in North Africa, which is a bigger, more mature lodging market with such tourist draws as Morocco and Egypt, Ward said.

In the Asia-Pacific region, planned hotels are up 8.5 percent, while in Europe the increase is 4 percent, according to Hendersonville, Tennessee-based research company STR.

Rising numbers of leisure travelers from abroad to eastern and southern Africa also are boosting demand for hotel rooms. In Rwanda, tourism income probably will grow to $440 million in 2014 from a projected $317 million this year, the Rwanda Development Board said in May.

Tourism Growth

Tourism revenue in Kenya is forecast to rise to more than 100 billion shillings ($1.15 billion) this year from 96 billion shillings in 2012, the country’s tourism authority said last month. In South Africa, tourist arrivals rose 10 percent to a record 9.19 million last year, driven partly by an increase in visitors from Asia, President Jacob Zuma said in April.

“When it comes to Africa, many people have tended to focus on the negative — the wars, the corruption,” Ward of W Hospitality said in a telephone interview. “But there is not that much opportunity left in the more-developed markets like Europe and in the U.S. for new hotel developments. Today, Africa is seen as a big blank block on the map where hotel companies need a presence in.”

With seven of the 10 fastest-growing countries in the next five years likely to be in Africa, average growth on the continent probably will outpace Asia’s, according to IMF data.

Northern Africa

In northern Africa, a region that includes Egypt, Morocco, and Algeria, hotel revenue per available room, an industry measure of occupancies and nightly rates, surged 16 percent in the first five months of 2013 from a year earlier, the biggest gain after southeastern Asia among 15 regions tracked by STR.

Limited competition, which allows hoteliers to charge high room rates, coupled with low labor costs are driving lodging profitability in Africa, Ward said.

Among the largest hotel operators in Africa is Hilton. The McLean, Virginia-based company, owned by U.S. private-equity firm Blackstone Group LP (BX), has the most rooms planned on the continent, with a pipeline of 6,230 at 23 hotels, according to a W Hospitality survey. That’s up 84 percent from the number of rooms Hilton had planned last year.

The hotelier plans to eventually have properties in all of Africa’s key cities, according to Rudi Jagersbacher, Hilton’s president for the region. This year, the company opened its second hotel in Alexandria, Egypt — the Hilton Alexandria Corniche, which has ocean views and an infinity pool overlooking the property’s private beach.

“Growth, particularly in the key business, government and commercial cities, is fueling the demand for quality hospitality,” Jagersbacher said in an e-mail.

‘Leading Hotel’

In Abuja, a shortage of high-end hotels combined with rising demand allows Hilton to charge more than $400 a night for its rooms — and lets the hotelier collect some of the highest management fees in the world.

“Transcorp Hilton Abuja is the leading hotel in Nigeria’s capital city,” with 670 rooms and the largest meeting and convention facilities in the country, said Jagersbacher, who declined to discuss how much his company is paid. “The management fees are set according to the quality and size of the property.”

Groupe du Louvre, owned by an affiliate of Barry Sternlicht’s private-equity firm, Starwood Capital Group LLC, has a pipeline of 2,290 hotel rooms, more than doubled from last year, according to W Hospitality. Louvre owns such luxury brands as Concorde Hotels & Resorts, which has two locations in Egypt. The hotelier has 17 African properties planned.

Ethiopian Hotels

Marriott plans 3,900 rooms at 22 hotels, W Hospitality said. The most recent transactions on the continent for the Bethesda, Maryland-based company — the U.S.’s largest publicly traded hotel chain — include a November agreement to open a 150-room luxury hotel in Lagos, and the May 2012 announcement of a management agreement for two hotels in Ethiopia being built and financed by local developer Sunshine Construction (Pvt) Ltd.

At Starwood Hotels, based in Stamford, Connecticut, average room rates at properties in Africa and the Middle East were $209.87, and revpar was $136.69, in the fourth quarter, the latest period for which the data are available, according to a quarterly filing. The figures were the highest among the five global regions Starwood Hotels breaks out.

Starwood Hotels, which is scheduled to open a new St. Regis in Cairo in March 2015, plans to increase its number of properties in Africa to 50 by 2016 from 38 today.

‘Encouraging Signs’

“I saw encouraging signs during our recent market visit to South Africa, Angola, Nigeria and Gabon,” Chief Executive Officer Frits van Paasschen said during an earnings conference call with investors in February. “Africa is the one region that was left behind by global development in the last 20 years, but we see that changing.”

Already, demand can overwhelm supply at times. In Tanzania, the Hyatt Regency Dar es Salaam, the Kilimanjaro, and the Dar es Salaam Serena Hotel both faced room shortages during U.S. President Barack Obama’s recent African tour, according to the properties’ reservation workers.

The continent is not without challenges for hoteliers. Not all African countries are growing at the same rate, with a lack of economic activity or political instability affecting some areas, Ward said.

Egypt Unrest

In Egypt, tourism has been hurt by the unrest that led to the military’s ouster this month of President Mohamed Mursi. Occupancy in the nation this year through May was the second-lowest among the 12 countries in the region STR tracks, at 52 percent. Bahrain was lowest at 49 percent.

Kenya’s economic growth rate was little changed in the first quarter as businesses were held back by the prospect of unrest and instability before elections, the Nairobi-based Kenya National Bureau of Statistics said on June 28.

“You have 54 countries, and the situations in each can vary greatly,” Ward said. “You’ve got so many small countries, land-locked countries with few natural resources and no access to any ports. The demand there will never be as great as in coastal areas or resource-rich countries.”

Hyatt Hotels Corp. (H), which has six high-end hotels on the continent and two under development, both in Morocco, is careful where it chooses locations for expansion with “intense competition” for the right opportunities, said Peter Norman, senior vice president of acquisitions and development for Europe, Africa and the Middle East. The Chicago-based company plans to open hotels in cities such as Lagos; Nairobi; Addis Ababa, Ethiopia; Accra, Ghana; and Cape Town, to capitalize on Hyatt’s customer base in China.

“Chinese business travelers are increasingly traveling in line with their investments, and as we know a lot of Chinese capital has been flowing into Africa recently,” Norman said in an e-mail. “Our strong development pipeline in China supports our expansion into Africa. By building preference amongst Chinese business travelers at home, we will encourage them to visit Hyatt hotels when they are abroad.”

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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Sourced from Ethiopian Herald here: 

http://www.ethpress.gov.et/herald/index.php/herald/development/3348-water-resources-and-irrigation-development-in-Ethiopia

Ethiopia is the second most populous country in Africa (Awulachew et al. 2005). According to the Central Statistical Agency of Ethiopia projection (CSA 2005) from the 1994 census, the total projected population in Ethiopia for 2006 was estimated to be 75,067,000, about 85 percent of which lives in the rural areas depending on subsistence agriculture.

Ethiopia covers a land area of 1.13 million km2, of which 99.3 percent is a land area and the remaining 0.7 percent is covered with water bodies of lakes (MOWR 2002). It has an arable land area of 10.01 percent and permanent crops covered 0.65 percent while others covered 89.34 percent.

According to the World Bank, the per capita income in 2005 was $160 per year. The agricultural sector is the leading sector in the Ethiopian economy, 47.7 percent of the total GDP, as compared to 13.3 percent from industry and 39 percent from services (World Bank 2005).

Though agriculture is the dominant sector, most of Ethiopia’s cultivated land is under rainfed agriculture. Due to lack of water storage and large spatial and temporal variations in rainfall, there is not enough water for most farmers to produce more than one crop per year and hence there are frequent crop failures due to dry spells and droughts which has resulted in a chronic food shortage

Ethiopia has an extremely varied topography. The complex geological history that began millions of years ago and continues, accentuates the unevenness of the surface; a highland complex of mountains and bisected plateaux characterizes the landscape. Interspersed with the landscape are higher mountain ranges and cratered cones. According to some estimates about 50 percent of African mountains, about 371,432 km above 2,000 meters, are confined within Ethiopia (FAO 1984). Altitude ranges from 126 meters below sea level in the Dalol Depression on the northern border, to the highest mountain, Ras Dashen in the Semien Mountains north of Lake Tana rising

to 4,620 m.a.s.l. The plateau in the northern half of the country is bisected by the Ethiopian Rift Valley, which runs more than 600 km north–northeast of the Kenyan border to the Koka Dam on the Awash River south of Addis Ababa. The rift then descends to the northeast and its lateral escarpments begin to diverge from each other crossing the Afar Depression towards the Red Sea coast (Ayenew et al. 2005).

Based on Global Precipitation Climatology Centre (GPCC http://gpcc.dwd.de) data, we have derived climatological data. Accordingly, the mean annual rainfall is 812.4 mm, with a minimum of 91 mm and a maximum of 2,122 mm; with a highest rainfall ranging from 1,600–2,122 in the highlands of the western part of the country, and a lowest rainfall from 91-600 mm in the eastern lowlands of the country. The mean annual temperature is 22.2 degrees celcius. The lowest temperature ranges from 4-15 degrees celcius in the highlands, and the highest mean temperature is 31 degree celcuis in the lowlands at the Denakil Depression.

It is expected that through an optimal development of water resources, in conjunction with development of land and human resources, a sustainable growth of food production can be achieved.

Since the mid-1980s, the Ethiopian government has responded to drought and famine through promoting and construction of irrigation infrastructure aimed at increasing agriculture production.

These are traditional, small, medium and large-scale irrigation schemes performing at different levels.

Irrigation development has positive socio-economic and some negative environmental impacts. Formally accounted overall irrigation development is estimated at some 5 – 6 percent of the developable potential of 3.7 million ha.

The irrigation area in year 2002 was 197,000 hectares with a coverage distribution of 38 percent traditional, 20 percent modern communal, 4 percent modern private and 38 percent public schemes(MoWR 2002). The revised figure puts the total irrigated area at about 250,000 hectares (Awulachew

et al. 2005). This number gives a per capita irrigated area of about 30 m2. This value is very small compared to 450 m2 globally. The targeted growth expansion (according to the 2001 Water Sector Development Plan), is also not significant and not expected to bring a significant change and the much-needed economic growth. Considering the population growth as per table 1 and the targeted development of the 2002 water sector development strategy, the per capita irrigated area only reaches 45 m2 per head by the year 2015 and does not move the sector significantly. Therefore, given extreme meteorological and hydrological variability in Ethiopia, it is important that significant attention be given to enhance better water control, use and management of the water resources for agricultural production through irrigated agriculture. Corollary to this, the revised strategy, according to Plan for Accelerated and Sustained Development to End Poverty (PASDEP) (MOFED 2006), puts the large and medium-scale irrigation growth by year 2010 at an additional 493,000 hectares, which is an improved plan on previous strategy.

The project related to this paper known as “Impact of Irrigation on Poverty and Environment (IIPE)” is sponsored by the Austrian Government to be executed by the International Water Management Institute (IWMI) in collaboration with Austrian and Ethiopian Universities, Research Institutions and relevant ministries in Ethiopia. One of the expected outputs of the project is to establish a comprehensive data and information database on irrigation and drainage sub-sector.Often the availability of reliable and consistent data and information on surface and ground water is one of the basic requirements for development, use and management of water resource, in order for water managers to make well-informed decisions, as well as for researchers to make proper analysis and arrive at reasonably accurate conclusions.

In Ethiopia, the major problems associated with the generation of reliable data and information on water resources management consists of a lack of consolidated strategy, including institutional linkages, processes of collection, storage, analysis, and dissemination. A clear example of this is the lack of consistent and reliable figures on irrigated agriculture from various sources in Ethiopia.

Recognizing this fact and in an effort to contribute to the knowledge base of the water sector of the country, IWMI (together with other partners) has conducted a survey on existing small, medium and large-scale irrigation developments in Ethiopia and created a database in Geographic Information System (GIS). The creation of this database on irrigation and drainage is the first of its kind in putting together the existing data in an organized manner and make it available for end users.

The database contains spatial data of river basins, river networks and existing irrigation schemes (small, medium and large-scale) in each administrative region of Ethiopia; and the potential that can be realistically irrigated in each river basin. Although the already developed database is a very useful output, it is considered as an evolving working document which will be updated from time to time as additional information and recent developments emerge. The accompanying sections therefore discuss the general water resources information of Ethiopia and specifically discuss the potential and development of irrigation identified by regions and basins as well as aggregate values at national level. As much as possible, the irrigation potential and development are geo-referenced and mapped in GIS environment. The resulting Geospatial Database, maps and Microsoft Access database, which are already shared with regional government bureaus and federal ministries, can provide invaluable and harmonious information systems that can be updated from time to time, as new schemes are put in place.

Water resources

Surface water resources: river basins

The country has 12 river basins. The total mean annual flow from all the 12 river basins is estimated to be 122 BMC (MoWR 1999). This could be further refined when data on recent master plan studies becomes available.

At present, surface water and meteorological data are collected and processed on a regular basis through existing hydro-meteorological networks.

The idea of a river basin, despite its physical or natural attributes, is more than an engineering concept and encompasses the magnitude and dynamics of a resource that must be harnessed for the common good (Molle 2006). It has often been advocated that the most logical unit for water resources planning and optimum utilization of available water resources is the river basin.

Accordingly, it is desirable that all major river basins in Ethiopia have an integrated development master plan study, and their potential in terms of economic development be known.

Surface Water Resources: Lakes and Reservoirs

Ethiopia has 11 fresh and 9 saline lakes, 4 crater lakes and over 12 major swamps or wetlands. Majority of the lakes are found in the Rift Valley Basin. The total surface area of these natural and artificial lakes in Ethiopia is about 7,500 km2. The majority of Ethiopian lakes are rich in fish.

Most of the lakes except Ziway, Tana, Langano, Abbaya and Chamo have no surface water outlets, i.e., they are endhoric. Lakes Shala and Abiyata have high concentrations of chemicals and Abiyata is currently exploited for production of soda ash.

As compared to surface water resources, Ethiopia has lower ground water potential. However, by many countries’ standard the total exploitable groundwater potential is high. Based on the scanty knowledge available on groundwater resources, the potential is estimated to be about 2.6 BMC (Billion Metric Cube) annually rechargeable resource; which provides a little higher value.

Though the country possesses a substantial amount of water resources little has been developed for drinking water supply, hydropower, agriculture and other purposes. The water supply coverage was estimated to be 30.9 percent, thus the rural water supply coverage being 23.1 percent and that of urban being 74.4 percent (UNESCO 2004). PASDEP envisages that the unserved population will be reduced to 15.5 percent by 2009/10 showing more people being served than planned by MDG (Millennium Development Goals) by year 2015. The goal during PASDEP is also to reduce the share of malfunctioning rural systems from 30 percent in 2005/06 to 10 percent by 2010 (MOFED 2006). The great majority of the rural Ethiopian population community water supply relies on groundwater. The safe supply of water in rural areas is usually derived from shallow wells, spring development and deep wells. People who have no access to improved supply usually obtain water from rivers, unprotected springs, hand-dug wells and rainwater harvesting. Despite its immense relevance and importance, the groundwater sector has been given less attention until recently.

In order to utilize the ground water resource properly, understanding of the groundwater occurrence and distribution in space and time, proper management and efficient exploitation is necessary. The available studies on the groundwater resources of the country are very limited, in that, the delineation of aquifer systems, the water balance and determination of the aquifer characteristics has not been conducted. Any sustainable utilization of groundwater resources demands systematic study and raising the technical and manpower capability. In this regard the country has a long way to go, yet.

The conditions of sanitation are even worse in Ethiopia. The sanitation coverage in the capitalAddis Ababa, which is believed to have better service, was estimated at 12.5 percent (MoH and World Development Report 1997). The welfare monitoring survey (CSA 1998) pointed out that, out of this, 11 percent of the households have flush toilet, 73.3 percent of the households have pit latrine, 3.1 percent of the households use household containers,10.5 percent of households use open defecation (field and forest) and 2.2 percent of the households use other means. Re-use of treated waste water could provide an additional potential of water for irrigation.

Ethiopia’s energy sector, like in many other Sub-Saharan countries, depends highly on biomass despite the immense hydro-power resource of the country. According to Halcrow and MCE (2006),in 2000, 73.2 percent of energy came from woody biomass, 15.5 percent from non-woody biomass (cow dung 8.4 percent, crop residue 6.4 percent, and bio-gas 0.4 percent), petro fuels 10.3 percent and hydropower 1 percent. These are used in households, agriculture, transport, industry, service and others. By end of 2005, over 95 percent of the 1 percent of total energy coming from electricity was generated by hydropower. According to Beyene and Abebe (2006), the Interconnected System

(ICS), amounts to 769 MW, coming from 8 hydro, 5 diesel-powered and 1 geo-thermal plants, and the Self-Contained System (SCS) amounts to 23 MW coming from 3 small hydro and several small diesel plants, which brings the total electrical energy generation of 791 MW. The gross hydropower potential of the country is estimated at 650 Terra Watt Hour (TWh)/year. Out of this potential, about 160 TWh/year is believed to be technically and economically exploitable. However, the total installed capacity of the ICS and SCS is 791 MW, which is less than 2 percent of the potential.

The existing transmission system voltage in the ICS is 230 KV. According to MoFED 2006, the government having recognized the power shortage and its role in the economic development of the country is developing a number of hydropower projects. In total, generating capacity is to be increased to about 2,218 MW during PASDEP period (2009/10). The achievement of this is well underway from the existing systems which are under construction of large and medium-hydropower construction projects.

Based on the present indicative information sources, the potential irrigable land is about 3.7 million hectares. This figure is believed to be on a lower side, and could change as more reliable data emerge particularly on small-scale irrigation potential. Section “Irrigation Potential in River Basins of Ethiopia”, is fully devoted to the irrigation potential of Ethiopia. The area under irrigation development to-date, obtained from different sources is estimated to range between 160,000 – 200,000 hectares. At present some 197,000 hectares of land is under irrigation Solomon 2006. Estimates of the irrigated area presently vary, but range between 150,000 and 250,000 hectares less than five percent of potentially irrigable land (Werfring 2004; Awulachew et al. 2005). In this project, we have developed a database, as a starting point of shared information. Estimates of the irrigated area according to this database (based on the data reported by the MoWR), is 107,265.65 hectares, which is less than 5 percent of the potential. This database does not contain schemes which are under construction, or inoperational/suspended for some reasons. Details of the irrigation development are provided in the section “Irrigation Development in Ethiopia”.

The above figures clearly indicate the extent and magnitude of the need for accelerated development and management of the available water resources of the country. Hence, given the rapidly growing population in the foreseeable future, these resources will have to be tapped and harvested in order to attain food security, overcome the effects of climate change and variability, maintain sustainable industrial growth and improve the overall standard of living of the people of Ethiopia.

Constraints of Water Resources Development in Ethiopia are numerous. They fall in one of the general categories of legal, political, social, institutional or technical. These require careful consideration and need to be supported by applied research if the required level of development is to be ensured.

Increasing the role of applied research is one of the means to alleviate the problems encountered in the water sector. Irrigation and drainage research is considered as part and parcel of water resources research. Significant research activities have not yet been undertaken on irrigated crops.

This is because, unlike the agricultural and health sectors, institutionalized water research in Ethiopia does not exist, as it is the case in most parts of Africa and underdeveloped countries.

Irrigation potential in river basins of Ethiopia

Summary of potential

In Ethiopia, under the prevalent rainfed agricultural production system, the progressive degradation of the natural resource base, especially in highly vulnerable areas of the highlands coupled with climate variability have aggravated the incidence of poverty and food insecurity. Water resources management for agriculture includes both support for sustainable production in rain-fed agriculture and irrigation (Awulachew et al. 2005). Not overlooked should be soil protection and maintaining soil fertility.

Currently, the MoWR (Ministry of Water Resources) has identified 560 irrigation potential sites on the major river basins. The total potential irrigable land in Ethiopia is estimated to be around 3.7 million hectares.

( Source: working paper published by the international water management Institute, IWMI.)

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BY Kingsley Ighobor

It’s been a year since Carlos Lopes was appointed UN under-secretary-general and executive secretary of the Economic Commission for Africa (ECA), based in Addis Ababa, Ethiopia. As the head of ECA, he is in charge of promoting the economic and social development of Africa and fostering regional integration. In an interview with Africa Renewal’s Kingsley Ighobor, Lopes shared his thoughts on Africa’s current economic situation and his hopes for the future. The following are excerpts from the interview.

Carlos Lopes

The 2013 Economic Report on Africa appears to mirror the 2012 report. What has changed over the past year?

Not necessarily on the economy, but in terms of the mentality and the priorities, there is a sea change taking place. We are working with the African Development Bank and the African Union Commission on something called Vision 2063 – 50 years from now. We got African ministers of finance to approve the idea of transforming African economies and shift from agriculture into industrial and service sectors. This has to be done now for three reasons. First, it’s because you do your big transformation when you are on a growth path, not when you are in recession. Second, you transform when you actually have an increasing urban population, which is what is happening now in Africa. And third, you do it when there is a good macroeconomic environment, which we do have. Our reserves are now at an all-time high – half a trillion dollars. We have inflation around 7% on average. We have managed to get the regulatory system right, particularly on the financial sector. Budget deficits are under control. We are saying that industrialisation is the key driver of this transformation.

At the macroeconomic level, a lot of progress has been made. But there is still joblessness.

First of all, what is the value of labour statistics in Africa? The definition of employment as applied in other regions has very little currency in understanding the current reality in Africa. Right now we have a major statistical problem on the continent. So you are talking about not knowing, apart from guessing games, the real characteristics of the composition of GDP in African countries. Demographics – same problems. You have only about 12 African countries that have done a census in the last 10 years. The quality of methodological development in terms of checking the trends in census has not been followed in many countries, even those with the means to do so. For example, Nigeria is now revising its base years for national accounting.

Is that a reasonable thing to do in Nigeria? It seems like statistical manipulation – an arbitrary upward GDP revision.

We will come to that, let me address jobs. One of the areas where we have a weakness is precisely employment and labour statistics. We don’t know exactly how many people are really employed. If you take the statistics of South Africa you can be almost sure they are on the mark because they have more sophisticated machinery. For the rest, we have a guessing game. So to say it’s a jobless growth or a growth that is losing a lot of jobs – both are wild guesses. What we know for sure is that the population is increasing too fast and there is no historical precedent in the world where you have this kind of curve. This means we have to create 10 million jobs a year.

Most investments in Africa are in the extractive sector, which does not produce many jobs. Is it not possible we are experiencing a jobless growth?

Jobless growth? I don’t believe it! I think we are not creating as many jobs as required by the economy, but it’s not a jobless growth. Right now there are people that are occupied, not employed, and we don’t know the dynamics of the situation because we have not adapted labour statistics to capture the types of activities that typically an urban young African has. People are occupied but don’t have jobs. We don’t have a way of capturing these types of activities because it’s informal. Labour statistics are very scanty and static; they were designed for a reality that is not the African reality.

Your report calls for value addition to Africa’s commodities. This should be a common sense approach.

The conventional wisdom is that when you have a commodity boom you also have a commodity curse, and therefore it is very rare for commodity-rich countries to move into industrialisation. But historical facts demonstrate the opposite. A number of regions in the world, including this country [the United States], have developed their industries on the basis of commodities. So we have to be much more sophisticated in the way we deal with commodity-based industrialisation than in the past. First step, you assess what has happened; we have nine case studies [in the ECA report]. We look into what happened and then try to understand the mistakes made and the positives as well. Second, we say this is not just about regulation, but regulation plays a very important role, including sophisticated protectionism.

What is sophisticated protectionism?

Protection is not a bad word. But we should do it with sophistication, which means you have to have the right balance. Then we come to regional integration. You are not going to industrialise if each country tries to survive on its own little thing. For example, Togo wants to survive on toothpaste produced in Togo and Benin wants to produce its own. Some markets are big enough – certainly Nigeria. But the majority of the countries would not be in a position to take advantage of industrialisation if they don’t integrate regionally. We have been talking about regional integration for 50 years. Is it happening? Well, there has been progress but that progress is timid.

Sophisticated protectionism sounds like regulation. The World Trade Organisation is likely to oppose that.

But we are talking about the African agenda. The WTO is a negotiating platform.

The African economy is integrated in the world’s economy.

Integrated to a point. What you need is to make the case for an Africa agenda.

Can that case be successfully made?

Well, the EPA [Economic Partnership Agreements] discussion is still ongoing – so why not? There is no country in the world that has industrialised without sophisticated protectionism.

What about the argument that formulating new policies to regulate trade is anti–free market?

It’s not a matter of choosing between state and market as if these were two opposites. That discussion is over. Everybody agrees now that there is a role for the state and there is a role for the market. There are regulations that are necessary. This country [the US], Europe, Japan have done it. The moment they get in crisis, what do they do? They intervene in the banks and so on. So that discussion is over.

What about subsidies for farmers in the West, which tend to affect African farmers who cannot compete on the international market?

Africa will continue to fight. Maybe they will never succeed in that fight. They should not put their eggs into that basket too much.

By Philip Whiterow July 24 2013

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The private sector across the Common Market for Eastern and Southern Africa (COMESA) is set for a major boost following the signing of a development agreement between the regional economic community and the African Management Services Company (AMSCO)

The bloc’s secretary general Sindiso Ngwenya and AMSCO regional manager Abraham Lanor signed the deal on behalf of their institutions on 18 July 2013 in Zambian capital Lusaka (pictured).

AMSCO committed itself to providing training programmes to strengthen project support for private sector development across the COMESA member states.

AMSCO is a special purpose vehicle established by the International Finance Corporation (IFC) in the Netherlands, with the aim of serving as the operational unit of African Training and Management Services (ATMS) projects.

Lanor said his organisation was pleased to sign the agreement with COMESA as it would provide a platform for it to support economic development through the private sector.

“We have been waiting for this opportunity for some time. This agreement now makes it possible for us to get close to regional economic communities that have the mandate to promote regional integration through private sector driven economic development,” he pointed out.

Ngwenya cited numerous challenges that COMESA faced in the development of the private sector, including the lack of support to programmes and projects being undertaken by private sector in member countries.

Ngwenya remarked, “There is an apparent lack of skills among entrepreneurs in SMEs and this has adversely affected the achievement of the standards that the market requires.”

“The signing of the agreement marks an important step towards support for the private sector which COMESA undertakes key programmes in the region such as the leather and leather products, textile and garments and the agro processing sector,” he added.

Nawa Mutumweno

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The absence of an independent entity, according to cotton growers, has contributed to problems they faced in accessing seeds, pesticide control, skilled labour and a rather rough market.

By  Ashenafi Endale

Blen Tsegaye is a major shareholder and manager at Blen Tsegaye Business & Industry, a cotton grower that has been operating in Afar for the past seven years. The company has 1,500ha of land in Afar Regional State.

Blen says he has seen the good, the bad and the ugly moments. But, this time it is different, he feels. The company has 4,200ql of cotton in stock, for which it was unable to find a buyer. This is out of a total of around 12,000tns harvested between September to December 2012.

The September to December 2012 harvest was half of the 25,000ql harvested the previous year. The latest harvest, starting in the coming September, could also be around half of this last harvest

“Although our company produced lower than the previous year, it is difficult for us to find buyers these days,” Blen told Fortune. “Even when we get one, they buy in small amounts.”

If sold out, he could have made 12.2 million Br from the cotton in stock, he says. Currently, he sells a kilo of cotton for 29 Br.

The international market offered 2.2 dollars. In March 2013, cotton was selling for 3.95 dollars a kilo, while locally the growers were selling it for 47 Br, on average.

I expect a lot less production in the coming season, since we do not have enough money to prepare, Blen said.

Blen’s rather gloomy picture of the next cotton harvest season is also true for Ethiopia – a country that is expecting only 80,000tn for the next season from 125,000ha of land. This is despite the fact that the demand for cotton in the next season is estimated to be around 95,287tn. Such output is only slightly better than it was 30 years ago, when only state farms were in production under a military-Marxist regime.

Prior to 1967, Ethiopia had large-scale commercial cotton plantations in the Awash Valley and the Humera areas. Tendaho Cotton Plantation, in the lower Awash Valley, was one of Ethiopia’s largest cotton plantations. Rain-fed cotton also grew in Humera, Bilate and Arba Minch.

Since 1967, most commercial cotton has been grown on irrigated state farms, mostly in the Awash Valley area. Production jumped from 43,500tns, in 1974/75, to 74,900tns in 1984/85. Similarly, the area of cultivation increased from 22,600ha, in 1974/75, to 73,900ha in 2007/08.

Today, it is estimated that there is 2.6 million hectares of land suitable for cotton production. Demand and supply have been at odds since 2009, however, when the total national output was a meagre 21,000tns – one of the lowest figures ever. The total area harvested then was 42,371ha. That landmark year, the demand, 45,000tns, was more than twice the supply.

Ethiopia claims to have as much cotton production as Pakistan, the fourth largest producer in the world, after China, the US and India. Pakistan harvests 2.5 million to 3.5 million tonnes a year from 2.9 million hectares, according to a study conducted by the Ethiopian Investment Agency (EIA).

Despite this huge potential, things would slightly improve for Ethiopia in 2010/11.  At this time, they produced 51,000tns, falling short of the demand of the textile industry by 3,000tns.

The following year, 2011/12, the total production stood at 79,710tns. The demand was forecast to be 85pc of this, or 67,753tns. Eventually though, textile factories could only buy 50,000tn, 17,753tns lower than the demand. The producers were left with a surplus of 29,710tns.

In November 2010, the government banned the export of cotton, promising the growers that they would still be able to sell their cotton at an international rate of 42.78 Br a kilo. When the surplus production piled up, the export ban was lifted.

The lifting of the ban did not lead to bigger exports, however, as the result of stringent requirements put in place by the government and the procedures that were set in place.  These were adopted in order to protect the textile factories from shortages, but ended up affecting the growers, according to Gebreegziabher Kidane, a senior expert at the Agricultural Investments Directorate at the Ministry of Agriculture (MoA).

“I am discouraged by the difficulty and the long processes involved in exporting cotton,” said Blen.

Ethiopia only secured 4.1 million dollars from cotton exports in the 2012/13 fiscal year, by exporting 2,460tns. This was much lower than the revenue gain prior to the crisis.

To the dismay of Blen and the 1,119 other cotton growers in the country, however, the projection for 2012/13 seems to be no different.

The MoA has planned to increase the cultivated land of cotton to 125,000ha and produce 80,000tn of cotton, according to data obtained from the Ministry. This is for the projected 95,287tn of cotton calculated to be in demand. This figure is based on the production capacities of the 19 textile factories, which total 79,409tn of yarn on a yearly basis.

The fluctuation of cotton production was largely attributed, by most of the cotton growers Fortune talked to, to the absence of a regulatory body.

The problem has been created by the absence of a regulator for the sector and a lack of coordination among the different government institutions, Blen told Fortune.

Although a bill was drafted four years ago to establish a regulatory body, it was not implemented until three weeks ago.

After amending the proclamation for the establishment of the Textile Industries Development Institute (TIDI), the government decided to move the regulatory function of cotton from the MoA to the Ministry of Industry (MoI).

Established in 1999, the TIDI is one of the catalysts towards achieving the textile industry sub-sector’s goals set by the Government in its five years Growth & Transformation Plan (GTP). The plan targets the generation of one billion dollars from the export of textile products by the end of 2015. This would be a leap from the 23.2 million dollars registered in 2010.

“Cotton has been seen just like any other plain crop, after it was put with other three crops at the directorate at the MoA,” said Gebreegziabher.

The number of experts and normal workers at the new regulatory body is 70 now, up from the two at the MoA.

“Currently, the new staff is taking data from the MoA,” said Gebreezgzaibher, who is a member of the steering committee, established to oversee the transition.

However, a member of the Ethiopian Cotton Producers, Ginners & Exporters Association who requested anonymity, said this is not the ultimate solution for the lingering problem.

Establishing a federal authority responsible for the cotton industry is the only solution for the problem, according to the member of the association.

The call for a standalone authority is not new, although the renewed voice was reinforced due to a recent surplus of production from what was projected.

A year ago, unable to emerge from the paralysis in the market, aggravated cotton growers asked the government to establish an independent body to monitor and coordinate their activities, along with other sectors, such as textiles.

Although the government seems to respond to our request, many growers still feel neglected by policymakers, since their demand is not fully addressed, said the member of the association.

“They would rather see a federal agency formed for the entire horticultural industry,” said Gebreegziabher.

Although the government seems to have addressed the problem of the local cotton market, which has seen ups and downs over the past three years, it is still not enough, according to an expert who is working in the sector, under anonymity. ‘‘The fluctuation in production rate was largely due to the absence of seeds, pesticides and credit facilities, as well as land lease problems. A low level of mechanisation and a shortage of sulphuric acid also contributed.’’

Handling all these issues needs vast resource and capacity, said the expert.

Assefa Aga, president of the Ethiopian Cotton Producers, Ginners & Exporters Association, also agrees with the expert.

“Although it is good, the textile sector does not move to the industry level just by moving a regulatory body from the MoA to the MoI. Other major factors in cotton production, such as chemicals and fertiliser, are still under the MoA,” said Assefa.

This is especially important for growers like Blen. Half of the cotton he harvested a while back was affected by disease.

The absence of an independent entity has contributed to the problems faced by growers, in accessing seeds, pesticide control, skilled labour and a rather rough market, said the expert.

“All of these problems should be given balanced attention from the government,’’ he suggested.

“Although the amended proclamation entitles the TIDI to provide land for investors, it’s implementation is ambiguous,” said Gebre. “All land is under the MoA and I am not sure how they are going to issue it.”

The lack of coordination between different government agencies may decrease the output of the sector further, since most of them are trying to switch to other oil seeds, said the expert.

However, Blen is determined to stay in the sector as long as he can.

“I have no choice. I cannot move to any grain or simply make the machineries idle, by stopping the cotton production,” he commented.

Sourced:  http://addisfortune.net/articles/cotton-industry-in-a-spin/

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Pictured above:  Addisalem Balema, director general of the ECEA.

By  ELLENI ARAYA

In the next few months, the Ethiopian Commodity Exchange (ECX) will install mung beans as the sixth commodity to be traded on its floor, Fortune has learnt.

The final decision was made last Friday, after the board of the Ethiopian Commodity Exchange Authority (ECEA) gave its approval. The ECEA is the supervisory body of ECX and has the final say on whether or not new commodities can enter the trading floor.

Export of the legumes has increased over the past three years. This is one of the major reasons the board approved the decision, according to Addisalem Balema, director general of the ECEA.

“There is a marketable surplus, which can be traded through the ECX and bring benefit to farmers,” Addisalem told Fortune.

In the 2011/12 fiscal year, production of Mung Beans, which are largely used in food, predominantly in Asian countries – with China being the major consumer – stood at 42,042tns. Trading at 1,400 dollars a tonne, in the international market, Ethiopia exported 3.4tns of Mung Beans, worth 2.6 million dollars, the same year.

Mung beans, known in Amharic as ‘Masho’, mostly grow in the lowland areas of Amhara Regional State.  They are especially common in Debresina, North Shoa Zone, as well as in Kallu, South Wollo. It is currently also taking root in the Oromia and Benishangul Gumuz regions.

In the Amhara Regional State, the use of these beans has been twofold, according to Gedu Andargachew, head of the Amhara Agriculture Bureau.

“Because of their ability to store water, they are crops that can easily be cultivated, even when rainfall is low. In addition, they are used as an alternative during crop rotation, in order to preserve soil fertility,” Gedu told Fortune.

However, since 2010/11, it is their market value, which has increased their demand by farmers, says Gedu. Exporters, especially from Dessie, the capital of South Wollo Zone, 400Km from Addis Abeba, started actively exporting mung beans. This led to a price increase and inspired many farmers to get involved in mung bean production.

Currently, export grade mung beans sell for around 145 dollars a quintal, according to Henock Hailemariam, from Hajuta Trading Plc and Tessema Bezabeh, from Koma Import & Export Co Ltd, both of whom export the commodity. The price was only 80 dollars a quintal a few years back, according to the two exporters. Indonesia is the main export destination, followed by India.

The boom has trickled down to farmers and suppliers who now sell export mung beans for prices ranging between 2,500 and 3,000 Br a quintal, according to Degu and the exporters. In 2010/11, the price was only 1,650 Br a quintal.

The Amhara Regional Administration, as well as various NGOs, have been advocating the entrance of mung beans on to the trading floor, in order to help farmers benefit further from this boom, according to Addisalem. The boom is also something the ECX hopes to benefit from.

Just as sesames doubled the Exchange’s trading volume when it entered the trading floor, mung beans are expected to bring a change both in trade and price volume, according to Addisalem. A harvest of 50,000tns is expected for the 2012/13 fiscal year, according to him.

The fact that adding the commodity on to the ECX list will not require additional warehouse or infrastructural capacity was also another consideration during the board’s decision, according to Addisalem.

Of the 56 warehouse sites the ECX administers throughout the country, Kombolcha, Addis Abeba and Asosa have been picked as delivery centres for mung beans, according to an official at the ECEA, who talked to Fortune on conditions of anonymity.

Procedurally, before a commodity enters onto the trading floor, the product development team at the ECX collects samples from production areas and Mesalemia, where Addis Abeba’s largest wholesale grain market is located. These will then be studied by a technical expert panel, comprising of individuals from the ECX, Ministry of Agriculture (MOA) and the Quality & Standard Agency (QSA). They will give advice on what quality and grading should be applied to the commodity.

Input is also gathered from traders, exporters and food processors in an industry consultation to assess the grading and quality applied. A trading contract results from these two discussions, which are then presented to the board of the ECX and eventually to the board of the ECEA for final approval.

The Board of the ECXA, consisting of six members, was convening for the first time under new chairman, Tefera Derebew, Minister of Agriculture. He has been appointed in place of Melaku Fenta, the detained former director general of the Ethiopian Revenues & Customs Authority (ERCA).

Mung beans will follow in the footsteps of coffee, sesame, haricot beans, maize and wheat at the trading floor. Like the latter two commodities, mung beans do not have to be traded exclusively on the ECX floor.

“Only those interested in price and quality assurance can use the services of the ECX,” Addisalem told Fortune.

This is different from coffee and sesame, which always have to pass through the ECX trading floor before exports.  This is with the exception of when cooperatives are allowed to export directly abroad.

The fact that it is not mandatory comes as a relief to an anonymous broker, who exports mung beans on behalf of clients.

“Products tend to lose market value after a while when they enter the exchange,” the anonymous broker told Fortune, citing the recent plunging trend in coffee prices as an example.

For exporters, like Tesema, who are already members of the ECX and export sesame, however, the trading floor is a better choice because currently there is an unmet demand in supply. Though his company’s current export volume has quadrupled, from the 5,000 quintals he exported in 2010/11, it still does not match the demand from abroad, according to him.

“Through the exchange, a lot of suppliers can congregate in one place and quality will be ensured,” he forecasted.

Sourced here:  http://addisfortune.net/articles/mung-beans-to-enter-ecx-trade-floor/

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By George Friedman

Editor’s Note: For more information on purchasing the full PC16 report, which assesses each member of the grouping, and for details on custom briefings and analysis for your organization, please click here.

China has become a metaphor. It represents a certain phase of economic development, which is driven by low wages, foreign appetite for investment and a chaotic and disorderly development, magnificent in scale but deeply flawed in many ways. Its magnificence spawned the flaws, and the flaws helped create the magnificence.

The arcs along which nations rise and fall vary in length and slope. China’s has been long, as far as these things go, lasting for more than 30 years. The country will continue to exist and perhaps prosper, but this era of Chinese development — pyramiding on low wages to conquer global markets — is ending simply because there are now other nations with even lower wages and other advantages. China will have to behave differently from the way it does now, and thus other countries are poised to take its place.

Reshaping International Order

Since the Industrial Revolution, there have always been countries where comparative advantage in international trade has been rooted in low wages and a large work force. If these countries can capitalize on their advantages, they can transform themselves dramatically. These transformations, in turn, reorganize global power structures. Karl Kautsky, a German socialist in the early 1900s, wrote: “Half a century ago, Germany was a miserable, insignificant country, if her strength is compared with that of the Britain of that time; Japan compared with Russia in the same way. Is it conceivable that in 10 or 20 years’ time the relative strength will have remained unchanged?” Lenin also saw these changes, viewing them as both progressive and eventually revolutionary. When Kautsky and Lenin described the world, they did so to change it. But the world proved difficult to change. (It is ironic that two of the four BRIC countries had been or still are Communist countries.)

When it is not in the throes of war, trade reshapes the international order. After World War II, Germany and Japan climbed out of their wreckage by using their skilled, low-wage labor to not only rebuild their economy but to become great exporting powers. When I was a child in the 1950s, “Made in Japan” meant cheap, shoddy goods. By 1990, Japan had reached a point where its economic power did not rest on entry-level goods powered by low wages but by advanced technology. It had to move away from high growth to a different set of behaviors. China, like Japan before it, is confronted by a similar transition.

The process is fraught with challenges. At the beginning of the process, what these countries have to sell to their customers is their relative poverty. Their poverty allows them to sell labor cheaply. If the process works and the workers are disciplined, investment pours in to take advantage of the opportunities. Like the investors, local entrepreneurs prosper, but they do so at the expense of the workers, whose lives are hard and brutal.

It’s not just their work; it’s their way of life. As workers move to factories, the social fabric is torn apart. But that rending of life opens the door for a mobile workforce able to take advantage of new opportunities. Traditional life disappears; in its place stand the efficiencies of capitalism. Yet still the workers come, knowing that as bad as their lot is, it is better than it once was. American immigration was built on this knowledge. The workers bought their willingness to work for long hours and low wages. They knew that life was hard but better than it had been at home, and they harbored hopes for their children and with some luck, for themselves.

As the process matures, low wages rise — producing simple products for the world market is not as profitable as producing more sophisticated products — and the rate of growth slows down in favor of more predictable profits from more complex goods and services. All nations undergo this process, and China is no exception. This is always a dangerous time for a country. Japan handled it well. China has more complex challenges.

The PC16

Indeed, China is at the fringes of its low-wage, high-growth era. Other countries will replace it. The international system opens the door to low-wage countries with appropriate infrastructure and sufficient order to do business. Low-wage countries seize the opportunity and climb upon the escalator of the international system, and with them come the political and business elite and the poor, for whom even the brutality of early industrialism is a relief.

But identifying these countries is difficult. Trade statistics won’t capture the shift until after it is well underway. In some of these countries, such as Vietnam and Indonesia, this shift has been taking place for several years. Though they boast more sophisticated economies than, say, Laos and Myanmar, they can still be considered members of what we are calling the Post-China 16, or PC16 — the 16 countries best suited to succeed China as the world’s low-cost, export-oriented economy hub.

In general, we are seeing a continual flow of companies leaving China, or choosing not to invest in China, and going to these countries. This flow is now quickening. The first impetus is the desire of global entrepreneurs, usually fairly small businesses themselves, to escape the increasingly non-competitive wages and business environment of the previous growth giant. Large, complex enterprises can’t move fast and can’t use the labor force of the emerging countries because it is untrained in every way. The businesses that make the move are smaller, with small amounts of capital involved and therefore lower risk. These are fast moving, labor-intensive businesses who make their living looking for the lowest cost labor with some organization, some order and available export facilities.

In looking at this historically, two markers showed themselves. One is a historical first step: garment and footwear manufacturing, a highly competitive area that demands low wages but provides work opportunities that the population, particularly women, understand in principle. A second marker is mobile phone assembly, which requires a work force that can master relatively simple operations. Price matters greatly in this ruthlessly competitive market.

Therefore we tried to determine places where these businesses are moving. We were not looking for the kind of large-scale movements that would be noticed globally, but the first movements that appear to be successful. Where a handful of companies are successful, others will follow, so long as there is labor, some order and transportation. Some things are not necessary or expected. The rule of law, understood in Anglo-Saxon terms of the written law, isn’t there at this stage. Things are managed through custom and relationships with the elite. Partnerships are established. Frequently there is political uncertainty, and violence may have recently occurred. These are places that are at the beginning of their development cycle, and they may not develop successfully. Investors here are risk takers — otherwise they wouldn’t be here.

The beginning of China’s boom is normally thought of as 1978-1980. The Cultural Revolution had ended a few years before. It was a national upheaval of violence with few precedents. Mao Zedong died in 1976, and there had been an intense power struggle, with Deng Xiaoping consolidating power in 1977. China was politically unstable, had no clear legal system, sporadic violence and everything else that would make it appear economically hopeless. In fact, Egbert F. Dernberger and David Fasenfest of the University of Michigan wrote a paper for the Joint Economic Committee of Congress titled “China’s Post-Mao Economic Future.” In this paper, the authors state: “In the next seven years as a whole, the rate of industrial investment and production, more than the total of the last 28 years, imply a level of imports and industrial labor force such that the exports, transportation facilities, social overhead capital, energy and middle-level technical personnel requirements would exceed any realistic assessment of Chinese capabilities.”

I don’t mean to criticize the authors. This was the reasonable, conventional wisdom at the time. It assumed that the creation of infrastructure and a managerial class was the foundation of economic growth. In fact in China, it was the result of economic growth. The same can be said for rule of law, civil society, transparency and the other social infrastructure that emerges out of the social, financial and managerial chaos that a low-wage economy almost always manifests. Low-wage societies develop these characteristics possibly out of the capital formation that low-wage exports generates. The virtues of advanced industrial society and the advantages of pre-industrial society don’t coincide.

There is no single country that can replace China. Its size is staggering. That means that its successors will not be one country but several countries, most at roughly the same stage of development. Taken together, these countries have a total population of just over 1 billion people. We didn’t aim for that; we realized it after we selected the countries.

The point to emphasize is that identifying the PC16 is not a forecast. It is a list of countries in which we see significant movement of stage industries, particularly garment and footwear manufacturing and mobile phone assembly. In our view, the dispersal of industries that we see as markers of early-stage economic growth is already underway. In addition, there are no extreme blocks to further economic growth, although few of these countries would come to mind as having low political risk and high stability — no more than China would have come to mind in 1978-1980. I should also note that we have excluded countries growing because of energy and mineral extraction. These countries follow different paths of development. The PC16 are strictly successors to China as low wage, underdeveloped countries with opportunities to grow their manufacturing sectors dramatically.

The new activity is focused on Africa, Asia and to a lesser extent, Latin America. When you look at the map, much of this new activity is focused in the Indian Ocean Basin. The most interesting pattern is in the eastern edge of Sub-Saharan Africa: Tanzania, Kenya, Uganda and Ethiopia. Sri Lanka, Indonesia, Myanmar and Bangladesh are directly on the Indian Ocean. The Indochinese countries and the Philippines are not on the Indian Ocean, and even though I don’t want to overstate the centrality of the Indian Ocean, they are nearby. At the very least we can say that there are two ocean basins, the Indian Ocean and the South China Sea. You might want to read my colleague Robert D. Kaplan’s book Monsoon on this region.

There are some countries in Latin America: Peru, the Dominican Republic, Nicaragua and Mexico. A special word needs to be included on Mexico. The area north of Mexico City and south of the U.S. borderlands has been developing intensely in recent years. We normally would not include Mexico but the area in central-southern Mexico is large, populous and still relatively underdeveloped. It is in this area, which includes the states of Campeche, Veracruz, Chiapas and Yucatan, where we see the type of low-end development that fits our criteria. Mexico’s ability to develop its low-wage regions does not face the multitude of challenges China faces in doing the same with its interior.

All of this has to be placed in context. This is not the only growth process underway. It is most unlikely that all of these countries will succeed. They are not yet ready, with some exceptions, for advanced financial markets or quantitative modeling. They are entering into a process that has been underway in the world since the late 1700s: globalism and industrialism combined. It can be an agonizing process and many have tried to stop it. They have failed not because of their respective ruling classes, which would have the most to lose. It doesn’t take place because of multinational corporations. They come in later. It takes place because of profit-driven jobbers who know how to live with instability and corruption. It also takes place because of potential workers looking to escape their lives for what to them seems like a magnificent opportunity but for us seems unthinkable.

The parabola of economic development dictates that what has not yet risen will rise and eventually fall. The process unleashed in the Industrial Revolution does not seem to be stoppable. In our view, this is the next turning of the wheel.

Source:    http://www.stratfor.com/weekly/pc16-identifying-chinas-successors

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