A girl (pictured, above) outside her home in Gambella. Ethiopia has achieved the development goal on reducing child mortality. Photograph: Ariadne Van Zandbergen/Alamy

Sustained government drive brings down deaths among children under the age of five by 67% compared with 1990 figures

Elissa Jobson in Addis Ababa

theguardian.com,  Friday 13 September 2013

Ethiopia, a low-income country in the drought prone Horn of Africa, has achieved the millennium development goal to cut the mortality rate for children under the age of five ahead of the 2015 deadline, according to figures published on Friday.

The statistics, contained in a 2013 progress report, Committing to child survival: a promise renewed, compiled by the UN children’s fund Unicef, the World Health Organisation (WHO), and the World Bank Group, showed Ethiopia has reduced child deaths by more than two thirds over the past 20 years. In 1990, an estimated 204 children in every 1,000 in Ethiopia died before the age of five ; just six countries had a higher rate. The latest data shows that by 2012 the rate had dropped to 68, a massive 67% fall in the under-five mortality rate.

Bangladesh, Liberia, Malawi, Nepal and Tanzania have also achieved the target.

According to the report – which examines trends in child mortality since 1990, analyses the main causes of under-five deaths, and highlights national and global efforts to save children’s lives – the annual number of under-five deaths has fallen from 12.6 million in 1990 to 6.6 million in 2012.

Some of the greatest advances in cutting child deaths are being made in east and southern Africa. Between 2005 and 2012, the regions achieved an annual reduction rate of 5.3% – the highest in the world.

In Tanzania, the Help Babies Breathe Alliance has trained and equipped more than 100,000 health workers, resulting in a 47% reduction in deaths during the first 24 hours of life. In Zambia and Uganda, meanwhile, safe deliveries in health facilities have been promoted through the training of hundreds of health workers in emergency obstetric and newborn care, along with the availability of essential supplies and equipment for the treatment of postpartum haemorrhage and eclampsia.

However, there are still some anomalies. Kenya has experienced an increase in the overall under-five mortality rate, from 96 deaths per 1,000 births in 1990 to 108 per 1,000 in 2012. The rise has occurred despite the introduction of free maternal healthcare, and despite some regional success in cutting deaths.

The western and central regions of Africa are making the least progress globally. Almost one in every eight children born there will not reach their fifth birthday and the annual rate of reduction, while increasing, remains the slowest in the world.

Political instability, recurrent emergencies and disasters, widespread extreme poverty, and some of the lowest budgetary allocations to basic social services in the world have contributed to the dismal child survival rates in these regions.

Unicef states that without faster progress in all regions, it will take until 2028 for the world to meet the target on reducing deaths among under-fives.

Government commitment and resources have contributed to Ethiopia’s progress on the issue.

“The government has set some very bold and extremely ambitious targets. It has then backed them up with real resources and real commitment sustained over the last 10 years,” said Dr Peter Salama, Unicef country representative for Ethiopia, pointing to the country’s health extension programme.

“The programme put on the government payroll more than 36,000 health workers and deployed them to more then 15,000 health posts across Ethiopia … That is the single most important reason why Ethiopia has reduced its under-five mortality rate.”

Dr Kesetebirhan Admasu, Ethiopia’s health minister, agreed. “I believe it is the work of these amazing community health workers who have really put the country to achieve these results,” he said. “The key factor is political commitment. With that commitment and with the commitment of the government in putting actual money, real money beyond setting the policy … [it] has helped to attract more donors to the programme.”

Salama said the fact that the health extension programme has been government-owned rather than donor-led has contributed to its success, and means the gains made are sustainable in the longer term. But he added that further progress in cutting child deaths will be increasingly difficult to achieve.

“An increasing number of the remaining child deaths [in Ethiopia] are attributed to newborn deaths – those in the first 28 days of life. These newborn deaths are intrinsically linked to maternal health and nutrition [which is] more complicated to deal with because it implies much more high-skilled service delivery. Without addressing this, it’s going to be hard to see the same level of progress that has been made in the last decade.”

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By Bereket Gebru   09/12/13

The manufacturing sector in Ethiopia has expanded very noticeably during the past decade. The World Bank reported a growth rate of 12.3% in the sector as far back as the year 2009. Aggressive efforts to draw investment from both outside and inside have these days pushed investment activities in the sector to an unchartered territory in the history of the country. Recent international studies have further put Ethiopia among the countries poised to become heavy weights of international manufacturing.

After three decades of economic growth of historic proportions, the Chinese economy seems to have shown some signs of abating with growth slowing down to 7.5% between  April and June of 2013 from the 7.7% growth registered in the January to March period. In what has come as a substantiating data on recent western reports of ailments in the Chinese economy, the era of staggering Chinese development predicated on mass production through low wages to conquer global markets seems to be cooling off a bit. The international economic crisis that started in 2008 and the ensuing fall of manufacturing orders from Europe and the United States is cited as the cause of the slowdown in the Chinese manufacturing sector. Reports suggest that the Chinese are moving away from their high dependence on exports towards a focus on greater domestic consumption.

The three decades of economic growth seem to have put the abundant and cheap Chinese labour force into relative expensiveness. A recent report entitled “The PC16: Identifying China’s Successors” by Stratfor (Strategy Forecasting inc.), an intelligence think-thank, explains “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.”

The large influx of companies from all over the world to China has, as a result, been affected negatively. Stratfor founder and Chairman George Friedman notes that there is a continual flow of companies leaving China, or choosing not to invest in China.

The study further argues that China is too big of a manufacturer to be replaced by a single country. Therefore, the study goes on to denote, a combination of sixteen countries would take over as the global manufacturing hub. It is these countries that the study named PC 16 – Post China 16. Ethiopia has been identified as one of these countries. The remaining 15 are:- Kenya, Tanzania, Uganda, Bangladesh, Sri Lanka, Indonesia, Myanmar, Cambodia, Laos, the Philippines, Vietnam, Dominican Republic, Mexico, Nicaragua and Peru.

Let’s now take a look at the Ethiopian manufacturing sector and try to analyse if it is gearing itself in the direction projected by the international study. To make the assessment compatible with the direction taken by the studying group, the writer of this article has dealt with data on sectors considered by the studying group. Accordingly, the study group tried to determine places where these businesses are moving. The group mentioned that they 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.”

The group’s quest into history to come up with markers led them to the garment and footwear manufacturing sector as the first of the markers. The group identified the first marker as a highly competitive area which provides the population, especially women, a chance for employment. The second marker is mobile phone assembly, which requires a work force that can master relatively simple operations.

Textile and Garment Manufacturing        

Let’s start our analysis of the trends in the manufacturing sector of Ethiopia with the first of the group’s markers – textile and garment manufacturing. Textile products do not yet make the top list of Ethiopian export items. The 2002 data from the Central Statistical Authority shows that the country earned 28.8 million birr from the export of textile, clothing and apparel in 2000/01. The country has come a long way from that as it made 98 million USD (about 1.8 billion birr) in the fiscal year that just ended. This figure, however, still runs short of the one billion USD export earnings planned at the end of the Growth and Transformation Plan (GTP).

Ethiopia has enjoyed increased attention from various textile and garment factories located all around the world. The biggest milestone in this context was the inauguration of Ayka Addis in April 2010. Built by Turkish investors, Ayka Addis is the biggest textile factory in Ethiopia. The factory has a daily spinning capacity of 20tn and knitting and dyeing capacity of 40tn. It is expected to make up to 100 million USD per year at its optimal operational capacity. Ayka was first established in Istanbul, Turkey, in 1998. It dismantled its plant in Turkey completely in order to move to Ethiopia. Part of the 140 million USD needed to build the factory was provided by the Development Bank of Ethiopia. The factory has provided employment opportunity for 10,000 people.

After three years of operation in Ethiopia, Ayka Addis is currently facilitating the relocation of another 50 Turkish textile and garment companies. Accordingly, Capital newspaper reported, Ayka Addis is expected to build an industrial zone of several five-story buildings that  it plans to rent out to the relocating factories. The report further indicates that Ayka Addis is carrying out project preparation and feasibility study. The government, the report further states, is allocating land around Addis Ababa for the construction of the industry zone.

The project aims to export value added textile products which are considered to be sources of strong export revenue. The relocation of these companies is projected to generate two billion USD in export revenue for the country per annum, surpassing the one billion USD goal set at the end of the last year of the GTP by an astounding 100%. In so doing, the whole package is expected to create more than 60,000 job opportunities.

Capital newspaper also reported that the Ethiopian Textile Industry Development Institute (ETIDI) also revealed that other textile companies are preparing to go into production, such as MNS Textile Company, which has built its factory in Legetafo, 15km northeast of Addis with one billion birr investment. S.V.P is another textile company engaged in building its factory in Ethiopia. The new Indian company has invested around one billion birr for the construction. Nas Foods, one of the leading biscuit manufacturers, is also involved in a new textile factory project located at Yirgalem, with an investment of 890 million birr. ETIDI said that several South Korean textile companies will also be starting operations at Bole Lemi industry zone, which is under construction at a cost of 900 million birr by the Ministry of Industry. The construction for this specific project will be concluded this year and the industry zone will go operational. In June 2012, the Ministry of Industry and Oromia Regional State signed an agreement with Turkish Investors for the development of 640 hectares of land at Legetafo. The contract established that the investment on the land would include pharmaceutical, garment, leather processing and paper and packaging factories, amongst others. The zone is set to include social service institutions such as health care, schools, technical and vocational training and hotels. It will be amongst the series of new industrial parks to be developed around the country.

Clothing retailer H&M (Hennes & Mauritz) is also another one of the foreign companies with textile related activities in Ethiopia. The retail company has established an office in Addis Ababa over a year ago now. It, at first placed test orders with Ethiopian suppliers and large-scale production has begun. H&M is trying to form a cluster of suppliers that could, in aggregate, satisfy its one million pieces per month demand. This move is new for H&M as it does not source any of its range from Africa. The fact that Ethiopia stands as its first source from Africa is indicative of the increasing suitability of the country to invest in the sector.

Three other leading Swedish textile retail companies have also paid a visit to Ethiopian textile factories. Tesco and the British arm of Wal-Mart called George are also buying clothing from Ethiopian manufacturing plants.

Shoe Manufacturing

Ethiopia’s footwear industry and leather sector in general enjoy significant international comparative advantages owing to the country’s abundant and available raw materials, highly disciplined workforce and cheap prices. Ethiopia boasts the largest livestock production in Africa, and the 10^th largest in the world. Ethiopia annually produces 2.7 million hides, 8.1 million sheepskins and 7.5 million goat skins. This comparative advantage is further underlined by the fact that the costs of raw hides and skins constitute on average 55-60% of the production of semi-processed leather.

Ethiopia’s leather and leather product sector produce a range of products from semi-processed leather in various forms to processed leathers including shoe uppers, leather garments, stitched upholstery, backpacks, purses, industrial gloves and finished leather.

Ethiopian leather products have been exported to markets in Europe (especially Italy and the UK), America, Canada, China, Japan and other far eastern countries and the Middle East. Leather is also exported to African countries including Nigeria and Uganda.

Ethiopian footwear factories produce men’s casual shoes and children’s shoe-uppers made from pure leather. In addition, the factories sell directly to overseas importers/wholesalers or to direct buying offices, facilitate the production and export of footwear under the private labels of department stores, boutiques, shoe retail chains and mail-order houses, source out from Ethiopia and other nations in East Africa and re-export, and facilitate the production and export of internationally well-known brands under contract. The footwear industry produces shoes that are globally competitive in terms of both quality and price. Due focus is given to maintaining the quality of hides and skins, leather and leather products.

When it comes to foreign direct investment in Ethiopia’s footwear industry, Chinese companies take pole position. Huajian, one of the three biggest shoe producers in the world, is the major foreign shoe manufacturing factory in the country. The others include Top Glory and Luxj.

Huajian has a factory in Dukem, 35 kms from Addis Ababa, employing 600 people, which opened in January 2012, and is committed to jointly invest $2bn over the next decade to create a light manufacturing special economic zone in Ethiopia, creating employment for around 100,000 Ethiopians. The company, which employs 25,000 workers in China, expects to be able to provide around 30,000 jobs in Addis Ababa by 2022. The company aims to make Ethiopia a global hub for the shoe industry supplying the African, European and American markets. It hopes to achieve that through the creation of shoe manufacturing clusters in a well built supply chain. The creation of a whole supply chain entails the production of everything used in the production process locally.

The company’s vision is one step closer to fruition with the lease of 300 hectares (741 acres) of land in Lebu, on the outskirts of Addis Ababa, where Huajian plans to build a “shoe city”, providing accommodation for up to 200,000 workers and factory space for other producers of footwear, handbags and accessories. The complex will offer help and advice to entrepreneurs setting up companies.

The company cites employee welfare as a priority. In China, Huajian has a modest outfit 40km south of the capital, Beijing, employing 1,700 workers and exporting more than $1m worth of shoes each month to the US and the UK. In Dongguan, in the southern province of Guangdong, the majority of the staff come from poor rural areas. The company provides accommodation, hot meals, clothing and laundry services, as well as free childcare. A similar package is offered to its Ethiopian workers who, in addition, earn 10% above the average local wage.

The Huajian factory near Addis Ababa employs 130 Chinese workers, all in supervisory roles. The number of expatriates on the payroll has come down from 200 when production began in January 2012, and Huajian plans to reduce it further. The company has selected 130 university graduates from southern Ethiopia to spend a year in China at its training facility. About 270 more will be recruited later. The company plans to make them future managers.

Mobile Phone Assembly

There are more than 18 million mobile phone subscribers in Ethiopia currently.  This number is expected to jump to 40 million in the next three years. There are three mobile phone assemblers in Ethiopia. These are:- Tecno, Tana Mobile (Chinese brand assemblers) and Sami Mobile which assembles Samsung handsets.

Tana Communication Plc is a local mobile assembly that began operation in 2010. It assembles Chinese mobile brands in collaboration with Zhong-Xing Telecommunication Equipment (ZTE). The company has three assembly lines, with a total capacity to assemble 4,500 to 5,000 devices a day. The company produces two mobile phone models and a fixed wireless apparatus.

The Hong Kong based company Tecno Telecom was established in 2006. The company launched its operations in Ethiopia with the establishment of Tecno Mobile Ethiopia in September 2011 with a capital investment of more than $1 million from its parent company Tecno Telecom Ltd. Tecno Mobile Ethiopia inaugurated its second assembly plant in less than a year. The first plant has the capacity to assemble 60 thousand units while the second plant has a capacity to assemble 200 thousand units of handsets per month. The telecom company has already introduced 13 different brands including a smart phone.

The company disclosed that the growth recorded in the Ethiopian branch was beyond the projected figures as the demand is far more than the supply, rending the second phase of the project a necessity. The company sold 18 million Tecno Mobile handsets in Africa in 2011, making it one of the top ten mobile phone marketers in Africa. The company plans to manufacture mobiles phones in Ethiopia in the near future and when it does it expects to be able to make 400 thousand units every month.

The fact that Chinese and other Asian companies are investing in Ethiopia in this sector shows that the country’s competitiveness has increased over the years. The transfer to the assembly of smart phones also indicates that the level of local expertise in the assembly process has increased. Further activities to manufacture the products locally would obviously take the sector to another level in Ethiopia.

Conclusion        

As we have tried to look into, Ethiopia’s involvement in international textile, shoe and mobile assembly trade has enjoyed pronounced increment over the last few years. The large influx of Turkish and Swedish companies from Europe and others from Asia in the textile industry along with Asian investment in shoe and mobile manufacturing are substantiating evidences of the demographic, climatic and policy suitability of the country for foreign investment. Some of the major factors making Ethiopia favourable for such investments include:-

Abundant land, plant, animal and mineral resources:- the abundance of land for agricultural and industrial purposes coupled with other resources that can be used as raw materials makes the country favourable for investment.

Abundant cheap labour resource:- with a population of about 70 million, and with cheap cost of labor, Ethiopia can provide sufficient labor force which can provide the edge in cost-competitiveness. The cost of labour in the Ethiopian market is lower than some Asian and African nations.

Support through policy and incentives:- The Ethiopian government has been steadily pushing towards market-oriented reform by means of developing the private sector, deregulating rigid control over the economy, liberalizing foreign exchange, lowering tariff rate, etc. Given that export promotion is of paramount importance, the government has issued a series of export incentives. All in all, in terms of macroeconomic policy, the Ethiopian government has created an enabling environment for the development of the manufacturing sector.

Increased domestic demand:- Ethiopia has a large territory with a large population. The growth rate of the population is 2.7%, creating a large potential market. According to the country’s economic development programme, the average growth rate of GDP in the coming years is expected to be close to 10%. As a result of the development of the economy and the progress in reduction of poverty as well as the improvement of people’s living standards, it is believed that not only the present market demand would increase, but also a new market demand will arise. The increase in Ethiopian per capita also shows better purchasing capacity of the people.

Proximity to major international markets:- the location of Ethiopia, in the horn of Africa, on the cross-roads of the Asian and European markets provides easy access. Proximity to the Middle East and the Far East along with Europe is essential in cutting transport costs that increase cost competitiveness further in addition to cheap labour force.

Bilateral and Multi-lateral Agreements:- Ethiopia is one of those countries that enjoy export to the United States free of duty and quota restrictions under the US special preferential trade policy called Africa Growth Opportunity Act (AGOA). Ethiopia is also a member of the Common Market for Eastern and Southern Africa (COMESA) agreement embracing 20 countries in Eastern and Southern Africa with a population of approximately 353 million. Exports and imports with member countries enjoy preferential tariff rates. Ethiopia has signed bilateral trade agreements with 16 nations such as Russia, Turkey, Yemen etc which provide legal framework for enjoying most-favoured-nation treatment and removing tariff barriers. According to Generalized System of Preference (GSP), most of the products made in Ethiopia enjoy tariff treatment in the United States, Canada, Switzerland, Norway, Sweden, Finland, Austria, Japan and the majority of EU member nations.

With the fast growth recorded over the last decade in Ethiopia, there is an evident urge to keep the growth going and eliminate the scourge of poverty from the country. In that regard, the internationally noticeable favourability of the country in the manufacturing sector is set to continue strongly in the years ahead.

Source:  http://aigaforum.com/articles/manufacturing-sector.php

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By Tesfalem Waldyes

Ethiopia’s economy is predominantly  agrarian. In 2011/12 alone, agriculture accounted for 41 percent of the Gross  Domestic Product (GDP) and contributed 90 percent of the foreign currency  earning. The sector also covered 85 percent of the country’s employment. Its  incontestable share in the overall economic growth of the country and potential  for further growth, therefore, makes it a worthwhile sector for many to  consider investing in. But broad facts and figures are not just enough for  business people to make informed decisions before they put their hard earned  fortunes into something. Hence, The Ethiopian American has identified  some of the paramount information and summarized them into 15 most important  points you should know – including opportunities, incentives and duty-free  privileges tied to investment in agriculture – before you make any decision.

1. Of Ethiopia’s about 111.5  million hectares total landmass, 74.3 million hectares is considered suitable  for crop production. An estimated 4.3 million hectares of land has irrigation  potential. Currently, only 15 million hectares is utilized.
2. The federal government  delineated around 3.7 million hectares of land for agriculture investment.  Close to 1.6 million hectares with  information about their agro-ecological, soil, water potential and other  details, is deposited in the federal land bank. The designated plots of land  located in Gambella, Benishangul Gumuz and Southern regional states are  suitable for growing food crops, oil seeds, coffee and tea, cotton, palm oil,  biofuel plants and livestock husbandry.
3. Investors shall have the right  to acquire and develop plots of land either leasing from the government or  reaching agreement with a landholder to transfer permanently his/her holding  rights. Any investor can rent rural land on contractual basis after fulfilling  a lease agreement. One can secure a mortgage right to use his land or an asset  produced on it, or both for agreed lease period.
4. Investors can mobilize laborers  from region to region without any restriction. They are also allowed to  introduce or employ scientists and technicians in cases of local  unavailability.
5. The livestock population of  Ethiopia, which stands first in Africa and 10th in the world, is considered to  be the next big thing on the agricultural transformation of Ethiopia. This  segment of the agricultural sector has large resources: 50.8 million cattle,  25.9 million sheep, 21.8 million goats and 42 million poultry. The government  encourages investors to venture in rearing, breeding, fattening and exporting  of livestock. Those who are interested on meat processing have a great  opportunity for export due to the proximity of high demand markets of North  Africa and the Middle East.
6. Ethiopia is estimated to have  some 10 million bee colonies and has a potential of producing over 500,000 tons  of honey per year. This puts the country to be Africa’s leading producer of  honey and beeswax. Globally, the country also has got a fourth and tenth  position in the production of beeswax and honey, respectively. Despite the  country’s potential and an aged tradition of beekeeping, the current  productivity is far less than what it is expected. Current productivity is  estimated to be 20 – 30kg/hive/year. The production of honey and beeswax  remains untapped and investors who are interested on processing are likely  benefit from the country’s long history of exporting honey and bee products,  besides marketing locally.
7. Ethiopia’s diversified  agro-climatic weather conditions, the long production season and the  availability of irrigation, makes it suitable for the production of a broad  range of fruits, vegetables and flowers. The country has a potential to produce  12.8 million quintals of fruits and vegetables. Currently, the production of  fruits and vegetables is undertaken on around 152,600 hectares of land. Fruits  and vegetables export is  among the fast  growing business in the country with 9,000 tons of fruits and vegetables and 10  tons of flowers exported in 2011/12 production year. With such potential and  the government’s priority of expanding and supporting the manufacturing sector,  there is a big opportunity for investors to venture on agro-processing of  fruits and vegetables.
8. Any investor will get an income  tax exemption extending from two to five years depending upon the area of  investment, the volume of export and the location where the investment is  undertaken. Companies that suffer losses during the tax holiday period can  carry forward such losses for half of the income tax exemption period, after  the expiry of such period.
9. Income derived from an expansion  or upgrading of an existing agricultural company is exempted from income tax  for a period of two years. The government has also totally exempted the payment  of import customs duty and other taxes levied on imports for goods and  construction materials necessary to establish new companies or for the  expansion or upgrading of existing ones. The privilege extends to spare parts  worth up to 15 percent of the value of the imported capital goods. These  incentives can be transferred to investors enjoying similar privileges.
10. The government also granted two  to five years land rent payment grace period based on the commercial crop  harvest period.
11. Raw materials and packing  materials necessary for the production of export goods are exempted from  customs duties or other taxes levied on imports. Taxes and duties paid are  drawn back at the time of exports of finished products.
12. Most areas in agriculture  investments are worthy for credit policy of the government. When such projects  are accepted by the state owned Development Bank of Ethiopia (DBE), investors  are requested to deposit 30 percent of the project investment in cash and the  bank advances up to 70 percent loan. Projects that involve horticulture and  floriculture, cotton, livestock and others that are considered to have  potential to generate foreign currency are automatically considered  credit-worthy.
13. Borrowers who seek financing  for expansion are required to provide an initial equity contribution. The  demanded amount, which can be in the form of cash or in assets, should be  equivalent to 30 percent of the total capital of the expansion. Banks give a  maximum grace period of three years for clients.
14. The Ethiopian Investment  Proclamation guaranteed capital repatriation and remittance of dividends and  interest to foreign investors.
15. The ongoing privatization  program offers opportunities to both local and foreign investors. Agriculture  is one of the top three sectors that with a number of state owned enterprises  ready to be privatized. In addition to buying state owned enterprises through  competitive bidding, investors can also use various modalities like provide  equity finance, joint venture, lease and management contract to privatize.

Sourced here:  http://www.theethiopianamerican.com/bannerinfo.php

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(Photo credit: Wikipedia)

Last week saw the rather relaxed version of Ahmed Tussa, the chief executive officer (CEO) of the national amalgamated shipping and logistic enterprise – the Ethiopian Shipping & Logistics Services Enterprise (ESLSE) – who was in Adama to announce the performance of the enterprise he oversees to its employees. Speaking of performance, Ahmed indicated that the Enterprise has done well even if there were challenges in the whole process.

For Ahmed, the challenges of the sectors could be summarised as poor customer service, paucity of experienced experts and management problems. TheEnterprise, Ahmed said, need to create a forward momentum in these aspects if the success of the past year is to be accelerated.

But, the realities of the past year seem to contradict with what Ahmed proclaimed. Nothing but chaos could describe the state of the shipping and logistic sector over the past year. The whole system went bust to an extent that the external trade of the nation eventually came to a standstill.

It took months to identify the problems. In the interim, businesspeople were left helpless. They were unable to know what happened to their cargo. No one within the ESLSE or higher-up was making decisions that could solve the problems.

Decision makers within the ESLSE, including Ahmed, were attributing the whole problem on procedural causes than fundamental structural factors. They were trying to distance themselves from the whole gamut of problems facing the sector, from monumental increment of backlogs at the port to poor integration of port and dry port services.

It took months for them to take responsibility for the chaos. Even if it was visible that the system was short of capable leadership, a lot of foot-dragging had to be taken to swallow that.

After months, a high-level team of official travelled toDjiboutito identify the root causes of the problems and submitted a road map of solutions. Even then, effective absorption by the ESLSE of the road map of solutions took a very long time.

Businesspeople were spending their valuable days on the doors of the ESLSE to have information about their cargo. As if this was not enough, the monopoly had to expose them for higher shipment costs. Increments made on container bonds were also another headache that faced businesspeople over the past year.

It is on top of these structural problems that poor customer handling practices and paucity of experienced staff were happening. They have a lot to do with the ongoing restructuring effort of theEnterprise, which, in itself, is criticised for being heavily politicised.

True, the ESLSE might have seen another year of magnificent profits. But it is certain that it comes at the expense of businesspeople.

Whatever good performance that Ahmed was talking about, it does show neither the progress nor the efficiency of theEnterprise. It instead shows the ever-expanding monopoly power of the amalgamation that remains to put the whole spectrum of services in shipping and logistics sectors under control.

If anything, the numbers could tell history in these terms. The number of containers that ESLSE has transported in 2012/13 has reached 90,000 20-ft equivalents. Yet, little improvement was witnessed in the rather bureaucratic procedures involved in importing and exporting.

The average number of documents required to import a given commodity, for instance, has increased to nine, in 2012/13. This entails a total time of 44 days and an importing cost per 20-ft container of 2,660 dollars.

No better is the case with exports. It will take seven procedures, 42 days and 2,160 dollars to export a commodity equivalent of 20-ft container.

At the heart of the higher cost and longer time that exports and imports fromEthiopiatake stands the monopolised service of the ESLSE. What seems to be lacking in the whole equation, therefore, is reliable alternative.

At the policy level, the whole calculation of the EPRDFites in keeping the sector under protection emanates from the desire to create a national champion, save hard currency and enhance governmental revenue. The competitiveness of the nation’s external trade seems to be overlooked in the process.

Even if some of the changes, such as the switch from the long overdue uni-modal system of transportation to a multi-modal transport system, were introduced with good faith of improving the system, their eventual diffusion into the membranes of monopolisation swept the hope. They even added new breeds of burdens on the already dysfunctional operational structures of the ESLSE. As a result, the trade competitiveness of the nation could not witness any meaningful improvement even through such changes.

Even a year after the height of the chaos, poor service provision in theEnterprisecontinue to improperly consume the time and money of businesspeople. Amending shipping contracts, tracking cargo, effecting payments and releasing container bonds are just some of the edges wherein bureaucratic cumbersomeness remains significant.

However, the procedural problems directly relate with the monopoly power provided to the ESLSE. It is in the absolute control of the sector by the amalgamated beast that the fundamental problem lies.

If conventional economics is something to go by, competition is the driving force behind efficiency and reasonable pricing. Sectors that witness effective competition are highly likely to witnesses higher service provision efficiency and lower cost.

It could be no different with shipping and logistics. The very services provided by the ESLSE are offered the world over through competitive business enterprises. Since countries rightly understand the benefits of competition and the very costs of monopoly, they prefer to see as many shipping operators as possible operating at their ports.

It is through infusing competitive incentives that top trading nations of the world maintained their status in the global trade sphere. The fact remains similar from US toChina, fromBraziltoSouth Africa.

It ought to have been this similar trend that the EPRDFites ought to follow, than sticking to their protectionist policy. National trade competitiveness needs to be the priority agenda to focus on than dispense it for meagre revenue additions.

Indeed, in comparative terms, Ahmed has justifiable reason to be seen relaxed. The chaotic times might now have become history. But there is no guarantee that they will not return back.

The structural problem that sits at the bottom of the chaos – monopolisation – still exists. And it is only when an effective solution is put in place for the pain could the symptom be rightly avoided.

Local realities and experiences the world over show that opening the sector is key to solve the problem permanently. It is, therefore, on this lasting solution that the EPRDFites ought to expend their political commitment.

Sourced here:  http://addisfortune.net/columns/efficient-shipping-logistics-need-competition-end-monopoly/

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On the early morning of Thursday, September 12, 2013, a day after the Ethiopian New Year, Besheir Meded slaughtered two sheep and a goat for three of his customers. After finishing his work, he went to the market around Meshualekia, on the Debre Zeit road, to sell the skins, which he receives as payment for his slaughtering service.

Unlike the previous holidays, Besheir, who works as a daily labourer, doesn’t have to pay any extra money to his clients for the skins, since they are fetching a lower price at market.

‘‘I used to pay an extra 25 Br to 30 Br after receiving the skins,’’ Besheir told Fortune. ‘‘However, currently the sheep skins bring back a relatively low return in the market.’’

Although Besheir did not pay anything for taking the sheep skins, he received an additional 35 Br for his service of slaughtering the goat. This is because goat skin fetches a much lower price than the sheep skin.

Around 9:00am, Besheir sold the goat skin for 25 Br to Getu Tenkir, who has been in the business of collecting skins for the last 10 years. However, he did not succeed in selling the sheep skin, since he asked Getu to pay him 55 Br for each.

Getu collects raw skins in his booth located around Meshualekia. The booth was donated by USAID for skin collectors to sell skins, without affecting its quality, to skin collectors that then supply the skin to leather factories.

Getu has been collecting the skins as of 6:00am on Thursday, and had amassed 70 by the time Besheir arrived. This is a sharp increase from the other holidays where he often accumulated only around 20 skins a day.

Getu bought sheep and goat skins for 50 Br and 25 Br, respectively, mostly from households that slaughter the animals for the holiday. He would later sell the skin to factory suppliers, who travel around the city in the afternoon, for 53 Br, he claims.

The price of raw leather has been fluctuating since last Christmas, when sheep skin was sold at 90 Br, on average, and each goat skin fetched 30 Br. Cattle skin, which can weigh up to 48Kgs, sold for 3.50 Br a kilo, at the time.

The price showed a slight decline during the following Eastern holiday, when the price of sheep skin stood at 80 Br, on average. Goat and ox skin, however, remained relatively stable.

During the current holiday season, Getu could not accommodate the needs of Besheir, however, since he was anticipating a lower return from the sheep skins.

‘‘I am surprised by the sudden price decline of sheep skin, which stood at 80 Br, on average, during the last Easter holiday,’’ Besheir told Fortune.

But with the price he asked, which was 55 Br, Besheir could have been successful if he walked a few metres around the premises of the Addis Abeba Exhibition & Marketing Development Enterprise (AAEMDE), where Ahmed Delil, another raw skin collector, is buying sheep skin for between 55 Br and 60Br.

The reason for the drop in the price of raw skin is unclear to the likes of Ahmed and Getu. They claim to sell the skins with prices set by their buyers, who later submit it to one of the 29 suppliers in Addis Abeba.

Nurhussien Ahmed is Ahmed’s customer.  He supplies raw skin to tanneries and leather factories. He says that this holiday sale stands out as different from previous times, as the tanneries and leather factories demand less skin with a higher quality, when compared with the previous holidays.

AlthoughEthiopiahas a definite comparative advantage, with a large livestock population, easy accessibility to quality leather is lower when compared to neighbouring countries. During the 2011/12 fiscal year, the total population of cattle was 53.3 million, while sheep and goats numbered 25.5 million and 22.7 million, respectively, according to the Central Statistical Agency (CSA).

Ethiopia’s cattle population is far greater when compared to that ofKenyaandSudan, which have a population of 11.7 million and 39.8 million, respectively. When comparing sheep and goat populations,Kenyahas 1.7 million and 24.7 million, respectively, whileSudanhas 48.9 million and 39.8 million.

Despite having a large population, the proportion of cattle consumed inEthiopiais only seven percent, compared to 10pc and 20pc forKenyaandSudan.

The proportion of sheep and goat consumed inEthiopiais 33pc and 38pc, respectively, compared to 30pc and 29pc inKenyaand 45pc and 30pc inSudan. But both countries leadEthiopiain the population of these two animals.

Berhanu Abate, president of the Ethiopian Skin & Hides Suppliers Association, supports Nurhussien’s argument.

The price of sheep skin has declined, since the demand from tanneries and leather factories is limited at this time, claims Berhanu.

The price of a sheep skin, which are originally bought for 55 Br on average from people like Besheir, is sold for around 75 Br when it reaches the tanneries and leather factories.

‘‘The market of skin depends upon the demand from the factories,’’ says Berhanu.

Tanneries do not deny this.

Pittards Ethiopia Tannery is one example of an institution that has made the choice to postpone its plan to buy skins from the market during the current holiday season.

J. Moriarty, managing director of Pittards Ethiopia Tannery, which produces finished sheep skins, goat skins and hide products for gloves, shoe uppers, garments and linings, as well as cow hide products for leather goods, admitted that his company will not purchase raw hides and skins from its suppliers, since the company has enough stock at its warehouse.

The company has been utilising 75pc of its capacity, since the demand in the international market is declining, according to Moriarty. The company have a capacity to process 70,000 sheep skins and 1,500 cow hides, annually.

‘‘We cannot be competitive in the international market, if we keep going to buy animal skins locally at higher price,’’ he claimed.

However, tanneries, such as the Gelan Tannery Plc, which collect the raw skins from its customers, found the current price surprising and encouraging.

“The market is becoming stable, which in turn will help the growth of the leather industry, ’’ Esmaeil Awol, officer of Trade at the Factory, says.

The higher raw material prices incurred by most of the tanneries operating in the country is in addition to the levy of export tax imposed on unfinished leather products since 2012.

This measure is intended to realise the vision of the government for the leather industry, by introducing a 150pc tax on the export of crust leather.

The last half decade has not been as successful for the leather sector as the government had planned. The government’s plan of collecting close to half a billion dollars in revenue from exports at the end of its previous five-year economic plan, which ended in 2009/10, was not achieved. Only 205 million dollars were collected. Part of the reason for this failure is that 20 of the 26 leather exporters export only crusted leather, while only six export finished leather.

Before the introduction of the export tax, most of the income from leather exports came from crusted leather. This accounted for 67.3pc of the 104.1 million dollars earned during the 2010/11 fiscal year. The plan was to achieve 180.4 million dollars.

Although the introduction of export tax failed to achieve the government plan, as outlined in the Growth & Transformation Plan (GTP), it discouraged the export of crust once and for all. The government envisions earning one billion dollars from the export of leather products by the end of 2014/15 fiscal year.

In the just ended fiscal year, the country earned only 308,000 dollars from the export of 14tns of crust. Two years before the introduction of the export tax, the country secured 74 million dollars by exporting 4,062tns of crust. But the export earnings from finished products increased to 121 million dollars.

However, this seems not enough for the Ethiopian Leather Industries Association (ELIA), which have close to 50 factories involved in the leather industry as members.

The price has to go even lower if the leather industry is going to be competent in the international market, said Abdissa Adugna, secretary general of the the ELIA.

Melaku Wirtu, commercial manager of Colba Tannery Plc, which exports finished leather products toIndia,ItalyandIndonesia, also said that the international market is not responding to the Ethiopian leather products as the result of higher price.

“We were planning to buy 20,000 skins in the holiday season, but we bought far fewer than our plan, since the demand in the international market is less.’’ Melaku told Fortune.

It has become clearer to actors in the leather industry that previous prices are no longer acceptable, if they are to stay in the market, according to Abdissa.

Berhanu Serajbo, director of Corporate Communications of Leather Industries Development Institute (LIDI), shares Abdissa’s view.

Leather factories were unable to clear their unpaid bills, as their input cost is much higher than their final price in the international market, Berhanu claims.

More is coming to the industry, as a new draft law is expected to reduce the number of middlemen in the market chain. According to the government, these are the main reason for the inflated prices.

The draft, which is expected to be ratified at the end of this September, aims to make the process of raw skin sale transparent, Tadesse Haile, state minister for Industry, told Fortune.

If the current draft is ratified, all trading between tanneries and suppliers will be conducted after the former has signed an agreement with the latter.

‘‘The draft aims to avoid the price speculation that was seen between tanneries and suppliers,’’ said Tadesse.

Nurhussien agrees with the stand of the state minister, the LIDI and the ELIA, when it comes to a sharp drop in the price of raw leather.

For Nurhussien, the drop in price means an improved opportunity for buying more skins. This would increase his profits, if suppliers are willing to buy.

‘‘My profit is around five Br, whether the price remain the same or not,’’ Nurhussien told Fortune.

Sourced here:  http://addisfortune.net/columns/animal-hides-go-cheap-as-leather-industry-falters/

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The China- built new AU headquarters in Ethiopia (pictured above), perhaps the foretaste of a coming re-alignment in Africa over development pathways?

By Nicholas Norbrook

Governments across the continent are looking for new development models after the policies of privatisation and liberalisation seem to have run their course.

The arrival of Jim Yong Kim as president of the World Bank bearing promises of a cultural revolution comes at a critical time for Africa’s prospects.

Africa is now the world’s fastest-growing continent, but questions about policy – the failure to develop viable industries and reduce worsening youth unemployment and widening inequality – remain the subject of fierce debate.

That argument pits advocates of a more state-led development strategy, which has produced impressive results in East and South Asia, against the veteran advocates of market economics and liberalisation – the old ‘Washington consensus‘ pushed by the World Bank and the International Monetary Fund in the 1980s.

The terms of the debate are shifting, it seems. World Bank vice-president for Africa Makhtar Diop told The Africa Report in 2012: “If you look at the structure of the economies in Africa 10 years ago and today, there hasn’t been much change.” Africa remains a producer of raw materials and an importer of finished goods.

British industry was protected during the industrial revolution

So what can change the structure of African economies? Has the World Bank been helping or hindering African chances of following Asia’s great industrial leaps? Some African leaders have already made up their minds. Taking Asia as inspiration, and increasingly using Asian finance as development capital, they have junked important elements of the ‘Washington consensus’ in favour of a strong developmental state.

Ethiopia’s late Premier Meles Zenawi, a theoretician of the need to reclaim the state, was most explicit in his rejection of complete faith in the market: “Developing countries face formidable market failures and institutional inadequacies [...] which can adequately be addressed only by an activist state.”

For African leaders, surveying the past 50 years of development as counselled by the West, the question is clear: Why should India, China and South Korea have succeeded when they ignored the privatisation and liberalisation dictums of the ‘Washington consensus’?

The clash of ideas

This contest of ideas is far from academic. Hundreds of millions of lives and billions of dollars are at stake. If African economies can use new ideas and technology to consolidate growth and make it self-sustaining, the next two decades in Africa could be as transformational as the last two in Asia.

Some African governments have already made their choice alongside Ethiopia. Both the Moroccan and the Rwandan government have strong investment arms. Rwanda’s Crystal Ventures has helped companies break into the roadbuilding trade, for example, and has spun off profitable businesses in the construction, food processing and security sectors.

And, in a big roll of the dice, Morocco’s King Mohammed VI has wagered the country can become the next hub of car manufacturing and aeronautical engineering on Europe’s fringes. The Tanger-Med complex hosts Renault and Bombardier as key tenants and is a testament to a thoroughly planned industrial policy.

Policymakers are asking if the World Bank, in particular its new leader, South Korean-born Jim Yong Kim, can bridge the gap between those governments trying state-led policies and the old market purists.

Kim was an astute choice to run the World Bank. He is a non-ideological leader for an age that seems to have had enough of grand narratives. “Here is the news for Africa: I am an evidence guy and so I don’t come into this saying that a particular interpretation of history is what we’re then going to take and implement on everyone else.”

Kim was a member of the ‘Fifty Years is Enough’ movement in the 1990s and edited a book condemning World Bank policies called Dying for Growth. “What we criticised them for is this sense that as long as you focus on the macroeconomic fundamentals everything else would fall into place.”

When the World Bank got mixed up between privatisation and liberalisation

The World Bank pushed for the state to get out of the development business in the 1980s, but proponents of a developmental state are making a comeback in Africa. Perhaps it was the political fervour at the time, with Margaret Thatcher and Ronald Reagan’s market fundamentalism etched so clearly against the centrally planned economies of the Soviet Union.
In any case, “‘stabilise, privatise and liberalise’ became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counselled,” writes Princeton University’s Dani Rodrik. Certainly Africa’s recollection of the Structural Adjustment Programmes (SAPs) remains vivid. From the 1980s onwards the state was distrusted as a development partner.
For Morten Jerven at Simon Fraser University, author of Poor Numbers, one of the critical mistakes of the Bank during the restructuring of the 1980s and 1990s was the assumption that the private sector would automatically fill in for the withdrawing state institutions: “The overwhelming focus was on quality rather than capability.” So for example, when the SAPs stripped out the agricultural extension programmes that financed and handed out inputs to farmers across Africa, the Bank assumed that private companies would take up the burden. They did not, as the Ivorian cocoa sector demonstrated, especially when compared to Ghana. The Ghanaian government managed to convince the Bank only to part-privatise the Ghana Cocoa Board, and today it is in a much better state.

Brain drain

Another problem stemming from that period was the brain drain that still cripples Africa. Instead of helping African governments take the courageous political decision to cut staff numbers, the Bank allowed governments to slash salaries by 50 percent, sparking an exodus of doctors, nurses, engineers and administrators to better paid jobs in Europe or the United States. “In the early period of privatising the Zambian mining sector, they could have privatised much more cleanly and to much better buyers, but politically it was such a difficult thing to do that it didn’t happen”, says World Bank chief economist for Africa Alan Gelb. “The lifeboat is not a good place to make high-quality economic decisions,” he says.
A nuanced view is emerging. Some policymakers are now saying that macro-economic reforms were necessary, but that the role of the state in nurturing industrial progress has not yet been settled. “At the time that those programmes were introduced,” says Alan Hirsch, former head of South Africa’s Department of Trade and Industry and economic adviser to South African president Jacob Zuma, “something dramatic was needed to try and get governments to think better about what their job was and what the job of the private sector was.” But, at the same time, he argues that the focus was on privatisation – and reducing the role of the state – instead of on what was needed, which was liberalisation. “Sometimes the World Bank got mixed up between privatisation and liberalisation. Liberalisation was actually more important than privatisation and in many countries that happened the wrong way round.
“Certainly in South Africa it happened the wrong way round as well in some important sectors like in telecoms,” says Hirsch. The result, in South Africa, was the creation of predatory monopolies such as Telkom. Even Western banking stalwarts like Citibank’s Africa economist David Cowan argues that the privatisation agenda has run out of steam. “I think people understand that privatisation as promoted by Margaret Thatcher and the Adam Smith Institute and Ronald Reagan and company is not the panacea. “And so people look at the Asian development model and ask how can the state drive development; how can parastatals or Korean chaebols or whatever drive development?” ●

Financiers multiply

He arrived at the Bank in July 2012 at a critical juncture. The development business, for many years the domain of the World Bank, is now an open field. There was a sixfold increase in private sector capital flows between 2000 and 2007, reaching $86bn. That makes the World Bank just one lender among many – putting into perspective the $9bn that the World Bank will disburse to Africa in 2013 through concessional loans from the International Development Association.

The fact that Kim is the first non-white to run the Bank helps to deflect the traditional irritation that developing countries suffer from being lectured to. Given the pressure from China, India and Brazil to select a candidate of the developing world, the fact Kim was born to South Korean parents may help to attenuate the disappointment that Nigeria’s Ngozi Okonjo-Iweala or Colombia’s José Ocampo did not win the post.

Refreshingly, Kim’s schooling and professional background are in the domains of anthropology, medicine and on-the-ground development work, rather than the usual Bank candidates parachuted in from the worlds of politics and finance. This sets him apart from other more strict adherents to the Washington consensus who have sat in the top offices of 1818 H Street in Washington DC.

Kim is also the first Bank president who can talk about South Korea’s development with authority. “Even during the time when there was such strong industrial policy, there was intensive competition among the chaebols [conglomerates] inside Korea. So Samsung and LG and Hyundai and Daewoo at that time were killing each other trying to compete [...] this was not your classic command economy by any stretch of the imagination,” explains Kim.

State squander

So will he temper African governments’ desires to get more involved in the economy? Certainly a clear case can be made against state involvement in industry. From around the world, at different periods in history, politicians and businesspeople have come together to bleed the public purse dry in the name of industrial policy.

Africa has some acute examples, such as the hundreds of millions of dollars that went into the steel works at Ajaokuta in Nigeria, Zimbabwe’s own steel company ZISCO, Tanzania’s General Tyre East Africa, and Volta Aluminium Company, the aluminium smelter in Ghana.

As Kim himself suggests, successful Asian economies such as China, South Korea, Taiwan and Japan managed to introduce market mechanisms into such state support. Often state subsidies were dependent on export receipts, which are difficult to falsify.

If a particular company could show it was successful at exporting a particular good, then it received more state support. “Japan’s Ministry of International Trade and Industry was superb at structuring competitive, highly transparent fights for industrial licences, staggering the entry of different firms to manage the mix of protection and competition, and forcing businesses to upgrade their production equipment”, writes Joe Studwell in How Asia Works.

The debate around this subject at the World Bank has been dormant for decades. Recently, a new front was opened by Justin Lin, the Bank’s chief economist from 2008 to 2012. Significantly, he was the first chief economist the Bank has ever had from China.

Lin’s work did not advocate a fully-fledged embrace of industrial policy, but he did talk about the role of the ‘facilitating state’. Echoing Meles, Lin writes: “Developing economies are ridden with market failures, which cannot be ignored simply because we fear government failure.”

In this mild version of state-directed development, there are useful things a state can do to encourage industrialisation. One is providing subsidies aimed at innovation in order to help companies to bear the cost of coming up with new products.

Another is government assistance in coordinating all infrastructure, institutional, legal, financial and educational improvements that need to happen before more sophisticated companies can develop.

Morocco is a classic example of this, with a raft of government-led development institutions – from the Caisse de Dépôt et de Gestion to the Société Nationale d’Investissement – which have been critical in creating an industrial fabric around Tanger-Med that includes training institutes designed by the private sector and paid for by government.

At the Bank, Lin published New Structural Economics under the World Bank imprint. One chapter of the book is a debate between Lin and South Korean economist Ha-Joon Chang. Chang is the author of a book excoriating the “Bad Samaritans” – World Bank included – who advise developing countries to ad- opt policies that they themselves did not follow.

Chang’s ideas find ready defenders on the continent. “British industry was protected during the industrial revolution,” says Central Bank of Nigeria governor Lamido Sanusi. “In America, Alexander Hamilton protected infant industry; the Asian countries also did”.

Chang’s vision of state-led development is more muscular. It takes the example of South Korean steel company POSCO.

The World Bank refused to fund it in the late 1960s on the grounds that Korea did not have reserves of coking coal and iron ore, and its companies were exporting fish and clothes. POSCO is now the third-largest steelmaker in the world and one of the most profitable.

Ethiopia has also decided to leapfrog into heavy industry, creating the Metals and Engineering Corporation (METEC) in 2010. It will have the $5bn Grand Ethiopian Renaissance Dam as an anchor client. The Bank has yet to make a decision over whether to fund the dam.

Industrialisation is not a luxury for Africa but a necessity for its longterm survival

Lin was certainly an outrider in the Bank and his talk of industrial up- grading was greeted enthusiastically by African leaders for whom World Bank emphasis on reducing poverty rather than boosting industrialisation wears thin.

“Industrialisation is not a luxury for Africa but a necessity for its longterm survival,” the African Union Commission chairwoman Nkosazana Dlamini-Zuma told delegates at a March conference in Addis Ababa.

But how far does the Bank want to take Lin’s ideas? Chang relates a conversation where Lin revealed that barely 10% of his staff went along with his ideas.

The main case against industrial policy is that a strong developmental state quickly dissolves into crony capitalism, with picking winners turned into picking friends.

“Its a razor’s edge you are playing with here! If you have an enlightened bureaucracy with perhaps a military government or at least a government able to bring along the powerful industrial groups in the direction of greater economic growth and stay on top, then maybe,” says Shanta Devarajan, formerly Africa chief economist for the Bank, now chief economist for the Middle East and North Africa.

The challenge is in designing the mechanisms through which subsidies go to the intended beneficiary.

The Bank is involved in a fertiliser subsidy scheme in Tanzania that introduced a voucher system.

“So we do it, but we’re also pretty naïve,” says Devarajan. “There is some attempt at keeping the rents from being misused – then we did an analysis in Tanzania and found that 60% of the vouchers went to local politicians and their families.”

Unsurprisingly, the successful East Asian governments were the ones that managed to corral the private sector into productive sectors of the economy without getting captured. Joe Studwell says: “Big-time entrepreneurs who are not effectively disciplined by a developing country government become the oligarchs of Southeast Asia – or Russia, or Latin America.” He could have added of Africa.

Carry a big stick

Lamido Sanusi has caught public attention in Nigeria for his own embrace of industrial planning. His dismissal of eight bank chief executives in 2009 following a huge stock market bubble did much to reduce the levels of moral hazard in the sector.

He believes in encouraging entrepreneurs to invest productively – for example, showing the diesel cartel in Nigeria, which had been sabotaging the power sector for its own short-term gains, that much greater riches are around the corner if Nigeria can keep the lights on.

“You create a lot more money by investing in a refinery, so stop being a marketeer! So you transform them from primitive accumulation into capitalists. The US had its robber barons, all the J. P. Morgans, etc.”

Ultimately, this is where the argument over industrial policy will live or die. Will METEC resemble POSCO or Ajaokuta? A general launched POSCO, and Ethiopian army officers run METEC. They may have the discipline to see the project through, though, as Nigeria’s experience shows, a military background is no guarantee.

Crucially, the managers at METEC will be driven to develop their skills and technology with the help of others, which was one of the keys to POSCO’s success. METEC has brought in France’s Alstom, China’s Poly Group and United States-based company Spire. “We’re doing this in collaboration,” METEC spokesman Michael Desta told reporters. “We want to learn from them.”

If African governments can rein in their entrepreneurs, then they may be tempted to follow the lead of Ethiopia, Morocco and others. If they cannot, perhaps they would be better off heeding the Bank’s warnings.

Sourced here:  http://www.theafricareport.com/North-Africa/will-africa-leave-the-world-bank-behind.html

Carlos Lopes’ blog:  http://www.uneca.org/es-blog

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• Tomorrow is a new country (allanapotashblog.org)
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Launches investments worth USD 470 million

By Muluken Yewondwossen

Djibouti launched new port facility construction projects at Doraleh and on the southeast coast in the Arta district at a cost of 470 million dollars.  The new investments will increase the number of port facilities in the tiny country to five, with the other project under construction on the northern coast of Djibouti. The country, which is the main gate of Ethiopia, the biggest landlocked country in the world in terms of population, launched the project on Sunday September 8 in the presence of Ismail Omar Guelleh, president of Djibouti, Somali Prime Minister Abdi Farah Chirdon and other officials and diplomats. Damerjog Livestock Port on the southeast coast and the construction of the new multiport at Doraleh are the projects that are intended to relieve the strain on existing infrastructure and accelerate economic development of the region.

According to the report presented at the event, the cattle export through the Damerjog Desengorgera Port Terminal, will eventually reach 2 million head of cattle per year. The Damerjog Livestock Port facility will also support the expansion of the growing fishing industry in Djibouti to increase exports to neighboring countries, including to Ethiopia and abroad. The work of this new livestock port facility includes the construction of a port with a linear dock about 675 meters long that can accommodate up to five ships and a transit area of 5 hectares dedicated to the rest of the animals between land transport and sea voyage. Abubaker Omar Hadi, chairman of the Ports Authority and Free Zones (PAFZ), stated that “Economic impact in export earnings will represent about 500 million dollars per year.” According to head of the PAFZ, the investment for the cattle port at Damerjog, which is exclusively dedicated to this activity, in the service of the countries of the region, totals 70 million dollars. “The construction of the new port will solve the problem of saturating the existing port but will also promote economic development through job creation,” the Chinese ambassador to Djibouti, Fu Huaqing, who attended the event, said. China has become one of the major allies for Djibouti. A few months ago a Chinese firm bought stake in the port and in the beginning of the year the Djibouti government sold almost a quarter of the Port of Djibouti’s share to China Merchants Holdings International at the cost of 183 million dollars. The construction of the two ports is also funded by China Merchants Group, which is part of China Merchants Holdings International.

“The foundations laid today represent an important step in the further development of the port of Djibouti and its logistics infrastructure,” said President Omar Gulleh. The country already has the third largest container port on the continent with a strategic location at the gateway to Africa, Asia and Europe. “Our investment plans in the short term, mainly developed in collaboration with the private sector and funded by institutions around the world, supporting the expansion of the areas of logistics, transport, fisheries, natural resources and tourism to generate new jobs and encourage further developments in the country, ” the president said. According to officials at the port, the multiport Doraleh will be built in two phases. “This will have a 4130 meters quay with 15 berths and can handle 29 million tonnes of cargo per year,” the port authority president said. In the first phase, the port will have a length of 1,200 meters with seven berths, including a ro-ro station (Roro Berth) and six versatile docking stations that can accommodate ships with a cargo carrying capacity reaching 100,000 tons. Thus, 7 berths in the first phase will handle about 12 million tonnes of cargo per year. The surface area of phase I will cover 268 hectares. According to the authority head, these investments in the port of Doraleh amounted to 400 million dollars. The Chairman of the Port Authority and Free Zones has already announced the development of a gas terminal, one for crude oil, a naval repair yard, free trade zones and Khor Jabanas Ambado (recreation beach) and finally an airport and cargo village at Chebelleh as well as hotels and resorts in Ras Syan.

In December last year the country launched the construction of the third port of Djibouti, the Port of Tadjoura with the presence of the government heads of Djibouti and Ethiopia. The Port of Tadjoura is scheduled to be completed within 33 months and will be another option for Ethiopia and the newly born country, South Sudan, for their import and export activities. This new Tadjoura port will be connected to Ethiopia by road from Tadjoura to Balho and by railway with the Ethiopian town of Mekele, in the future. The new Port of Tadjoura is to be built in the Tadjoura Gulf about 1 km west of the town of Tadjoura, developed along 700m of the Eastern Walwallè wadi outlet, and will consist of a quay of about 435 m in length made by a circular cell structure, a typical Ro-Ro terminal about 190 m length,  and an embankment of 30 hectares that will have an annual capacity of eight million tons. The project is expected to consume 61 million dollars which is going to be covered by a loan from Kuwait based Arab Fund for Economic and Social Development (36 million dollars) and Saudi Fund for Development (25 million dollars). Tadjoura is the closest outlet for Ethiopia’s Afar region, where a number of foreign firms, including Canada’s Allana Potash Corp, are developing potash mines. The port will be a big benefit to the mining companies to export their products. It is also relatively close for eastern Amhara and Tigrai regional states, which are becoming major industrial hubs in the country. Currently, Ethiopia is mainly using the Port of Djibouti and the Doraleh container terminal for its import/export activities.

Sourced here:  http://www.capitalethiopia.com/index.php?option=com_content&view=article&id=3522:djibouti-expands-its-ports-facilities-to-five&catid=35:capital&Itemid=27

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The United States Government, through the United States Agency for International Development (USAID), signed a partnership agreement on November 13 to improve urban emergency preparedness and response in Addis Ababa.

14 November 2013

USAID will provide technical assistance to the city government of Addis Ababa that will make a significant difference in minimizing the effects of a disaster, including saving lives, protecting property, and helping the city recover more quickly from a disaster.

USAID and the Government of Ethiopia are expanding their partnership to include a focus on urban disasters in Addis Ababa through the city’s Fire and Emergency Prevention and Rescue Authority (FEPRA).  The partnership will include training on the U.S. National Incident Management System (NIMS) for managers and first responders to increase capacity for preparedness and response for urban disasters including firefighting, urban search and rescue and earthquake scenarios.

NIMS, a framework for disaster response and preparation currently used in the United States, makes it easier for governmental and private sector agencies to work together to prevent, respond to, recover from, and mitigate the effects of disasters.  Through this agreement, USAID will help the city government of Addis Ababa to develop city-wide emergency operation plans, establish disaster management teams, develop standard operating procedures for effective resource management, and develop a more integrated communication system for city-wide emergency preparedness and response.

“We are extremely happy to see this expansion of our cooperation with the Ethiopian Government in disaster management,” said USAID Ethiopia Mission Director Dennis Weller.  “We believe that FEPRA will be a strong and capable partner in improving disaster preparedness and response, benefiting all residents of the City of Addis Ababa.”

NIMS uses the Incident Command System which is globally recognized as a best practice for emergency response, providing organizational structure and processes at the field level to help regional and local governments more rapidly and effectively respond to disasters.  The Incident Command System functions in disasters of any type or size, allowing personnel from a variety of agencies to fit rapidly into a common management structure.

Since 2008, USAID has supported a technical assistance partnership with the Government of Ethiopia to improve disaster response and preparedness capacity.  The U.S. Forest Service has been implementing the partnership in collaboration with Ethiopia’s Disaster Risk Management and Food Security Sector Early Warning and Response Directorate and this agreement expands the partnership to the City of Addis Ababa.

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Microsoft co-founder and philanthropist Bill Gates (pictured, above) speaks at a breakfast meeting hosted by Civita, a liberal think tank, in Oslo November 15, 2013.

By Balazs Koranyi 

OSLO -  Fri Nov 15, 2013 - (Reuters) – Philanthropist and Microsoft co-founder Bill Gates called on Norway’s $800 billion oil fund, one of the biggest investors in the world, to spend more in the poorest countries, gaining the prime minister’s support with his proposal.

Gates, who runs the $37 billion Bill and Melinda Gates Foundation, said Norway should set aside a portion of the fund to invest in infrastructure in sub-Saharan Africa and Asia, and buy equity in small enterprises that alleviate agricultural and medical problems.

“Norway is by many measures one of the richest countries in the world and you can afford to take some of that money and help out people in other places,” Gates said on a visit to Oslo.

Norway is working on a complete review of the fund, including its investment strategy. Critics say it has become too big and needs to diversify away from stocks, bonds and real estate, and may even need to be broken up into specialized vehicles.

“It is part of our platform that the oil fund should invest more in developing markets,” Prime Minister Erna Solberg, who took power last month, said after meeting Gates.

“We will make sure the fund gets a mandate that allows them to invest in companies and maybe also infrastructure in these developing countries,” she said. “We believe it can give a just as good return as similar investments in developed nations.”

Gates argued that spending in poor countries, primarily on roads, rail and power, would be an investment, not a donation, as it would generate returns over time, even as the spending had a dual role of generosity.

“The area where you may get this dual benefit is … in sub-Sahara Africa and some of the countries in Asia,” Gates said. “That’s an asset class, which could absorb, if it was well managed, an additional $10 billion… I’m not talking about a gigantic amount.”

Norway has amassed the world’s biggest wealth fund, saving up its surplus oil revenues, and operates it as a sort of endowment, spending only its returns. It is expected to exceed $1 trillion this decade and already owns about 1.25 percent of all global equities, a huge amount for a country of 5.1 million.

Although the review may result in a new investment strategy, Norway’s consensus based politics means changes are slow and often take several years.

“There’s no doubt in my mind that a larger part of not only our investments but all investments will and should move into frontier markets with less developed markets and higher risk,” Finance Ministry State Secretary Jon Gunnar Pedersen said.

“Government initiatives and agencies will play an important part of this because private investors need someone’s assistance, someone to piggyback to access these markets.”

Norway is spending around $5 billion on foreign aid in dozens of countries this year, making it one of the biggest donors per capita.

But the civil sector often criticizes the government, arguing that Norway’s unusual fortunes, which have pushed per capita GDP to around $100,000, warrant even more generosity.

“There’s essentially a lack of long term capital and risk capital (in the poorest countries) … and Norway happens to own the world’s largest source of long-term capital,” said Anne-Marie Helland, the head of Norwegian Church Aid, a top donor.

“This allows it to be extremely long term and particularly well suited to invest in unlisted and illiquid assets, such as development, energy, infrastructure, agriculture, regrowth, etc, in developing counties.”

(Additional reporting by Joachim Dagenborg; Editing by Toby Chopra)

Sourced here:  http://www.reuters.com/article/2013/11/15/us-gates-norway-idUSBRE9AE0GN20131115

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After South Africa and Nigeria, Ethiopia is becoming a hub of Africa’s aspirations in space with the East African nation’s finalising the installation of two huge deep-space observatory telescopes to promote space research in the region, a prelude to its developing a space mission by launching its own satellites.

“The two telescopes with their telecommunications technology allowing remote internet-controlled operations mark the first steps of Ethiopia’s future space ambitions,” says Solomon Belay, director of Entoto Space and Astronomical Observatory Centre.

The Ethiopian Space Science Society (ESSS), which has been installing the two telescopes, each of one-metre diameter, at an elevated point over 20 km from the capital Addis Ababa, is at the forefront of this programme. Over the next three to five years, the ESS plans to launch three satellites in space joining South Africa and Nigeria as the third African country with a space mission.

Ethiopia is not the first African nation to look to the skies. South Africa has its own National Space Agency and, in 2009, the African Union announced plans to establish The African Space Agency. Sudanese President Omar al-Bashir, indicted by the International Criminal Court for war crimes, has also called for a continent-wide space programme.

The physical installation of the telescopes and accessories bought from the German technologies company, Astelco Systems, for 3.4 million dollars, was finalised Oct 27. All that remains now is the caballing and linking of the telescopes to computers and other control systems, according to Solomon Belay, director of Entoto Space and Astronomical Observatory Centre.

“The facility will primarily be used by students and researchers to observe astronomical objects,” Belay told IANS.

Most of the money for the Entoto construction and equipment is coming from its foundation that relies on the contributions of its over 1,800 individual members, including Sheikh Mohammed Hussein al Amoudi, a Saudi-Ethiopian billionaire businessman, who is the richest man in the country and is ranked by Forbes as the world’s 65th richest person.

“Once we establish this facility and create postgraduate programmes in space sciences, our students will be able to go anywhere and participate in international satellite communication missions. They will acquire good skills and can work to benefit other types of technology too, like telecommunications,” Tulu Besha, head of earth observation with the Entoto Space and Astronomical Observatory Centre, told a group of journalists invited to witness the installation of huge metal domes that would house the telescopes.

Located away from the bustling city of Addis Ababa at a vantage point of 3,200 metres above sea level on the lush Entoto plateau with clear sky, no building and other objects blocking the view of outer space, construction of the Entoto facility began in 2008.

The facility also houses two buildings, a few hundred metres away from the telescopes, meant to house the main laboratories, dormitories and guest houses for researchers. Installation of equipment is also under way.

ESSS is also planning to set up a second bigger observatory near the town of Lallibela in northern Ethiopia, on a higher point of 4,200 metres above sea level.

One of the satellites will be used for military and security purposes and the second for telecommunications while the third will serve earth observatory programmes to support the country’s agriculture sector by providing more accurate information on meteorological and climate change trends, according to these sources.

The Ethiopian government funds the telescope project indirectly via 32 public universities that will run the observatory. It also provides some of the necessary infrastructure, including roads, electricity and internet connectivity.

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

Sourced here:  http://www.business-standard.com/article/news-ians/ethiopia-is-newest-hub-of-african-aspirations-in-space-113111400495_1.html

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         12 November 2013  By Michael Elliott

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Having been assigned to head the World Bank’s country office in Addis Ababa, Guang Zhe Chen has spent two years frequently visiting sites where the Bank extends money for the projects of the government. Last week, he led a small team to one of the most productive parts of the country.

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For Alemetu Deme, a farmer who shook hands with the Prime Minister, everything is possible, and she expects more than a hundred quintals per hectare from her wheat harvest.

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The tripartite arrangement of the Common Market for Eastern and Southern Africa, East African Community and Southern Africa Development Community (COMESA-EAC–SADC) is the most exciting trade and infrastructure development in Africa at the moment.

It provides the foundation of the Continental Free Trade Area promoted by the Africa Union (AU) Commission and its partners.

The main reason why the three Regional Economic Communities (RECs), decided to launch the Tripartite Programme in 2006 was to remove some of the inconsistencies and costs in regional integration brought about through overlapping memberships.

Thus the Tripartite is not a new legal structure neither is it a new REC. It is an attempt to merge the Regional Organisations into the African Economic Community.

There are benefits which accrue from countries being members of more than one REC. Among them, is the achievement of economies of scale. Through developing its large internal market, Africa and producers in the continent will be in a position to compete globally.

Tripartite countries account for half (27) of the Membership of the AU with a Gross Domestic Product of $1.3 Trillion, a population of 565 million and a combined landmass of 17 million square kilometers.

COMESA alone brings to the tripartite table 19 Member States, a population of over 490 million, an annual import bill of around US$150 billion and an export bill of US$82 billion.

The tripartite strategy consists of designing and implementing the Tripartite FTA, the preparation of a Trade and Transport Facilitation Programme elaboration of a regional industrial development programme, the design and implementation of trade and transport infrastructure projects along corridors and free movement of business persons across the RECs.

The Tripartite Free Trade Area builds on the FTAs that are already in place in COMESA, EAC and SADC. Its roadmap presupposes that the countries will need to engage in negotiations.

It also recognises that there are Preferential Trade Areas and FTA trading arrangements already in place among them. This means that not all the countries will need to negotiate with each other.

Significant progress has been made in implementing the Tripartite FTA and negotiations are underway, although behind schedule. However, efforts are being made to catch up and complete negotiations within the 36 months set in the roadmap. Of the 27 countries in the Tripartite, 23 are already in a Free Trade Area, two (Ethiopia and Eritrea) are in a PTA and three (Angola, DR Congo and South Sudan) offer no trade preferences to their regional partners.

The proposal that has been adopted by the Tripartite Summit is that those countries that are in FTA should extend the preferences they offer to first, members of their regional FTA and secondly, to members of other regional FTAs.

For example, all COMESA members implement the COMESA FTA and offer the same preferences to non-COMESA FTA members on a reciprocal basis.

EAC and SADC States do the same; and COMESA Non-SADC and EAC members offer SACU (a customs union comprising of Botswana, Lesotho, Namibia, South Africa and Swaziland), Angola and Mozambique duty free, quota free market access for all originating goods on a reciprocal basis.

If this is done the TFTA will be arrived at for all 27 countries in the Tripartite in a relatively short period. It is also possible to implement the TFTA at variable speeds given that some countries may achieve a tariff phase-down to zero tariffs on originating goods faster than other countries, subject to negotiations.

It is safe to draw the conclusion that the Tripartite Free Trade Area is more of an opportunity than a threat. But to realise that opportunity we need to reject the “crab in a bucket” mentality and work together for the common good.

It is not a zero-sum game, what is good for our neighbour can be good for all of us. The challenge is to get this message across to the general public, civil servants and private sector.

The counterfactual to the Tripartite Free Trade Area is a steady spiral downward, another generation of missed opportunities and continuing to bump along the bottom.

Sourced here:  http://www.comesa.int/index.php?option=com_content&view=article&id=974:tripartite-free-trade-area-an-opportunity-not-a-threat&catid=26:other-news&Itemid=48

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Written by Yetneberk Tadele  (links added by cambodine)

Yetneberk Tadele  -  EBR Staff Writer.

 

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New Proclamation to Grant More Responsibility to Trade Practices Authority

The proclamation, which will also see the authority renamed, has been supported by the United Nations Conference on Trade and Development

The Trade Practices & Customers’ Protection Authority (TPCPA) is to see itself gain additional powers in two weeks, when a revised proclamation is enacted into law by Parliament.

According to the revised proclamation, the Authority will prosecute violations of trade practices and impose financial penalties. The revised proclamation, which includes a change in the name of the Authority itself, was approved by the Council of Ministers two months ago. It has now been sent to the Trade Affairs Standing Committee of the Parliament for further scrutiny.

Accordingly, the Authority will acquire the new name of ‘Trade Competition & Customers Protection Authority’. The rationale behind the change in name is that the term ‘trade practices’ includes a wide range of issues that may be beyond the mandate of the Authority.

“We are subsets within the larger trade practices,” Merkebu Zeleke, director general of the Authority, said while briefing journalists on the revised proclamation at the TPCPA’s headquarters, located inside the Fana Broadcasting Corporate (FBC)’s building near the Black Lion Hospital in Lideta District. “The term ‘trade practitioner’ covers the entire process, from registration to enforcement,”

When established back in 2010, the Authority was tasked with safeguarding the rights and privileges of consumers, inspecting traded goods and making buying and selling more efficient.

While its efforts over the last three years have focused on protecting the business community from unfair competition and market practices, as well as from misleading market conducts, the revised proclamation will give it additional powers. One of these will enable it to investigate cases related to unfair trade competition- a power that has been afforded to it as a representative of the Ministry of Trade (MoT).

The Authority established a court back in June, 2013. Its judges were appointed by Prime Minister Hailemariam Desalegn.

The court was authorised to deal with civil procedures within the trading disciplines, but had no power to impose financial penalties on those it found guilty. The revised proclamation has given it that power. The court started hearing the first cases three weeks ago.

“The court will begin dealing with financial penalties as soon as the revised proclamation is put into effect,” says Tesfaye Neway, a judge appointed by the Prime Minister.

The Authority has benefited from experience sharing with advisors from the United Nations Conference on Trade and Development (UNCTAD), according to the director general.

“This helped us in revising the proclamation,” Merkebu informed.

The Authority is also expected to deal with addressing the daily prices of commodities.

http://addisfortune.net/articles/new-proclamation-to-grant-more-responsibility-to-trade-practices-authority/

Uncollected Steel Imports Create Congestion Risk at Port of Djibouti

Up to 200,000tn of steel that Ethiopia imported within the last three months through the Port of Djibouti is yet to be retrieved by importers, which could lead to congestion, Fortune learnt.

Most of the steel, 180,000tn of which belongs to private importers, failed to be picked up because of financial problems encountered by importers, according to the Ethiopian Shipping & Logistics Services Enterprise (ESLSE).

The goods were imported through a uni-modal arrangement, where once the goods arrive at the port, importers are responsible for handling the paperwork and transportation into the country.

Though officials from the two countries are discussing the issue, they have disagreements on its seriousness.

While officials from the Enterprise are pushing importers to collect their steel ‘soon’, officials at the Port are insisting that not only is it not in danger of congestion, but that it has the capacity to handle even more steel.

“Congestion happened for the last time in October 2012 and we sorted it out,” said Aboubaker Omar, chairperson of the Djibouti Ports & Free Zones Authority. “The issue of congestion does not worry us.”

The Port, which has the capacity to serve about 150,000tn at a time, charges fees for each day that goods stay on its premises.

“They tell us that they can serve up to 500,000tn, but we know a large amount of steel is left on the soil near the water because they do not have enough space,” Mesfin Teferra, freight-forwarding deputy CEO at the Enterprise, told Fortune.

These kinds of snags in importing goods are not new to Ethiopia, with reports by international organisations, such as the World Bank (WB), indicating that poor logistics is severely hampering trade and foreign direct investment. The country ranks 141 in the world in the logistics sector, according to the WB’s latest assessment released in June 2013, which is a drop from the 104th ranking the country had just five years ago.

The Enterprise, which launched a multimodal system in mid-2010 to streamline shipments from Djibouti Port through a door-to-door service, aims to handle 80pc of cargo through this method by the end of the current fiscal year – up from the 56pc at the end of the 2012/13 year.

That system, which was supposed to help avoid warehouse fees in foreign currency and the confiscation of imported goods, has, however, also been subject to numerous reports of congestions and delays since the beginning.

These recurrent logistical problems are currently being studied by Nathan Associates Inc, consultants hired by the government for one million dollars in June 2012, to develop an in-depth logistics and trade strategy for Ethiopia.

The diagnostics analysis that the consultants submitted to the government in late September, which is the first of four reports due by March 2014, assessed institutions and stakeholders involved in the transport sector. These included the Modjo Dry Port and truck drivers that transport goods by land on the Ethio-Djibouti corridor. They found that much greater collaboration by different institutions in the logistics sector is needed to overcome the problem.

In the meantime, however, the problems remain unresolved.

On the Tuesday, November 13, 2013 edition of Addis Zemen – a state-owned Amharic newspaper where government announcements are published – the Maritime Affairs Authority (MAA), which is under the Ministry of Transport, warned importers that they have to pick up their goods within the next three weeks.

Though that is the extent of the measures the Enterprise has taken so far to solve the backlog of imports at the Port, depending on the reaction of the importers, serious measures may soon follow.

“The Djiboutians are not the losers when this happens,” said Mesfin. “It is rather Ethiopian customers that will face the price hike that is likely to come when the importers attempt to compensate what they lost.”

Previously, imported goods would be picked up within 15 to 20 days of their arrival, but 50pc of the steel imported and available at the Port currently has stayed for more than 90 days, according to available data at the MAA.

The part that belongs to the government is expected to be picked up from the Port and transported into Ethiopia within a month, according to officials at the Enterprise.

The government’s steel was mostly stuck due to a shortage in transporters. The fact that the steel is needed to help the ongoing construction projects is the major drive for the government to insist it be transported soon, according to them.

Following truck congestion that happened at the Port previously, the Enterprise signed a Memorandum of Understanding (MoU) a month ago with seven private transporters to transport goods from the Djibouti Port and Modjo Dry Port to Addis Abeba.

http://addisfortune.net/articles/uncollected-steel-imports-create-congestion-risk-at-port-of-djibouti/

ETE to Open Three New Cash-and-Carry Outlets

-  The new outlets are seen as a way of improving price competitiveness in the capital

The first three stores of the Ethiopian Trade Enterprise’s (ETE) new cash-and-carry chain will open in Addis Abeba in the first quarter of 2014, under the trading name Alle Bejimla.

The Amharic name Alle Bejimla, which will be known as just Alle in English, literally translates as “wholesale is available”. It will initially begin operations through a business-to-business model that focuses on providing goods to businesses like kiosks, cafes and hotels.

The three locations of the new wholesaler were all previously owned by the Merchandise Wholesale & Import Trade Enterprise (MWITE), another state-owned enterprise.

One store is located in Megnenagna, Bole District, close to the automotive company AMCE, while the second one is in Kaliti, Akaki-Kaliti District. The third one is what used to be the main MWITE store in front of Khelifa Building, in Merkato, Addis Ketema District.

The General Manager of MWITE, Gemeda Aleme, confirmed that the stores were taken from his enterprise some two months ago.

“They are currently renovating them,” he told Fortune.

The one billion-Birr project was initiated by the government over concerns that runaway inflation was caused by a lack of competition in the wholesale market of the country. In an attempt to tame the escalating prices on consumer goods, the administration of the late Prime Minister Meles Zenawi had even taken control of private wholesalers’ import distributions and warned them it would open the sector to the test of foreign competition.

Eventually it was decided that a new state-owned enterprise would be formed to increase competition in the sector.

The new cash-and-carry chain will be managed by a board, comprised of six members, Fortune learnt. The board members will be top officials from the Prime Minister’s Office, Ministry of Trade (MoT), the Ethiopian Revenues & Customs Authority (ERCA) and the Trade & Consumer Protection Authority at the MoT, according to sources.

The operation is going to be a purely Ethiopian affair, according to Joy Muchina who works at Cactus Ethiopia – the company retained as the public relations contact of the Enterprise.

However, Fortune confirmed from a source that A.T. Kearney, a consultancy firm headquartered in the American city of Chicago, will be involved as consultants on recruitment and the establishment process of the company. In addition, it will also develop a business plan capable of making the company profitable.

The involvement of the global firm, which was estimated to have earned in excess of one billion dollars in 2012, is not new. Its German office recently designed the ETE’s Enterprise Resource Planning (ERP) – a business management software that the company can use to manage business processes, including inventory and cash flow, after it won the seven million Euro (9.4 million-dollar) project in February 2013.

The management of the firm, however, is yet to be determined. The process of recruiting heavyweight staff members, including the positions of general manager, deputy general manager and finance director, has just began.

“In addition to the stores offering much more variety than is currently available, the management will also be more structured,” said Muchina.

Once the positions are filled, the stores will open for business, a process that the ETE plans to complete early next year.

The three locations in Addis Abeba, which are pilot stores, will form the basis for a nationwide expansion, said Muchina, who declined to disclose details of the planned timeline.

However, while previously talking to Fortune in late September, Ali Siraj, state minister for Trade, had indicated that 36 wholesale stores are planned across the country within 27 months.

This arrival of a state-owned giant enterprise had previously raised concerns it would not add much to the local market. A macroeconomist who previously spoke on the issue had stated that there was no use creating an enterprise that would be similar to the MWITE. Structural constraints in the supply chain were what needed to be resolved, was his message.

In addition, it could instead hurt local wholesalers.

However, Alle’s arrival is not a concern for Al-Sam Plc – one of the main wholesalers in the country, according to Saber Argaw, a major shareholder, who noted that the company is already handling competitors.

“Competition is healthy,” echoed Muchina. “Alle will not hurt wholesalers, we will complement each other.”

http://addisfortune.net/articles/ete-to-open-three-new-cash-and-carry-outlets/

Lion International Bank Almost Doubles-Up On Profits

-  A considerable increase in service charges and commissions influenced the growth, with foreign exchange dealings remaining more static

Lion International Bank recorded a 23.26pc increase in their non-interest income in the 2012/13 fiscal year, reaching 128.08 million Br.

A considerable increase in income earned from service charges and commissions – which grew from 45.03 million Br to 61.21 million Br – was the major factor for the growth, as the gains from foreign exchange dealings only increased by 4.9pc to reach 27.86 million Br. This modest result makes Lion the lowest achiever in foreign exchange among the banks that have released their financial reports so far.

Nonetheless, the Bank’s total revenue has increased considerably. Interest income has grown twice as fast as non-interest income – recording a 46pc increase over 2011/12’s figure. This saw it standing at 168.96 million Br by the year’s end.

As a result of this performance, profit after tax of 111.29 million Br was recorded by the Bank. This is a 47.6pc growth over the previous results.

Lion’s success in the year that ended on June 30, 2013 came in a demanding environment, where the cost of rent rose to staggering levels, coupled with operational constraints.

However, the Bank managed to show a restrained rise in its staff and general administrative expenses, which stood at 88.8 million Br. Expenses which rose by 27.4pc over the 2011/12 year, were eclipsed by the 35.25pc increase in total revenue during that same period.

“The Bank focused on reducing expenses as a strategy,” said Daniel Gebregziabher, director of Business Development & Corporate Planning at the Bank.

In addition, the introduction of its One Window Service – a streamlined service provision that improved efficiency – was also a factor in its successful year, according to the message of the Board chairperson, Birhanu Gebremedhin (PhD) printed together with the annual audited report.

Lion’s successful year is also seen in the significant reduction of its provision for doubtful loans, which plummeted to 2.06 million Br from 5.24 million Br. This is all the more notable since the Bank disbursed loans and advances of 1.3 billion Br – an increase of 36.13pc over 2011/12 figures.

“That is a considerable reduction and the management of the Bank should be applauded,” said Abdulmena Mohammed, who is an accounts manager for Portobello Group Ltd – a London-based holding company with subsidiaries in property investment and development.

Daniel attributes the reduction to the Bank focusing on increasing scrutiny prior to loan disbursement. This is in addition to a more decentralised system to follow up on these loans, by enlisting its 44 branches, which are due to rise by an additional three in the next week.

The rest of the Bank’s balance sheet showed that total assets rose by 19.5pc to 2.9 billion Br, and mobilised deposits reached 2.106 billion Br, up from the 1.7 billion Br in 2011/12. This is an increase of 21.26pc. The loan-to-deposits ratio of Lion has now soared to 61.73pc from 55pc.

Despite this performance, the balance sheet also revealed that Lion’s liquidity is showing signs of strain. Liquid assets-to-total assets plummeted to 27.2pc from 42.19pc, while liquid assets-to-deposits went down to 38pc from 59.83pc. Lion’s liquidity analysis further shows that liquid assets-to-total liabilities decreased to 32pc from 51.41pc.

This is most likely due to the Bank’s growing investments in five-year Nation Bank of Ethiopia (NBE) bonds, which have reached 523.21 million Br – up from the 346.5 million Br by the end of 2011/12. They now account for 17.78pc of total assets and 24.84pc of total deposits, while in the year ended June 30, 2012, they were at 14pc and 19.95pc, respectively.

“A further increase in the loan- to-deposit ratio is highly unlikely as the investments in NBE bond are building up,” cautioned Abdulmena.” If Lion tries, it will be at the risk of a liquidity squeeze.”

Striking a good balance between achieving a high loan-to-deposits ratio and maintaining reasonable liquidity levels should be on the agenda this year, he added.

Though Daniel agrees with the issue of maintaining reasonable liquidity levels, he argues that Lion’s asset quality is in good shape. Return on capital has risen to 21pc from 19pc in the previous year, he pointed out.

“We have  been able to efficiently utilise loan funds,” he said.

Lion, which increased its paid-up capital by 11.6pc to 374.94 million Br, can comfortably meet the 500 million Br threshold, which the NBE requires from banks, by 2016, according to the account manager. “Lion is a well-capitalised bank,” Abdulmena said, noting the Bank’s capital adequacy ratio of 34pc. “It can easily comply with the NBE directive by increasing its paid-up capital by 10pc per annum.”

http://addisfortune.net/articles/lion-international-bank-almost-doubles-up-on-profits/

Berhan Bank Sees Total Assets Leap to More Than Two Billion Birr

Berhan International Bank S.C. (BIB) saw its total assets increase by 71pc to 2.197 billion Br in 2012/13.

The Bank, which also managed to perform well in its financial intermediation operations, has doubled loans and advances to 964 million Br and mobilised deposits of 1.593 billion Br.

This came despite the fact that the Bank operated in a tight environment, marred by shortage of foreign currency, which negatively affected its operations. This has pushed the cost of doing business up to much higher levels.

The steep rise in competition for resources has also been among the main challenges faced by the Bank to maintain success in the fiscal year that ended on June 30, 2013.

“The Central Bank’s order to all private banks to maintain loan portfolios that are comprised of at least 40pc short-term loans has become a big challenge,” Daniel Gebremedhin, director of Planning & Business Development Division with the Bank, told Fortune.

Berhan has invested 348.85 million Br into NBE five-year bonds. This represents 15.88pc of the total assets and 21.9pc of the total deposits of the Bank.

At a time when deposit mobilisation sources are drying up for most of the private banks operating in the country, Berhan’s total deposit as of June 30, 2013, reached 1.6 billion Br. This is an increase of 661.4 million Br or 70.9pc compared to last year’s figure of 931.7 million Br. Berhan has managed to improve its loan to deposits ratio to 60.5pc from 53pc.

This achievement came against the prevailing competitive environment facing the sector.

“It shows the growing confidence of the public in our bank,” Daniel said.

Berhan, which held its annual assembly on Saturday, November 9, replicated this success in its profit, registering a growth of 55.21pc to 52.29 million Br. Growth in both interest and non-interest income helped the Bank to achieve this profit.

“Interest income and foreign commissions contributed greatly to reap greater profits,” Daniel said.

The Bank, nevertheless, incurred costs while increasing its income, with expenses in staff and general administration increasing considerably.

Interest expense has increased by 38.81pc to 39.2 million Br and staff and general administration expenses have soared by 70.58pc to 58.97 million Birr.

Further expansion in staff and general administration expenses is inevitable as Berhan is a newcomer to the industry, said Abdulmena Mohamed, who is an accounts manager for the Portobello Group Ltd – a London-based holding company with subsidiaries in property investment and development.

“The management of the Bank should maintain the income growth in line with the expansion in expenses,” said Abdulmena.

Where the Bank differed from several others in the industry is in its liquid assets, which have registered high growth. Berhan’s cash and bank balances have gone up by 37.47pc to 739.87 million Birr. The liquid assets to total assets ratio has declined to 33.67pc from 41.88pc and liquid assets to deposits ratio has dropped to 46.44pc from 57.76pc.

Despite this decline in the various liquidity measures compared to last year, the ratios are significantly higher than other private banks.

“This should give Berhan ample opportunity to expand its loan book in the coming years,” Abdulmena said.

Daniel agreed with Abdulmena, indicating that the loan expansion of the Bank has improved in the year that ended on June 30, 2013.

During the previous year, Berhan managed to open seven additional branches in Addis Abeba and other towns, pushing the total number of branches up to 22. Four sub-branches have also been opened during the year, increasing the number of sub-branches to five.

“We plan to open 20 new branches this year,” Daniel said.

Having achieved a capital adequacy ratio (CAR) of 35.25, Berhan is well-capitalised. It has increased its paid-up capital by 58.77pc to 313 million Birr.

Berhan needs to increase its capital by 17pc annually, in order to meet the NBE directive that compels private banks to increase their paid-up capital to half a billion Birr by 2016, recommended Abdulmena.

“We can comfortably meet the NBE’s requirement by 2016,” Daniel said.

However, the increase in paid-up capital last year, according to Abdulmena, is far higher than required. It has considerably undermined EPS and return on equity, which dropped slightly to 15.39pc from 16pc.

“The management of should increase capital gradually to reduce its impact on shareholders returns,” Abdulmena advises.

http://addisfortune.net/articles/berhan-bank-sees-total-assets-leap-to-more-than-two-billion-birr/

Habesha Breweries Sells Shares to Increase Capital

-  The income from the sale of the shares is to fund the construction of Habesha’s factory in Debre Berhan

Habesha Breweries S.C sold 66,301 shares on November 16, 2013, at its headquarters located in the Hayahulet Mazoria area, Yeka District. This came following the decision to sell the shares during the company’s eighth extraordinary general assembly meeting on July 6, 2013.

The Company had intended to sell 300,000 new shares to increase its capital to 550 million Br from its current 250 million Br.

Habesha’s existing shareholders were offered the chance to buy 200,000 of the new shares without the premium asked from new shareholders for buying the shares risk-free, according to Yonas Alemu, Marketing & Business Development manager of Habesha.

“They have been with us right from the day the Company first began operating,” said Yonas, explaining that now that the factory is being built, risk has reduced. “They took a risk in buying our shares then.”

After the decision to sell the shares, 127,539 were snapped up by existing shareholders at 1,000 Br a share during the 40 days from July 1, 2013.

However, this left 72,461 unsold shares, which were put up for a bid. Seven bidders submitted their documents up until November 15, 2013.

A current shareholder who bought 100 shares when the Company was setting up shop, however, is not concerned that the offer of the shares to the public would dilute his shares.

“I like looking at the big picture,” he told Fortune, adding that although he was offered 100 shares this time around, he opted not to buy. “Having more shares will mean we have more presence in the economy.”

While existing shareholders could buy just four shares, new shareholders were required to bid for a minimum of 10 shares, for at least 1,000 Br a share.

“We cannot divulge the amount of money offered by the leading bidders or the identity of the winner just yet,” said Eskinder Desta, vice chairman of the Board of Directors. “The Board has to validate the sale before we make an official announcement.”

The Company had no problem setting the price of shares, even though there is an absence of secondary share prices in the country, according to Zewdu Negate, general manager of Habesha’s factory.

“The price of the shares is the same as it was at the beginning of the Company,” Zewedu said. “This is the par value though.”

The income from the sale of the shares is to fund the construction of Habesha’s factory found in Debre Berhan – a town 125km north east of Addis Abeba – which started in September 2013. The factory, located on a 7.5ha plot of land, will have the capacity to produce 500,000 hectolitres a year. Construction, undertaken by Lehui Food Machineries Co Ltd – a contractor from China – and Yerer Construction Plc – a local civil contracting company – is expected to end within a year.

Habesha has 7,800 local shareholders and Bavaria N.V. Brewery – the foreign shareholder which owns 49.9pc of the Company, according to Eskinder, who added no shareholder is allowed to hold more than 50pc of Habesha.

The remaining shares will be put on the market at a later date, Fortune learnt. The Company plans to construct a malt factory in the near future.

Availing two types of beer, Premium and Lager, to the Ethiopian market, as of September, 04, 2014, is in the pipeline, according to Eskinder.

Habesha is set to enter a market that is still undeveloped. Ethiopia’s average annual beer consumption stands at five litres per person, while Kenya’s is 12 litres. According to research by the Kirin Institute in Japan, the Czech Republic tops the list with 131.7 litres a person.

BGI Ethiopia ranks first in the Ethiopian beer market with a 48.25pc market share. The Heineken and Dashen Breweries trail behind as second and third, with an 18.75pc and 18pc, respectively. Diageo Plc comes last with 15pc.

http://addisfortune.net/articles/habesha-breweries-sells-shares-to-increase-capital/

Ethiopia and Angola double number of girls in school in 10 years

NAIROBI (Thomson Reuters Foundation) - The number of girls enrolling in primary school has soared across Africa in the last decade, according to a report released on Monday, which also found a significant drop in the number of child deaths over the past five years.

With primary education now free in all but five African countries, there has been a boom in the number of children attending school, with Ethiopia and Angola showing the most dramatic improvements.

In Ethiopia, girls’ enrolment rose to 83 percent from 41 percent between 2000 and 2011, while Angola saw an increase to 78 percent from 35 percent, according to the African Report on Child Wellbeing produced by the African Child Policy Forum, a research institute based in Ethiopia.
The report looked at how child-friendly African governments were by measuring their performance in providing basic services for children, adopting laws and policies to protect children, and promoting child participation in decisions that affect them.

African governments are increasingly child-friendly,” former Mozambican president Joaqim Chissano said in the report. “Achievements on the education front – and particularly the dramatic increase in access to primary education, especially for girls – are commendable.”
However, girls continue to fare poorly at secondary school. In Angola, only 12 percent of girls attend secondary school, slightly below 15 percent of boys.
“Low levels of access to secondary education mean they will also not enter tertiary education, which effectively excludes them from the most gainful employment opportunities, thereby perpetuating systemic gender imbalance,” the report said.

Across Africa, 26 percent of girls and 30 percent of boys attend secondary school while 78 percent of girls and 83 percent of boys attend primary school.
South Africa is the best performing, with near universal access to secondary education for girls at 97 percent, and only a slightly lower level for boys at 93 percent, according to figures from the U.N. children’s agency UNICEF.

REDUCING CHILD DEATHS

The report found the greatest gains in Africa over the past five years were in reducing child deaths.
“The greatest good news of all has been the decline in under-five mortality rate, at a pace not observed or recorded by any other continent or country in the world,” the report said. “This may well be the fastest decline in child mortality the world has seen for at least three decades.”

Between 2008 and 2011, Rwanda reduced child mortality by more than 52 percent, and Liberia by more than 47 percent. Niger, Ethiopia, Guinea and Madagascar also recorded significant gains.

In Seychelles, Mauritius and Tunisia, child mortality rates are low as those of industrialised countries.
The major causes of child mortality in Africa can be prevented by simple measures such as women giving birth with skilled attendants, use of mosquito nets and access to antibiotics.
Child mortality is generally highest in countries with the lowest coverage of water and sanitation, such as Chad and the Democratic Republic of Congo.

Overall, the report found that political commitment, rather than the wealth of a country, was the key factor in improving the lives of its children.
“It is a matter of political commitment, manifested primarily in a government’s willingness to put children at the top of the policy agenda and prioritise budgets accordingly,” it said.
African governments spend on average about 11 percent of their budget on health, below the 15 percent they committed to in the 2001 Abuja Declaration. Education receives an average of 4.6 percent of Gross Domestic Product, half of the nine percent to which they committed in Dakar.
Mauritius, South Africa, Tunisia, Egypt, Cape Verde, Rwanda, Lesotho, Algeria, Swaziland and Morocco emerged as the 10 most child-friendly countries in Africa.

The 10 least child-friendly governments were Chad, Eritrea, São Tomé and Príncipe, Zimbabwe, Comoros, Central African Republic, Cameroon, Democratic Republic of Congo, Côte d’Ivoire and Mauritania.

http://www.trust.org/item/20131117183905-ueksn/

PM Hailemariam arrives in Kuwait for Africa-Arab Summit

Prime Minister Hailemariam Desalegn left for Kuwait on Monday to take part in the 3rd Africa-Arab Summit which will be held from 19-20 November, 2013.

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• 16 November 2013 News Round Up (Updated)
• 15 November 2013 Development News Items
• 13 Nov. 2013 Development News Round Up
• 11 Nov. 2013 Development News Briefs
• Wassup Ethiopia 06 Nov 2013?
• 05 November 2013 News Roll
• 04 Nov. 2013 Development News Briefs (Updated)
• 03 November 2013 Development News Round Up
• 01 Nov. 2013 Development News (UPDATED)

                  Admassu Tadesse

  

16 November 2013

 

PTA Bank, formally known as the Eastern and Southern African Trade and Development Bank, is a little known but significant player on the African financial scene.Established in 1985 under a treaty that created the Preferential Trade Area for Eastern and Southern Africa (PTA), the bank is now the commercial arm of the 19-member Common Market of East and Southern Africa (Comesa) but with a membership that is not restricted to those member countries. After surviving a challenging period, the bank has become profitable and has launched an ambitious expansion, as the president and chief executive, Admassu Tadesse, outlined in an interview during the U.S.-Africa Business Summit on Chicago last month.

 

Since the bank was established, have the operational objectives been changed?

When PTA bank was formed 29 years ago as a specialized institution it was intended to do two specific things: advance trade within the region and with the rest of the world and develop infrastructure to facilitate the trade and advance and diversify the economies of the region.

Trade and infrastructure: that continues to be the focus, except now we also do mainstream economic sectors. We fund agribusiness and industry and services too. We do telecoms, which are part of infrastructure, and we fund special-purpose financial institutions and commercial banks in some instances as well.

What about the geographic scope of operations?

The region was always defined as eastern and southern Africa. Eastern Africa is different from east Africa and goes all the way from Egypt and Libya down the entire eastern seaboard of the African continent. It’s expanded over time. This particular bank has always been a commerce-based bank, and Comesa of course is the Common Market for Eastern and Southern Africa.

Even though the terminology would suggest that all of eastern Africa and southern Africa are in, it’s not the case. We have a country like Madagascar that’s clearly in the eastern part of the continent but not yet in the bank. It’s on its way to joining, but it’s not yet in. Mozambique is clearly in southern Africa and not in the bank but on its way to coming in as well. So from defining the region as the membership of COMESA, we’re now saying if you’re physically anywhere from Tripoli to Cape Town, you’re eligible to be in the bank. At the moment, we have 17 member countries, and that will be moving to 26 in the years to come.

How do you raise capital – from government sources or private investors?

It’s an interesting question, because the bank is a commercial funder with a professional management team. Share capital comes from the 17 African member states plus the African Development Bank, which is an institutional shareholder. We also have the People’s Bank of China, which is the treasury of China. We’ve introduced some reforms that mean the bank is going to be a public-private partnership institution that blends the capital of states and institutions, which is fairly unusual in the African context. As a result, in January we’re going to have more institutional shareholders coming into the bank – pension funds, sovereign wealth funds, other banks and also insurance companies. So the bank is essentially going to be a PPP, a public/private partnership institution that blends the capitol of states and institutions. It is quite unusual in the African context.

Is PTA Bank able to raise capital at competitive rates?

We are very pleased that we had a first-ever upgrade of the bank’s credit rating by Fitch [in October]. We are now double B rated, up from up from double B minus. The upgrade of course is a reference to the capital of the bank being a lot stronger and the performance of the bank being at a record high for both its profitability and quality of assets as well as very robust growth. It’s the first upgrading we’ve had in 29 years and we’re quite proud of it. It’s a milestone for us, an important beacon to our potential funders and investors. This is a bank that’s on the move, that’s generating very strong interest from new partners. With strong growth in Africa now, we need to mobilize much more capital than we ever have.

Timing is right, we think, to share the good news about the bank being a good credit and a better credit than it’s ever been. The strategy we put into place two years ago was to rapidly raise the credit of the bank, raise the capital, improve the technology and strengthen a number of functions of the treasury, including risk management. These are areas where we’re pushing very hard to strengthen the institution and to prepare ourselves for even more growth to come.

There’s a lot more ground to cover. We are looking to achieve investment grade in few years and even go higher than that. We don’t have the benefit of G7 country shareholders, which is what really helps the big multilaterals worldwide to have high ratings. But our returns are good compensation for the lower credit rating that we have compared to multilaterals. From an investment point of view, we are a proxy investment destination for anybody that wants exposure in eastern and southern Africa because we are a mix. Instead of investing in one country or two countries and facing the risk of one or two countries, invest in us to get direct exposure diversified across 17 countries. It’s easy. It also comes with the benefit of a treaty, and us having a positioning that is quite robust and unique actually in the region.

So your shareholders benefit from the higher rating and other achievements?

Indeed, indeed. We are very proud to be one of the best performing trade and development financial institutions in the world. We have a return on equity now of 16 percent on the dollar. It was about just over 10 percent when I joined. We grew the balance sheet by 35 percent in the first year after I took office, and we will probably be closing at about 30 percent growth again year-on-year in December – two record years of growth for us, profitability-wise, asset growth-wise, quality of assets-wise, as well.

Nonperforming loans have come down considerably – to around about 4 percent by year-end, we’re projecting. So we’re outperforming and on the back of this very strong performance our shareholders have agreed to offer new capital of $100 million. We have new shares being issued over the months to come, and we are seeing new shareholders signing up to come into the bank, institutional shareholders. We’ve had the first pension fund sign up now. They invested $10 million dollars and we see another institutional investor buying what we call Class B shares.

The bank is always had just a single instrument of equity participation, which is basically an ordinary share with a callable capital component as well as a paid income component. What we did is to introduce a new instrument called a class B share. Governments would buy a share, pay 20 percent up front, with 80 percent is callable. That was the historical way of doing it. As of January, we’ve introduced Class B shares, which don’t have a callable component.

We go to institutional investors and say: ‘This has been our growth. This has been our performance. These are the kind of returns that we’ve had. These are the reserves that have been built up over many years of consistent performance. We offer a very interesting value proposition and by joining the bank not only do you make returns but you also get a partner who you can work with in terms of facilitating and co-financing transactions as well.’

We’ve managed to sell that proposition, which means institutional investors can invest, they don’t have the callable piece, and it’s clean-cut for them, it’s easy. If you want to invest a dollar you invest a dollar. You have no contingent liabilities; you don’t have to deal with this overhang of the potential call on capitol. We simplified [the investment process] to encourage private institutional investors to come into the bank.

This is how you are raising the bank’s capitalization?

Absolutely. At our shareholders meeting in September, existing shareholders resolved to recapitalize the bank by a $100 million over the next three years as a gradual process and, at the same time, they approved a whole host of new potential shareholders. That’s separate from the $100 million.

It’s very exciting, and we now have a pension fund that’s decided to join, to acquire $10 million as I’ve said, and then we have an insurance company that’s done the same. We have a specialized institution in Europe, which will be our first European shareholder. In fact, we have two European shareholders joining by Christmas time this year.

The Chinese were the first non-African shareholders?

Indeed. They joined about 10 years ago, when the bank was not doing very well. They took a leap of faith. They had a lot of confidence. They came in when the bank really needed them. Of course now, with the bank doing so well, there’s a lot of interest in joining the bank. And we have strong financial relations. We raise funding on the Euro bond capital markets. Our bonds trade in Luxembourg, today trading at a premium actually, because our bank has done so well [and] the risk profile is perceived as mismatched to the returns that we offer.

We also raise lines of credit. We have correspondent banking relations with about 25 banks here in the United States, in Asia, in Europe. And within Africa, we have strong funding relations with Mauritian banks, South African banks and now with Ghanaian and Nigerian banks and Egyptian banks as well. This is an amazing network where we raise hundreds of millions of dollars in short-term financing – one-to-three years. About two-thirds of our lending is for trade finance. We help import and export partners, and about one third is for medium-to-long-term finance for infrastructure, telecoms, agribusiness projects, for industrial projects.

Do you loan to private and state-owned companies?

We lend to enterprises who have viable operations, who’ve got a track record, that are able to borrow on their on their own balance sheets. Some of those are privately owned enterprises; some of those are state-owned banks or utilities. In many instances they’re also PPPs. We don’t lend straight to sovereigns, because we were set up as a commercial bank to provide funding to commercial projects and for trade-finance operations.

Some of our trade finance involves sovereigns directly, so you’ll have countries that import fertilizer to support the agricultural sector. It’s done on a strategic, commodity-level basis. We’ll work with the Ministry of Agriculture and the Central Bank of a country to help import that kind of commodity. Sometimes we do petroleum as well, and in other cases we’ll work on sugar, medicines. We help some of our member countries export their products, be it in coffee, tea, tobacco – depending on the nature of the economy and what the country produces.

How complicated it is to be operating in 17 separate countries?

It would normally be very complicated, but we are a multilateral organization. We are treaty-based, so we don’t have to go through all of that, thank goodness. Some banks do that of course, but we are not among the banks that have to because we are a treaty-based international organization. We’re owned collectively by those 17 countries, and so we’re not regulated by independent countries.

What are the principal impediments to growth?

Well, our only obstacle now is growth capital. We found our sweet spot if you like, and we’ve been growing now at 30 percent for four or five years. We’ve proven to be very profitable; we’ve found a very good way of doing business and we’ve got very good clients. So our only challenge at this point is finding a manageable pace of growth. That’s why we’ve had the $100 million capital increase, and that’s why we’re also mobilizing members who can acquire new shares. And so, that would be the primary issue.

There are countries that we would like to bring in, like South Sudan, Madagascar, and countries like Angola and Mozambique. These are countries that have not yet joined the bank. We believe that these are countries that would benefit from the bank, and the bank would also benefit from their membership. So, there’s a question of expanding and filling the gaps in our membership if you like.

Do you have a sufficient number of bankable projects or is that also a problem?

Generally, we do. We have strong networks, and we have a history of successful transactions with clients who know us. So we’re not one of those institutions that has trouble finding bankable projects. If you don’t have a network, if you don’t have presence, if you don’t have relationships, then it can be difficult to find those opportunities. But not for us. In fact, we have a lot of partners who come to us and ask about co-financing opportunities or ask to join syndications that we might be leading. We get the mandates from a number of strong enterprises that ask us to lead the fundraising process for them. We undertake and underwrite a certain amount and also commit to bringing in other capital from other partners, so we also have the capability of doing that.

We have this very interesting arrangement where we do master-risk participation agreements, meaning we’ll go in and say, put $50 million into a deal and, on the backend, we’ll will sign a risk participation agreement with another funder. Then we share all the revenues, interest rates and the fees that come from that project. They have 50 percent exposure, and we have 50 percent exposure. We’re the lender of record. They come behind us. Sometimes it’s silent; sometimes it’s not silent. So there are other ways for partners to come in as well without getting very involved in extensive loan documentation with a client. We’ll do all of that up front, and then we’ll have iron-clad legal agreements that allow us to bring in our partners and to give them the exposure that they want. It’s a very efficient way of doing it.

To what extent are considerations of social impact a part of your lending decisions?

It is a very important part. We subscribe fully to sustainability principles. Environmental and social consequences of our projects are very important to us. We do our appraisals beyond the commercial side to look at the neutrality of the effects on the social aspects of a project and of course the environmental ones as well. What we typically do is tabulate per project the impacts we’ve estimated to have had. It could be jobs created. It could be export earnings that a country has generated; it could be foreign exchange generation as well. It could also be households connected to a telecommunications service. So we do tabulate that on a project-by-project project basis.

Why did you come to the U.S.-Africa Business Summit and to Washington at this time?

As a bank that promotes investment and trade between member states and also with the rest of the world, the United States is an economy that we’ve done quite a bit of business with. We’ve imported Boeing jets for some of our clients. We’ve worked very closely with a number of American financial institutions – the U.S. Export Import Bank is one. We also work with a number of commercial banks, Citibank is a partner of ours; so is JP Morgan, Goldman Sachs. These American financial institutions have bought our paper, so they always like to hear from us and see how we’re doing so they can continue to have confidence as an obligore if you like. In terms of our future, direct foreign investment will require debt finance to be raised to help complement the direct equity coming from the United States. So we feel that we can be a very good partner to American firms looking to do business in Africa, to export to Africa and to import as well.

With pension funds and sovereign wealth funds around the world investing and looking to invest in our part of the world with reasonable returns, we’re willing to give them opportunities to place five-year money with us, even take equity positions and to have developmental impacts above getting a good return on their investment. We have a lot of investors who are looking for socially responsible or developmentally-inclined investment opportunities, provided that it meets a minimum hurdle rate of profitability. For us, profitability is an instrument.

We don’t believe in charity; we believe in doing good business. So that’s something we also will be looking to do more of in the United States. We know there is also a lot of interest now in Africa, so we feel we offer a very interesting avenue for that. On a risk-return basis, relationship-wise, we think that we have something to offer. If the big commercial institutions and investment banks in the United States buy our paper, we think there will be many others who will find it interesting as well.

Sourced here:  http://allafrica.com/stories/201311160001.html?viewall=1

 

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BY Kate Douglas | 19 November 2013

African stock markets have, in some ways, come a long way in the last five years. According to Nerina Visser, head of Beta and ETFs at Nedbank Capital, it was not that long ago that the only way to receive information about trading activity in some of these stock markets was by fax or email.

Fast forward five years and these African markets are now electronic. “When I say electronic, that doesn’t mean that they necessarily have an automated trading system in place but at least they are connected in an electronic way where they can capture their trading activity and [convey] that information to the bigger world electronically which I think is already a big improvement in terms of accessibility to those markets,” Visser told How we made it in Africa.

“Because really your first step always is about research; about understanding what the investment opportunity is all about. And if one cannot get that information electronically it makes it extremely difficult to really assess that opportunity properly.”

Other markets have adopted an automated trading system, such as Botswana a year ago. Not only has the Botswana Stock Exchange gradually extended its daily trading hours, but according to Visser, it has seen a significant increase in trading volumes since implementing the automated trading system.

Botswana Stock Exchange (Photo credit: Wikipedia)

However, despite these improvements in African stock exchanges in recent years, the question remains: why haven’t more local companies listed on African stock markets?

What are the deterrents for companies?

“I think there are a couple of aspects to this,” said Visser. “Obviously with the lack of liquidity and trading activity that we used to have, and still have to some extent, for many companies that is a deterrent. What is the value-add for a company to go list in a particular market if there are such low levels of liquidity? Because if you think about it, the role of the stock exchange or a market like that is essentially a place to raise capital for a company. But if there are such limited opportunities available for trading, the companies don’t see that as a viable capital raising place – especially when it comes to, for example, the mining companies. The amount of capital and especially the riskiness of the capital that they are looking to raise from a market is often not really available in many of your African markets because these exchanges and the market’s [participants] often don’t necessarily understand what mining activity really entails.”

Visser said this is why African mining companies often list on global exchanges such as in London or the Johannesburg Stock Exchange (JSE). “Because those are markets that traditionally have got a big resource or commodity base anyway, so you have got market participants that actually understand resources, understand mining, know how to value it, know how to trade in it, how to raise capital and so on,” she explained. “That’s been one of the biggest impediments to attracting especially African mining companies to list on the stock exchanges in Africa.”

The Johannesburg Stock Exchange building. (Photo credit: Wikipedia)

In terms of large, African companies, many of those that list on their local African stock exchanges find their listed shares are tightly held by typically the large pension funds in a country.

“There are some huge companies, great multinational companies operating [in Africa] but the shares are just not freely available because they are essentially all held by the government pension funds,” continued Visser. “Even when you get the listings then you don’t get the secondary market liquidity because those shares are typically invested in and then held almost [perpetually] and basically they just receive the dividends that are paid out from those investments.”

Another deterrent for companies is the stock exchange listing fees, alongside other costs such as legal fees and the cost of making company trading information accessible to shareholders.

“So let’s take a company that is operating in several African countries, if one would want them to be listed in all of the countries in which they operate you are expecting that company to not only go and incur multiple listing fees, but also this cost of being listed, of engaging with the market in multiple jurisdictions,” explained Visser. “And that is where the companies sort of stop and ask ‘why do we want to incur these extra costs if we don’t really see this as a viable capital raising market for us?’ It then becomes so much easier for them to then go and list in a market which they know they can easily interact with, they can get lots of liquidity, lots of capital and so on.”

What should African stock exchanges be doing?

Visser suggested that African stock markets should firstly make listing on them as easy as possible. The Stock Exchange of Mauritius is a good example of this.

“They have worked very closely with the regulator in their own market – whether that is the financial market regulator or whether it is the Ministry of Finance or whether it is the central bank – they engage directly with those regulators to make sure that the regulations that are put in place make it as transparent, simple, straightforward and easy as possible for companies to go and invest in Mauritius or to be invested on the Mauritius stock exchange. That level of interaction is certainly something that can go a long way towards facilitating additional listings in a market,” she continued.

“But often it’s not even your laws or your regulations… If you look at things like what your pension funds are allowed to invest in, in many of these markets the majority of their investments are still represented by bonds; a lot of them don’t actually allow for a lot of equity investments by their pension funds. So to expect a company to go and list on a stock exchange but then the pension funds of [their] own market are not allowed to really invest in a lot of the shares, means you are sort of placing a natural limit on the amount of investment that can be raised by equity capital markets. And it’s those sorts of regulations that all need to be addressed almost proactively by all the role-players in a particular market… of which the stock exchange is really just one.”

Visser added that the Stock Exchange of Mauritius has done well in terms of creating a feasible environment in which companies can list. “It’s wonderful to see the market in which they have been able to do it so successfully, you know Mauritius definitely comes to mind. I know that they specifically would like to position themselves as the gateway to Africa in terms of financial markets,” she continued.

“When I look at Botswana to see also the extent to which they facilitate amongst the specific regulators [and] all the involved parties really, to improve just the working of the market, what is necessary, what needs to be done… [that] speaks to a stock exchange that is proactive enough to engage pre-emptively, almost helping to make these things happen and that is really what is necessary.”

Sourced here:  http://www.howwemadeitinafrica.com/how-can-african-stock-exchanges-encourage-more-listings/32583/?fullpost=1

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Dung cakes (above, pictured) are the most widely used biomass energy in Ethiopia

Although Ethiopia is endowed with a variety of alternative energy resources such as hydro, wind, geothermal, and solar, biomass fuel comprises the lion’s share of the country’s total energy expenditure. As in most sub-Saharan countries, Ethiopia’s energy sector is highly dependent on biomass (firewood, charcoal, crop residues and animal dung). The bulk of the national energy consumption is met from biomass sources. In 2010, it was estimated that biomass energy accounted for 89 per cent of the total energy consumption. And nearly 60 million tons of biomass is consumed for energy purposes with about 81 per cent of the estimated 16 million households using firewood of whom 11.5 per cent cooking with leaves and dung cakes. The total national consumption of wood (including charcoal ) is estimated to be 105.2 million tones per year with 5.7 million tons being charcoal. Total consumption of crop residues and dung are 19.7 million tones per year respectively.

On the other hand, the very high degree of dependence on wood and agricultural residues for household energy has impacts on the social, economic and environmental well-being of society. A growing demand for biomass together with an increased demand for agricultural output (land for crop production, livestock feed) has resulted in reduced access to wood fuels.

Ethiopia’s National Energy Policy which was issued in 1994 underlines the critical role of biomass energy in the country’s energy sector. It aims to address household energy problems by promoting agro-forestry, increasing the efficiency with which biomass fuels are utilized, and facilitating the shift to greater use of modern fuels. However, the successful development of the country’s biomass energy resources has been hampered by a combination of factors including poor institutional framework, inadequate planning and lack of coordination. In this regard, there was no biomass strategy to direct and coordinate actions.

Moreover, the strategies developed previously such as the Rural Biomass Energy Strategy Report (2004) which was developed by the Biomass Technology Group (University of Twente, the Netherlands); and the draft Rural Energy Strategy (2007) which was developed by the formerly Ethiopian Rural Energy Development and Promotion centre have not led to the required results due to lack of ownership by the key institutions and comprehensive approach including all related sectors.

Accordingly, Ethiopia has been preparing a new biomass strategy known as Biomass Energy Strategy (BEST) which aims to utilize its biomass resources efficiently. The strategy has been prepared by the Ministry of Water, Irrigation and Energy, and European Union Energy Initiative Partnership Dialogue Facility (EUEI PDF) provided the full financial support for the strategy development process and international consultants who guided and developed the strategy. Recently a final workshop on BEST was held where different stakeholders from various sectors took part.

On the workshop, it was noted that the preparation of BEST has been strongly process orientated with active involvement of all stakeholders at all stages of its development. BEST provides a summery of the findings of the baseline and scenario analysis focusing on biomass energy supply and demand in both urban and rural sectors. The scenario analysis comprises a business as usual scenario with one that examines the impact of implementing the main interventions on biomass energy supply and demand as outlined in the Climate Resilient Green Economy (CRGE). BEST also details the biomass energy strategy in terms of targets and actions required beyond the biomass energy sector and the action plan and sets out actions required on the demand and supply sides.

Speaking at a workshop which was organized recently Asres Wolde-Giorgies, Alternative Energy Technology Development and Promotion Directorate Director at the Ministry of Water, Irrigation and Energy said the very high degree of dependence on wood and agriculture residues for household energy has impacts on social, economic and environmental well-being of society.

According to him, the development of the country’s biomass energy resources has been hampered by a combination of factors including poor institutional framework, inadequate planning, and lack of coordination. “There was no as such a comprehensive biomass energy strategy to direct and coordinate actions in the past years,” the Director added.

He further noted that the availability of such strategy (BEST) will have a vital role in supporting the implementation of the government’s national programmes in the energy sector in particular and CRGE pillars in general by developing action plans and investment projects and will be an important instrument for proper management of the country’s biomass energy resources.

The Ministry of Water, Irrigation and Energy has been leading the process of developing the strategy since the inception by establishing a steering and technical committee which comprises representatives from the Ministry of Agriculture, Federal Protection and Forestry, Federal Micro and Small Enterprises Agency, Ministry of Finance and Economic Development, Ministry of Trade and Industry, and GIZ Energy Coordination Office.

It is clear that having the strategy document is not an end but a means Asres said. “The real task will be ensuring ownership by all concerned stakeholders, endorsement of the strategy document and getting direction from the government on the implementation of the strategy”, he underlined. “To this effect, our Ministry in cooperation with relevant sectors will continue its leadership to realize the successful implementation of the strategy. Asres further added that specifically, the current Biomass Energy Strategy Document tried to indicate a clear baseline situation of the biomass energy sector in Ethiopia; analyzed institutional challenges in the biomass energy sector and finally defined the major trends and implication which are helpful in building consensus and promote wider awareness among the stakeholders on the role of biomass energy in the country.

Ina de Visser, EU Energy Initiative Partnership Dialogue Facility (EUEI PDF) on her part told The Ethiopian Herald that EUEI PDF supported the development of BEST as per the resuest it recieved from the Ethiopian Ministry of Water and Energy as biomass supplies such a high share of energy and a formal holistic strategy was not in place.

“EUEI PDF acknowledged that Ethiopia would benefit from such a strategy. The cooperation formally started in 2012,” she said.

EUEI PDF also provided the fund for the international consultants who guided and developed the strategy. Since then, she said, the consultants have provided the development of the strategy with a sound information base . The information on biomass use and production was collected from different pasts of the country and presented in a concise report in the previous workshops.

Visser further added that based on the reports, scenarios were developed to demonstrate where the current practices are leading. “The use of biomass will be increasing further, in spite of the urban middle class shifting to electricity and LPG. Drives for further increase of biomass use are population growth and urbanization,” she said adding,” even with implementation of the CRGE that set ambitious plans for assimilation of improved stoves, the demand for wood will increase. This demonstrates the strong need for additional actions in the biomass sector.”

Sourced here:  http://www.ethpress.gov.et/herald/index.php/herald/development/4879-a-step-forward-to-properly-manage-biomass-energy-sources

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Printed in IFDC Report Volume 38, No. 1 (2013)  http://www.amitsa.org/CMSPages/GetFile.aspx?guid=32d915bc-8540-4b19-b8af-708e2be4a1f9

According to a recent IFDC assessment, Ethiopia must double its fertilizer use to meet the nation’s Growth Transformation Plan (GTP) crop production targets by 2015 – a commitment that is aligned with the broader Comprehensive Africa Agriculture Development Programme (CAADP) goals. However, meeting this target will be difficult. The number and complexity of constraints facing Ethiopia’s agriculture sector are many, just as they are in many other African nations. Bottlenecks in procurement, infrastructure and logistics top the list, followed by limited credit and financial services, poor research and extension services, agro-dealer capacity and farmer training.

The IFDC assessment discusses options to bolster investment in research and extension services; strong private sector involvement in product importation, storage and distribution; the establishment of fertilizer blending facilities to increase product diversity; and a voucher program to increase product use, along with other areas of supply chain improvement.

A farmer proudly displays her chickpea harvest. Photo courtesy of the Bill & Melinda Gates Foundation.

CAADP, the agricultural program of the African Union’s New Partnership for Africa’s Development (AU-NEPAD), addresses policy and capacity issues across Africa’s agriculture sectors. It represents African leaders’ collective vision for agriculture, providing a collaborative platform for nations to clearly define agricultural growth goals. Through individual Country Investment Plans (CIPs), 34 countries, including Ethiopia, have committed to raise agricultural expenditures to at least 10 percent of national budgets and target 6 percent annual agricultural growth.

In support of these CAADP efforts, the African Fertilizer and Agribusiness Partnership (AFAP), a partnership among a number of development institutions (including IFDC), focuses on increasing agriculture market access at the regional and country levels. AFAP fosters private sector participation and investment in national and regional fertilizer value chains.

In order to help meet CAADP targets, IFDC is conducting a series of fertilizer country assessments funded by the U.S. Agency for International Development (USAID). The purpose of these assessments is to estimate the fertilizer requirements needed to achieve individual country agricultural growth targets and offer policy options to ensure that these levels of fertilizer use are achieved. These assessments will be used by AFAP to identify constraints to private sector investments in the agriculture sector and to develop strategies to alleviate the constraints.

The research quantifies current use and future fertilizer requirements for up to 12 countries based on their respective CIPs, while also identifying key constraints and opportunities. The most recent report, “Ethiopia Fertilizer Assessment,” provides estimates of the level of fertilizer consumption required to meet the targets for crop yield increases in Ethiopia’s GTP. In addition to these estimates, the study analyzes the challenges in the fertilizer value chain and offers policy options that will support the achievement of these consumption levels.

The assessment was written by Dr. Peter Heffernan, chief program officer, Dr. Porfirio Fuentes, senior scientist-economics and trade, and Dr. Joshua Ariga, scientist-economics. The study estimates that Ethiopia must increase its consumption to nearly 1.2 mmt of fertilizer products (in the form of urea, diammonium phosphate [DAP] and muriate of potash [MOP]) to meet the GTP targets.

The Port of Djibouti, in the neighboring country of the same name, serves as Ethiopia’s primary fertilizer import hub.

In addition to the fertilizer estimates, the report identifies specific constraints in achieving the nation’s fertilizer market investment goals and offers options to increase market efficiency. “Achieving this level of fertilizer use requires addressing existing constraints and improving the value chains so that larger volumes of product can be handled without significant problems,” states the report.

“Despite increased fertilizer consumption due to Government of Ethiopia efforts over the last decade, Ethiopia still faces food shortages and high food prices. According to the report, although intensification continues to be necessary for increased agricultural productivity in the face of land scarcity and low production, it is important to address these problems by establishing an approach that ensures smallholders have access to the right technologies in the form that is appropriate to their local conditions and is accompanied with the right information. A judicious mix of private and public investments with consistently applied legal and regulatory guidelines can contribute to the successful development of input markets in Ethiopia.”

The Ethiopia assessment is the fifth in the series. Fertilizer country assessments of Ghana, Kenya, Mozambique and Tanzania were previously conducted by IFDC.

Sourced here:  http://www.ifdc.org/Nations/Ethiopia/Articles-(1)/Fertilizer-Assessment-Increased-Amounts-Required-i/

See also:  Potash Fertilizers in Africa: Background, Assessment and Prospects

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