27 April 2015 Economic News Round-Up



ERCA Raises 96pc Planned Revenue, Addis Abeba’s Revenue Lower



The Ethiopian Revenues & Customs Authority (ERCA) released a near perfect nine month report for 2014/15 fiscal year, in which it bagged in 96pc of the targeted 98.4 billion Br.

The ERCA, however, had a less than optimistic report for Addis Abeba, where it had planned to collect 16.7 billion Br, but managed to collect only 12.2 billion Br of the total revenue of 94.4 billion Br. However, this lower performance was still 3.09 billion Br better than revenue collected during the same period in the last fiscal year.

In its report for the first half year, the ERCA had reported collecting 64.6 billion Br, which was 97.8pc of its planned revenue. In the same period of the last fiscal year, 2013/14, ERCA reported 53.3 billion Br from its projected 60.6 billion Br and 43.7 billion Br during the first half of the 2012/13 fiscal year. The report for Addis Abeba had shown a 25pc shortfall from the target in the first six months and that has now expanded to 26.9pc.

“Addis Abeba’s revenue achieved below target results because of the problems in using cash register machines, especially in the services sector,” said Fasika Belay, Communication & Promotion deputy director at ERCA.

Major contributors to the revenue the Authority collected are inland tax and Customs tariffs while the revenue from the sale of lottery tickets is insignificant, contributing less than one percent.

Contribution of inland tax for the nine month’s performance stood at 53.1 billion Br out of the planned 53.4 billion Br. This figure, compared to the last fiscal year, shows a 20.4pc growth, which amounts to nine billion Br.

Revenue from the import and export trade, including Customs duties and other taxes has shown a growth of 6.4 billion Br compared to the same period last year, totaling 41.2 billion Br, against the planned for 44.5 billion Br.

Income this year from the sale of lottery tickets was 80.8 million Br, well below the planned 98.3 million Br. The contribution of revenue from lottery tickets to the whole profile of revenue collection was only 0.09pc.

“The performance from lottery was below target as some tickets did not enter into market because of ship[pment lag from India,” said Tewodros Neway, public relations director at the National Lottery Administration (NLA).

The income from direct taxes was expected to be 25.8 billion Br, while the performance was 24.1 billion Br. Out of the direct taxes, domestic trade income tax anticipated was 19.2 billion Br and the actual performance was 17.4 billion Br.

Indirect income that contributed 30.4pc of the whole income was anticipated to be 27.4 billion Br and the performance stood at 28.7 billion Br. Of the indirect income, value added tax (VAT) contributed the higher 11.1 billion Br.

The import-export trade tax was expected to generate revenue of 44.5 billion Br while the actual performance was 41.2 billion Br.

ERCA, which is working to achieve a target revenue of 134.2 billion Br for the whole fiscal year, has achieved 19.5pc better in these nine months than it did in the previous, with 15.4 billion Br more collected.

“The average monthly performance of the nine months is 10 billion; this implies that if we continue this way, we can at least achieve 115.7 billion Br,” said Fasika.

According to ERCA’s report, tax contributions to the GDP totalled only 12pc, although the plan was to reach 15pc by the end of the Growth & Transformation Plan (GTP) in two months.

The Sub-Saharan Africa average shows 18pc contribution to the GDP.



Government Aims to Quadruple Coffee Production in Five-Years



The Ministry of Agriculture (MoA), in concert with the Ministry of Trade (MoT) has finalised a Coffee Development Strategy that will be used to boost coffee production in the second Growth and Transformation Plan (GTP II) over the next five years.

The strategy, developed after a six-month study conducted by Agrear Consultant, is targeted at raising the current coffee production capacity of the country by four fold.

Agrear began the study in April 2014 and completed it within six months at a cost of 200,000 euros, availed by the European Union.

“The study was initiated by the belief that as coffee is a permanent plant, the trading should depend on quality and it should be supported by special extension programmes,” said Fikru Amene, coffee development director at the MoA. “We did not achieve the plan that we set for the GTP I, which also triggered the study.”

The country had planned to reach export capacity of 600,910tn of coffee by the end of 2014/15- a year that marks the end of the GTP I from 319,647tn in 2009/10 at the start of the GTP I.

Currently, the export amount stands at 190,876tn as data for 2013/14 from the MoT indicate. This was far down from the plan of exporting 277,500tn of coffee to gain one billion dollars in revenue. The country was able to gain only 717 million dollars from coffee exports.

In the 2014/15 fiscal year, Ethiopia expects to produce 461,620tns of coffee, of which it expects to export 239,950tns for 862.55 million dollars, showing an increase of 23.6pc in volume and 20pc in revenue from the previous year.

The country’s plan for the first six months of the 2014/15 budget year was to export 73,593.5tn of coffee and gain an income of 269 million dollars. The actual quantity exported was 73,227.9tn, from which a higher than targeted revenue of 307.5 million dollars was gained.

Ethiopia stands fifth in the world with a production capacity of 379,500tn, which, however, is only 4.5pc of the total supply in the world market in 2012/13.

In order to enhance the country’s production, the study, indicated that there should be structural reform, making coffee have its own Ministry; loans should be facilitated for the coffee farmers and traders; the marketing of coffee should depend on quality rather than quantity; old coffee plants should be pruned; and the work procedure at the Ethiopian Commodity Exchange (ECX) should be changed to allow international buyers to directly contact the farmers and buy the coffee from the farmers themselves.

“But, in order to maintain the quality of coffee and get better a price, we did not accept the recommendation to change the system at the ECX,” Fikru told Fortune.

The strategy can double the country’s number of coffee plants and quadruple production, thus impacting the export amount of the country by the end of the second fiscal year.

The Ministry has now identified 5 million hectares of land that has high potential for coffee production and the cultivation of coffee in the country is planned to reach two million from the current one million.

The study has identified new potential coffee production sites in Gambella, Benishangul Gumuz, Amhara, Oromia, the Southern Regional State and Tigray, according to Fikru.

In order to make sure that the target is met, the Ministry has prepared half a million coffee seedlings, and 5,000qt of seed coffee to be distributed to the potential areas.The Ministry also plans to prune 400,000ha of low production coffee plants, and uproot 200,000ha of old coffee trees.

“The result will not come overnight as coffee requires at least four years to bear fruit; but if proper follow-up is made, the target will be met at the end of the period,” said Fikru.

In order to implement this strategy well, extension programmes were established up to the Wereda level, according to Fikru. Coordination with banks and large farms is also being facilitated in order to simplify loans and share experiences.

“The strategy is comprehensive,with a span from resource management to production and cupping; it enables follow-up at every step,” said Seifu Mulugeta, the export promotion director at the MoT. “The MoT will have a stake in implementing issues related to marketing.”

It will also address issues related to contraband in the coffee trading that is now being seriously followed by the government’s high officials including the Prime Minister’s Office, according to Seifu.



Turkey’s public lender Ziraat Bank to become the first foreign bank of Ethiopia


Turkey’s public lender Ziraat Bank to become the first foreign bank of Ethiopia


Turkey’s Economy Minister Nihat Zeybekci announced that the state-run Ziraat Bank will establish an office in Ethiopia on Monday.

Zeybekci added that Ziraat will be the first foreign lender in Ethiopia.

Although located between crisis areas like Sudan, Somalia, Yemen and Central Africa, Ethiopia has been relatively stable since early 2000’s with the end of hostilities with Eritrea. Since then, Ethiopia has become one of the fastest growing economies of Africa and the world.

Zeybekci had earlier stated that a public lender will start operating in Ethiopia during a visit to the country by President Erdoğan and Turkish delegation in December 2014.



Ethiopia’s renaissance follows Korean development


Ethiopia’s renaissance follows Korean developmentAddis Ababa: April 27, 2015 –
Korea has been a paragon of progress for Ethiopia, which has developed rapidly since 2000.

The Ethiopian economy grew by over 10 percent annually between 2004 and 2009, slowing to nearly 7 percent since 2012, according to the International Monetary Fund.

Some political commentators have called Ethiopia the “African Lion,” a term similar to the “Asian Tiger,” which described Korea during its period of speedy development.

Ethiopian President Mulatu Teshome visited Korea in mid-April to benchmark Korea’s development experience and boost ties in diplomacy, business and education.

“Ethiopia is going through a national renaissance, following Korea’s model of development,” Teshome told The Korea Herald in an interview. “Under a strong government guiding the national development, millions have escaped poverty and disease, and now hope for a brighter future.”

The Ethiopian government aims to elevate the economy into a middle-income category by 2025 with the help of its five-year Growth and Transformation Plans. Korea also had its own series of seven five-year economic development plans between 1962 and 1996, leading to the “compressed development” of the economy.

Ethiopia’s president attributed his country’s success to having a clear vision of advancing leadership; pursuing realistic policies with a rational assessment of realities; and promoting strategic public-private partnerships to remedy market failures.

“The general philosophy behind all of this is to have a democratic developmental state,” Teshome said, adding that Ethiopia has a lot to learn from Korea’s Saemaul Undong, a nationwide community movement launched in 1970 to modernize rural towns.

Most recently, the Korea International Cooperation Agency has been providing vocational training and organizational assistance to agricultural projects in Ethiopia.

During his weeklong visit, Teshome met Korean President Park Geun-hye and participated in the opening ceremony of the World Water Forum in Daegu and North Gyeongsang Province. He was also greeted by business leaders from the Korean Federation of Industries, Daegu Chamber of Commerce and Industries, LG Electronics, CJ Corporation, and agricultural machinery and textile companies.

Teshome acknowledged the appreciation of the Korean government and people for Ethiopia’s participation in the Korean War (1950-1953), in which 6,000 Ethiopian troops fought as part of the United Nations’ forces.

Ethiopia and Korea established diplomatic relations in 1963. “Our solidarity and fraternity will serve as a springboard for future cooperation,” the president emphasized.

After finishing high school in Ethiopia, Teshome won a government scholarship to study in China. Between 1978 and 1982, he obtained an undergraduate degree in the philosophy of political economy at Peking University, where he developed an understanding of Asian cultures.

He worked in the Ethiopian government for two years and returned to Peking University for a masters and doctorate in international law. Teshome went on to become the Ethiopian ambassador to China, Japan and Turkey, before becoming the president in 2013.

Teshome highlighted investment and construction opportunities in Ethiopia’s water and green energy sectors. In late March, Ethiopia, Egypt and Sudan reached a historic agreement to build the Grand Ethiopian Renaissance Dam, which would generate over 6,000 megawatts of electricity for Ethiopia and its neighbors.

The $5 billion project will make it Africa’s largest hydroelectric power plant, part of a long line of mega-sized infrastructure projects aimed at turning Ethiopia into a regional powerhouse.

“Building the dam is a matter of existence for Ethiopia,” Teshome said. “Our people must change the state of affairs to which we belong today. We are not willing to continue our same way of life.”

The president said the project will lead to trust and integration in the Horn of Africa region. It will also improve water management, create jobs and spur community development in the Nile Basin, he said.

In March, Ethiopia met target No. 10 of its Millennium Development Goals to provide safe drinking water and sanitation services to its citizens. The five-year plan places water supply at the core of its objectives.

“We will build together and prosper together,” Teshome said. “To build a prosperous nation requires energy, which lies in water in Ethiopia. We will kick-start our industries and forge an industrialized society.”

Teshome also called upon Korean educators and researchers to work in Ethiopia, as 10 universities will be added every five years to the current 36 universities in the country.



Juniper Glass Industries to Open Factory in Debra Birhan, at $50m


The number of beer factories has doubled and this has increased the demand for bottles


bottlesJuniper Glass Industries to Open Factory in Debra Birhan, at $50m. Juniper Glass Industries Plc is to open a factory on 12ht of land in Debre Birhan with a 50 million-dollar capital outlay.

“Without the need to make further feasibility studies, there is a growing demand for bottles in the country because with the launching of new beer factories the number of beer factories has doubled, which initiated the company to open its bottle factory,” Yared Mulgeta, special project manager at Juniper Glass Industries Plc told Fortune.

The company has a production capacity of 150 million bottles per year, targeting domestic and international markets. The raw materials required for the production of the bottles will be acquired locally. The major raw material for bottles, silica sand, will be obtained from Debre Birhan whereas the other raw material, soda ash, will be imported, Yared said. The factory is expected to create job opportunities for 500 people.

Currently, there are only three glass and bottle factories in the country – Addis Abeba Bottle & Glass Factory, Ethio Hanssam International Plc and Daylight Applied Technologies. From these factories the largest one, Addis Abeba Bottle and Glass Factory has a production capacity of 30,000tn of glass sheet and bottles annually. The company has an expansion project, which is expected to increase the production capacity by 50tn a day at its – factory site in Asko.

Ethio Hanssam International Plc is a glass-sheet factory with a production capacity of 42,000tns annually. The third operating company Daylight Applied Technologies has on its side, a production capacity of 20,000tns of bottle a year.

Including Juniper Glass Industries Plc and the expansion project of Addis Abeba Bottle & Glass Factory, there are currently four ongoing glass and bottle projects. Goda Glass & Bottles Manufacturing S.C, a company in Tigray, is expected to have a production capacity of 90tn a day and is in the process of selling shares. The fourth project, Allied Chemicals Plc, is expected to have a production capacity of 50tn a day.

Import data obtained from the Ethiopian Revenue & Tax Authority (ERCA) indicated that in 2014, 73,400tn of glass was imported, at a value of 1.19 billion Br. This figure had risen from 65,500tn worth 970 million Br in 2013. In 2012, the imported amount of glass was 56,400tn worth 732 million Br, increasing from 2011’s 40,000tns valued at 517 million Br.

The launching of these ongoing projects will meet the growing local demand for glass and bottles and reduce the billions spent on import bills, says Mengistu Getachew, director at the Ministry of Industry’s Glass Industry Development.

Mengistu mentioned the capital and energy intensive nature of the sector as challenges that discourage investment, adding that currently, investors are showing an interest in the sector because of the increasing demand.



New Shoe and Leather Factory Invests $35m in Debre Birhan


My Shoes will be the fourth foreign-owned leather shoe factory of 20 in operation and will increase capital outlay to $60m in three years


myshoesA Turkish shoe company laid its cornerstone on a 70,000sqm plot in Debre Birhan on April 24, 2015 for the construction of a shoe and leather manufacturing plant targeting exclusivity.

My Shoes Shoe & Leather Manufacturing Plc will initially invest 35 million dollars on the land which it leased for 80 years at 50 cents a square metre when it acquired its licence in February 2015, according to one of its owners, Mehmet Yesildag, who is the major shareholder and general manager of the company.

The factory, which will have a production capacity of 30,000 shoes, will eventually push its capital to 60 million dollars after three years.

The company decided to invest in Ethiopia because of low cost of labour and energy and better tax incentives for export, said Mehmet.

Sixty-percent of the raw materials used for the production of the shoes will be imported mainly from Europe and the Middle East. Whereas the remaining 40pc of the raw materials will be obtained from the local market. The company’s raw material cost is expected to reach 16 million dollars annually.

The destinations for the company’s products will be Spain, England, France, United States and Middle Eastern countries, from which it aims to raise annual revenue of 34 million dollars.

The design for the factory has already been completed and construction will begin in May, 2015 says Shiferaw Mamo, investment co-coordinator at the Debre Birhan investment bureau. The plant will rest on 60pc of the land. The company is expected to employ 1,962 people initially, eventually growing to 3,000.

Shiferaw says that Debre Birhan has a number of allures, including the low cost of land, much cheaper than the usual lease rate of around 2,000Br a square metre.

Currently, there are 20 leather shoe factories in the country, excluding small scale producers, said Birhanu Serjebo corporate communication director at the Ministry of Industry’s Leather Industry Development Institute. My Shoes will be the fourth fully foreign-owned shoe manufacturer in Ethiopia. The three that are already in production are George Shoe of Taiwan, Huajian International Shoe City Plc of China, and Oliberte, a fair-trade shoe maker from Canada, all of which fully export their shoes. Domestically owned factories are manufacturing mainly for the home market, while international companies manufacture for the international market, said Birhanu.

Huajian, established in January 2012, is the largest of all with a production capacity of 2.19 million shoes a year from its plant located in the Eastern Industrial Zone.

Ethiopia made 30 million dollars from the export of shoes last year, says Birhanu.

Even though it cannot be said that this sector is sufficiently attracting foreign direct investment compared to the country’s resource of livestock, the number of foreign investments in the shoe and leather sector is showing improvement, says Aschalew Taddese, foreign investment promotion team leader at the Ethiopian Investment Commission. Besides creating employment opportunities for the people, the opening of the My Shoes Shoe & Leather Manufacturing Plc at Debre Birhan will diversify and create fair distribution of investments other than concentration within Addis Abeba, he added.



Ethiopia Expects 2015 Investments To Rise To $1.5B




Ethiopia expects to see a sharp rise in foreign direct investment, to $1.5 billion this year. Corporate and investor interest has grown thanks to low wages, cheap power and business-friendly policies. The Grand Ethiopian Renaissance Dam is one of the projects the government has sponsored in the hope of attracting new business.


Investors will earmark more money for Ethiopia this year than ever before, thanks to policies that have transformed the country into a manufacturing hub offering cheap power generation, low wages and reliable transportation.

The professional services firm Ernst & Young forecasts foreign direct investment in Ethiopia will hit a high of $1.5 billion in 2015 and maintain that level the next three years, a significant increase over $1.2 billion last year and just $108.5 million seven years ago, the Financial Times reported.


That growth has been fueled in part by the lure of tax breaks for exporters. But the government has also leveraged loans provided by the World Bank to shore up the nation’s infrastructure. Designed to be Africa’s largest hydroelectric dam, the Grand Ethiopian Renaissance Dam is under construction as a means to produce cheap power, while a new airport is planned for the state-owned Ethiopian Airlines, which is now the continent’s biggest carrier.

These projects have bolsterd investors’ faith in Ethiopia’s long recovery from a devastating famine in the mid-1980s and the turmoil of a decades-long civil war. The country’s economy has grown by an annual average of 11 percent during the past decade, which is double the rate of its neighbors, according to the Associated Press.

Fitsum Arega, director of the Ethiopian Investment Commission, told the Financial Times that much of the nation’s newest investment is coming from China, India and Turkey and that it is landing new factories that will produce clothes and other textiles or goods such as leather. The entry of major brands and clothing manufacturers such as H&M Hennes & Mauritz AB and Wal-Mart Stores Inc. has fueled 61 percent growth in the apparel industry over the past six years, the Ethiopian Investment Commission reported.

Ernst & Young also predicted Ethiopia will become one of Africa’s top four manufacturing hubs by 2025. Huajian, a Chinese shoemaker, relocated to the country in 2012 and plans to expand its workforce there to 30,000, the Financial Times said.



Ethiopia’s safe drinking water coverage reaches 79 per cent

Ethiopia’s safe drinking water coverage reaches 79 per centAddis Ababa: April 27, 2015 –
Ethiopia’s safe drinking water coverage has reached 79 per cent, the Ministry of Water, Irrigation and Energy (MoWIE) said.

Water, Irrigation and Energy State Minister, Kebede Gerba told WIC that the coverage has reached to the stated per cent following the activities undertaken during the past four years of the GTP period.

More than 33 million people have gained access to safe drinking water during the reported period, up from the projected target of 32.5 million people, he said.
The ministry has been exerting paramount efforts to meet the increasing demand for potable water in rural and urban areas, the minister said.

According to Kebede, safe drinking water coverage in urban and rural parts of the country has currently reached 86 and 78 per cent, respectively.

Ethiopia meets the Millennium Development Goal (MDG) target for drinking water supply, he said, adding 49,000 new water facilities that could benefit 15 million people under construction this budget year.

Some 9,000 water facilities that benefited 3.6 million people have already gone operational in the budget year, he said.



Icrisat to take up agri research in dry lands of Ethiopia


The Ethiopian Institute of Agricultural Research (EIAR) and the International Crops Research Institute for the Semi-Arid Tropics (Icrisat) agreed to implement new approaches and priority international investments have been agreed for agricultural research and development in the dry lands of Ethiopia.

Four areas with greatest opportunities have been identified – intensification of legumes for better human and environmental health, expanding cereal production by promoting the industrial potential of sorghum and other millets, scaling up of watershed management for more intensive agriculture, and new approaches to help farmers manage climate variability.

“These identified opportunities can only be tackled through partnership at all levels on the value chain and making sure each step on this vertical chain has what it needs to act,” said Dr. Fentahun Mengistu the Director General of EIAR, according to a release here on Friday by Icrisat.

“We need to bring in new innovations and skills to capitalise on these opportunities. For long-term sustainability of these efforts, agri-business incubators are important for building entrepreneurial skills and capacity in Ethiopia. Icrisat has experience in setting up agribusiness incubators throughout India and now in other parts of Africa. South-south collaborations between India and Africa can accelerate these initiatives. It will also be important to involve women and youth as entrepreneurs and seeing agriculture as a viable and exciting business opportunity with the adoption of new technologies and leveraging ICT tools to support market integration,” emphasised Dr. David Bergvinson, Icrisat Director General.



Ethiopia’s stellar growth: Lessons for Kenya – and perhaps South Africa

Ethiopia’s stellar growth: Lessons for Kenya – and perhaps South AfricaAddis Ababa: April 24, 2015 – 
At first glance you know that the head-office of the Commercial Bank of Ethiopia on Addis Ababa’s Churchill Road must have been built in the 1960s. The tatty concrete rotunda has no redeeming features – save, as it turns out, its staff.

Inside the tellers are organised in a giant circle, the commercial signs advertising a plethora of money transfer agencies.

“You want to buy a bond for the Grand Renaissance Dam?” exclaimed the startled assistant. “Come with me,” she smiled, showing the way to her colleagues working the inner ring behind the tellers. Such old-world naiveté is unlikely in most places, where security takes precedence over service. “Sit down,” she said, while organising a conversion from dollars into birr.

Construction of the controversial Grand Renaissance Dam, known as the GERD, on the Blue Nile near to the Sudanese border began in 2011. When completed in 2017 it will produce 6,000 MW, making it the largest hydro-electric plant in Africa. With the turbines and other electrical equipment to be funded by Chinese banks to the tune of $1.8 billion, the remainder of the $4.8 billion bill is to be met with the Ethiopian government, financed in part through the bond, targeting diaspora and local Ethiopians.
A group of three Chinese men scuttled past as the bond forms were completed, pushing a trolley on which rested three bulky black holdalls.

Available in amounts from 25 to 1 million birr, and with a dollar denominated option, not many individual foreigners have so far taken up the offer. “You are the second,” said Eyob, the bank manager, “we had an Italian in here some time back”. An Italian construction firm is building the dam, memories of darker days of Abyssinian invasions forgiven. Indeed, Ethiopians exhibit a remarkable pragmatism about their history, intent mostly on looking forward, not back. As one official publication notes about the “Italian colonialists”, they “made enormous efforts to modernise the country with the construction of the first proper road network and numerous public buildings”.

“You want interest?” Eyob asks, frowning, before filling out the colourful bond certificate. A little surprised at that request, he was more perplexed by the stipulated date of repayment. “Why 2025?” he laughed. “Most Ethiopians give just five years”.

Without much in the way of natural resources and, since the independence of Eritrea in May 1991, landlocked, and with its population rising fast towards the hundred million mark, Ethiopia’s development options seem limited.

Yet, so far the absence of natural resource driven growth has proven an advantage.

Over the last decade, Ethiopia has emerged as one of the fastest-growing – perhaps the fastest-growing – economies in Africa. Even though ‘double-digit’ growth has become something of an official mantra, independent appraisals still put it at over ten percent from 2003-13, double the sub-Saharan average.

Growth is driven, rather, by a determined government policy of creating the conditions for development, notably through a massive level of infrastructural investment.

Ambitious plans are afoot for a massive expansion of the rail network, hitherto confined to the ancient railway from the port at Djibouti to Addis Ababa, which has now been upgraded from narrow to standard gauge, which should be in operation by 2016. The 700-km line is being built at a cost of $4-billion by Chinese companies. Ethiopia is seeking to have 5,000 km of new rail lines working across the country by 2020. A national fibre optic cable system is being laid to help rectify one of the major weaknesses, in telecoms. In addition to the GERD, there are a number of smaller but still significant hydro-electric projects underway elsewhere, notably on the Gibe River in the south of the country.

Funding for infrastructure has come from a mix of sources: improvements in tax revenue collection (businesses routinely complain what a pest the tax authorities have become), some concessional financing (mainly from China) and other donors who provide around $3 billion annually from grants and loans, and domestic borrowing. Local banks are required by government to convert up to 27 percent of their holdings into government bonds to finance infrastructure, including the grand dam, this pressure-point one of the reasons why Ethiopia has so far not permitted foreign banks to open operations. What effectively amounts to a forced loan to the state has created something of a local banking liquidity crisis.

Now the key question is whether Ethiopia can create or attract the level of private sector productive enterprise needed to turn this infrastructure into the basis for a functioning modern economy.

Private sector development and growth has rhetorically, at least, become a government refrain. As the state minister of finance Ahmed Shide puts it, “success to our plans will now be determined by the response of the private sector. Investment is key in this. This process can’t just be led by the state which can’t itself generate wealth; it can only facilitate it.”

In this, amidst the debate about whether “Africa can be the next China” as manufacturing input (especially labour) costs rise in Asia, Ethiopia “wants”, he says, to be the light manufacturing hub of Africa. Ethiopian workers cost one-tenth the price of those in China for example. This view is a refreshing departure from South Africa-speak about not “struggling to work in sweat shops”.

The establishment of “Shoe City” by the Huajian Group in the eastern industrial zone, now employing 3,200 workers making 180,000 pairs a month, came about as a result of a personal invitation to the company’s founder to open a plant by Ethiopia’s late Prime Minister Meles Zenawi during a 2011 trip to China.

There are six such industrial zones now in Ethiopia, offering low or zero tariffs on imported manufactured goods, and tax holidays of up to seven years. Another 20 Chinese firms have joined Huajian in the eastern zone, 37kms from Addis.

Kenya, bordering on Ethiopia to the south, has similarly ambitious infrastructure aims. A new $25-billion port complex is planned for Lamu. A $3.5-billion standard-gauge railway is currently under construction from Mombasa to Nairobi and, possibly, beyond.

There are other parallels. Both have young populations, Kenya’s median age at 19 versus 17 in Ethiopia. Both are highly dependent on agriculture (comprising half of GDP and absorbing 85 percent of the workforce in Ethiopia’s case, 30 percent and 75 percent in Kenya’s). They run similar budget deficits, levels of public debt are equally high above 50 percent of GDP, and poverty in both remains around 40 percent of the population.

There are differences, of course. While Ethiopia is landlocked, Kenya is the gateway to South Sudan, Rwanda, Uganda, Burundi and Congo in eastern Africa. Kenya’s nominal per capita GDP is, at $1,250, more than twice that of Ethiopia (US$ 570 estimated for 2014). Nudging 100 million, Ethiopia has more than double Kenya’s population, and twice the land area.
But most notably, the dissimilarity centres around security and governance, key factors affecting respective development trajectory, whatever Kenya’s comparative advantages of geography and arithmetic.

Perhaps the most important reason for Ethiopia’s stellar growth performance is its political stability. It has, for a start, a state that works – in striking contrast to many other African countries such as, most obviously, Kenya or Nigeria. The oldest state in Africa, and the only one to retain its independence through the colonial era, it rests on engrained habits of command and obedience. This creates its own problems, but it does mean that the government has a capacity, shared by few African states, to make and effectively implement policies.

Especially over the last decade, since a political crisis in 2005 that raised serious questions about its survival, the government in Addis Ababa that seized power from the Derg military junta in May 1991 has devoted itself single-mindedly to creating a ‘developmental state’ based on east Asian models. This is most visible in the dramatic expansion in the scale and quality of the road network, and urban development not only in Addis Ababa – now a megalopolis of some seven million people – but in cities throughout the country. Further education has likewise boomed, with over thirty universities geared especially to turning out graduates in engineering and natural sciences, though their quality is certainly questionable.

This reflects extraordinary leadership in Meles, perhaps the closest thing Africa has enjoyed to Lee Kuan Yew – super smart, pragmatic and with an authoritarian streak. The difference between the two may be just the sheer scale of the challenge faced in 1991: Ethiopia’s already poor infrastructure, spread over a massive territory, had been all but destroyed by a combination of the civil war and revolutionary mismanagement.

Better governance also means less corruption and better value for money.

Take the tale of two railways. The cost of the Kenyan line for the first 485-kilometre phase from Mombasa to Nairobi reportedly rose by $1.2 billion between July 2012 and November 2013 when the first track was laid, to $3.5-billion. For Kenya, rolling stock that includes 56 diesel locomotives, 1,620 freight wagons, 40 passenger coaches and one simulator were to cost five times more than Ethiopia’s 35 electric engines, six diesel shunting locomotives, 1,100 freight wagons, 30 passenger coaches and one simulator. The cost premium is likely partly down to the specific route engineering challenges, and partly a “little something” else.

Better governance also means better security. Both countries have a significant Somali population, around six percent of the totals. And both neighbour Somalia where they have deployed troops in trying to deal with Al-Shabaab.

To Addis Ababa’s north-east, Lalibela’s 11 medieval churches hewn from surrounding rock hint at Ethiopia’s religious tapestry, made up 40 percent each of Orthodox Christians and Muslims, the bulk of the remainder Protestant Christians and tree-worshipping pagans.

Lalibela’s World Heritage site is a labyrinth of passageways, tunnels, and confines, carved over 800 years ago by the Zagwe dynasty – the architectural intricacies a metaphor not only for Jerusalem, as intended, but for the delicate and complex management of Ethiopia’s contemporary religious and ethnic fault-lines.

Ethiopia’s prime minister, Hailemariam Desalegn, says that his government’s understanding of tolerance does not mean ‘a religion-free society’. ‘Rent-seekers’ using religion as ideology, he warns, have to be ‘checked’.

Despite the mutual Somali link, it is Kenya which has felt the domestic blowback as the Islamists have struck at soft targets from shopping-centres to, now, universities. The level of government control through its armed forces, competent intelligence services and the co-option of the domestic Somali leadership makes this less likely – indeed, so far fortunately unprecedented – in Ethiopia.

Lalibela receives 60,000 foreign tourists annually, ten percent of Ethiopia’s fast-climbing total. The tourist numbers to Kenya are, by comparison, falling fast, hard hit by terrorist attacks, from 1.7 million visitors in the mid-2000s to under a million today.

Terrorists require usually an active support base to be effective. By playing local Somali clans against each other, and through rigorous security screening, especially along the Somali border, where Ethiopia has created a 100 km buffer zone with troops patrolling both sides, the threat has been blunted. “The federal police is catching insurgents every day,” says one foreign security specialist based in Addis. Not surprising, since it is “Addis where Shabaab would most like to place a bomb if it had a free pass.”

Other practical lessons for Kenya from Ethiopia and others in addressing security in an insurgency revolve around the importance of ensuring effective integration all sources of intelligence, and the need to generate trust in the army and people so people feel confident that they will be safe if they inform on the insurgent or terrorist group and the military and police will use their information properly to protect them. As Nigeria’s former president Olusegun Obasanjo has put it about the importance of this aspect, “Trying to fight terrorism without intelligence is like trying to box blindfolded”.

Al-Shabaab’s failure in Ethiopia is not because its Somali population is more committed to the Ethiopian cause than the Kenyan Somali minority, as some would argue. The Ethiopian system of the kebele – or neighbourhood – ensures that newcomers are carefully scrutinised and, if suspect, reported to the authorities. Ethiopia’s success at fighting terrorism is not down to luck or to natural barriers of geography and topography.

While it has a tradition of not sharing information with willing international partners, Ethiopia’s security sector is effective, using its capacity and resources to best effect, very little being squandered through corruption.

If and when Al-Shabaab is defeated in Somalia, reportedly reflected one member of the Ethiopian security forces, “Some will go to ISIS, and some to Syria. And some,” he says, “will go to Kenya” since with a little bit of money, the security forces will turn the other way.

All this does not mean Ethiopia has no development potholes or security threats.

For one, the in-built suspicion of foreigners (as seen, for example, in the prohibition on foreign banks) always makes long-term investment more risky. A second is an in-built suspicion of the profit-motive of business, relating to the Marxian background of the current generation of leadership, where the party is above the private sector. Ethiopia has not yet really liberalised either its economy or its politics. Rather it has created space for the private sector within a highly state-dominated and regulated economy. The paradox is that the government is looking for long-term committed investors, which at the same time pushes investors into taking short-term, often trading oriented positions with expectations of quick (high) returns.

Ethiopia, with its strong government and weak private sector provides a mirror image of Kenya, with its dynamic private sector and largely dysfunctional governance structure.

Where Kenya has a vibrant telecoms sector exemplified by M-Pesa, Ethiopia’s network is mostly down. The Kenyan paradox is that it is unable to translate private sector dynamism into public sector capacity because of the corrosive effect of poor governance – in a word, corruption.

At some point, the law of averages says that Al-Shabaab will eventually manage a terrorist spectacular in Ethiopia since, as the saying has it, the government has to be “effective 100 percent of the time, while the enemy has to be effective just once”. Regardless, Ethiopia’s prospects look somewhat better than its neighbours. For it owns its recovery and its security. DM

Clapham is at the Centre of African Studies at Cambridge University, and has written extensively on Ethiopia; Mills heads the Johannesburg-based Brenthurst Foundation. This is based on a Brenthurst Discussion Paper resulting from field-work in Ethiopia.



PM Lays Foundation for Hawassa Industrial Park

PM Lays Foundation for Hawassa Industrial ParkAddis Ababa: April 23, 2015 –
Favorable conditions are being created to make the industrial sector take a leading role in the country’s economy, Prime Minister Hailemariam Desalegn said.

Speaking at the laying of cornerstone for the construction of an industrial park in Hawassa city today, the Prime Minister said the government is focused in making farmers and pastoralists benefit from their products by undertaking improved agricultural-based development in the country.

The current growth level of the country would enable to create a favorable condition for the laying of foundation for the steady transfer of the nation to industrial development, he said.

Industrial Parks Development Corporation Board Chairperson, Arkebe Equbay, said on his part that Hawassa is one of the places selected for the development of industrial parks at federal level.

The reason for the selection of Hawassa is the close to five million population of the city within a periphery of 50-70 kilometers and close to three million labor force.

The various institutions around the city, including Hawassa University, would also provide training for human resources that could be employed by the factories, he added.

The construction of the first phase of the park on 250,000 hectares of land would be finalized by December 2015, he indicated.

According to the chairperson, the economic structure of the country will be changed in the coming 10 years and the manufacturing sector would play a key role by employing 1.5 million persons in medium and large industries which would be a big jump from the current employment of more than 35,000 employees in the industry.

SNNPR Chief Administrator Desse Dalke said on his part the construction of the industrial park will play a crucial role in making Hawassa a center for industrial development.

He also expressed the readiness of the regional state to provide land, infrastructure and the other necessary things for the construction of the industrial park.


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