On Monday November 17, 2014, Patrick Labatut, Alstom Transport’s business development director for Africa, was at the second France Ethiopia Business Forum in Paris. He was looking for an Ethiopian partner for his company which is involved with energy production, grid, railway and transport.
His company has found out that Ethiopia could meet 75pc of its electricity demand from solar power.
“We realised that Ethiopia was a potential for our projects,’’ Labatut told Fortune.
The Forum was organised by UBIFrance and the French embassy in Addis Abeba, as a follow-up to a similar event held in Addis Abeba in December 2013. It was attended by 169 French and 32 Ethiopian companies, similar figure that attended the first event. UBIFrance is the French Agency for the International Business Development and is under the control of the French Ministry of Economy, Finance and Industry.
Official relationship between the two countries dates back to 1897, when the two governments agreed to recognise the border with French Somaliland (later Djibouti) which led them for the construction of the 781Km Ethio-Djibouti railroad.
The two countries signed the Bilateral Investment Promotion and Protection Agreement in July 2004. This was aimed to encourage and protect investments and to avoid double taxation. In June 2011 and 2013 the agreement on the partnership framework was renewed for an additional three years.
For the past several years, however, French companies’ presence in Ethiopia has been limited to a stagnant 50, whereas Chinese presence has been growing by leaps and bounds.
The number of Chinese companies operating in Ethiopia reached 124 in the 2013/14 fiscal year. These Chinese companies’ investments at implementation and pre-implementation stage was 2.18 billion Br and 16.5 billion Br, respectively.
The emergence of China in the continent has become a headache for most European countries, including France. This has to led policy makers to focus on a new strategy, named the Economic Diplomacy with Africa, according to an official from the French Ministry of Foreign Affairs and International Development.
“This forum is also part of the economic diplomacy,” added this official.
“We believe Africa, especially Ethiopia, is the hub of emerging economic development and we want to regain our position of previous years,” said Matthias Fekl, state minister for French foreign trade, the promotion of tourism and French nationals abroad, in his forum opening speech.
The forum had 23 Ethiopian Business delegates under the umbrella of the Ethiopian Chamber of Commerce and Sectoral Association (ECCSA). These private businesses included: Technostyle Plc, General Motors, South West Energy, Bless Agro Processing, and new businesses such as Gratus International Trading Plc and Mazel Trading. State owned companies, including ethio telecom, Ethiopian Airlines, Ethiopia Electric Power (EEP) and the Metal & Engineering Corporation (MetEC) were also present at the event.
“We realised Africa is the fastest emerging continent and we picked Ethiopia as a major destination for our investment, and organised this forum with the main aim of increasing our economic partnership with Ethiopia,” said Fekl.
Parallel with the decision to organise the event, the French government finances projects in Africa by French companies through the French Development Agency (AFD). In 2014 the Agency allocated an extra 20 million Euros for investment in Africa, mainly on infrastructure development and in the energy sector. The AFD has an annual budget and is working to send French companies to Africa, and Ethiopia, where the economies are growing at 5.5pc and double digits, respectively, Fekl said.
From the total financing of the Agency in 2013 only 113 million Euros was invested in Africa.
“Our main challenge in Ethiopia and Africa is the Chinese undercutting prices on projects. That makes our presence a mere shadow in projects,” said an official from the Ministry of Foreign Affairs and International Development.
Established back in 1941, the AFD has financed 700 projects in 2013, 40pc of which were in Africa, however Asia had the largest number of projects. Projects in Ethiopia financed by the AFD include the 210 million Euro Ashegoda Wind Farm, the 80 million Euro construction and expansion of Ethiopian Airlines, and the five million Euro solid waste disposal project. The Agency provides 20 year loans at an annual interest rate of 1.2pc.
“Currently there are 600 world class international companies in Ethiopia,” said Debretsion Gebremichel (PhD), deputy prime minister of Ethiopia and Finance and Economic cluster Coordinator and minster of Communication and Information Technology. “But there are only 50 French companies in the country, which is too few and should be increased.”
Currently 50 French companies are operating in Ethiopia, including Total, BGI Brewery, Castel Winery, BRL and Masson.
“We want to see French companies in Ethiopia engaging in leather and textile production, agro processing, and chemical industries,” said Debretsion.
But the French companies at the forum were mainly from the energy sector, including geothermal and electricity companies. During the Business-to-Business discussion session some of these companies discussed business challenges with the representatives from the MetEC.
“The French companies at the event were giants compared to the Ethiopian companies, and discussion was mainly with the state-owned enterprises rather than the private companies,” Solomon Afework, president of the ECCSA, told Fortune.
“We do not rush in expecting Ethiopian companies to sign deals with the French companies on this occasion, but we want to have a strong foundation that could lead to further economic and investment relations in the near future,” Debretsion said.
Ethiopia got 2.5 million people out of poverty in the last 10 years, which is why France chose Ethiopia as a major destination for investment, Fekl said. That was followed by a policy decision to support French companies through financing to work on projects in Ethiopia, he added. Until 2011 the AFD had only one office in east Africa, located in Kenya. It has since gone on to add one in Ethiopia. It has also opened another office in Zambia.
“We are seeking more projects to engage in Ethiopia, and we are working on securing the financing from the AFD,” said Jerome Douat, CEO of Vergnet Group, which was also at the Forum.
Labatut and the ministry official share some concerns that investing in Ethiopia is bottlenecked by the bureaucratic process which is difficult for foreign companies to pass through.
Furthermore, the French official claims that Ethiopia has been reluctant to join the World Trade Organization (WTO) for many years, which discourages French companies from investing in Ethiopia. Established in 1995, the WTO has 159 member countries; Ethiopia and 22 other countries have observer status.
“But these all cannot be constraints for our companies to invest in Ethiopia, following our policy decision to penetrate the continent as a destination,” said this official.
Fourteen French companies are already scheduled to visit East Africa including Ethiopia in June 2015 to explore more potential.