The fruits of doggy investments in Ethiopia for decades [OPINION]

The fruits of doggy investments in Ethiopia for decades [OPINION]


By Hawa Mohammed –  I rarely watch the state television in Ethiopia for the reasons I can’t tell you now. But in the past few years I often flip to the channel to understand the government version and interpretations of the current political and economic crisis in the country. Anyways a few days ago I saw a TV commercial by the Commercial Bank of Ethiopia, the state financial giant with over 50% market share in the country.

In the commercial the bank has announced a bid to foreclose an over 171 million birr (approximately $6.3 million) textile factory.

I thought how the owner of this factory got the loan in the first place. I thought about the probability of mentioning in her/his proposal that when the factory goes operational it will create jobs to several hundreds if not thousands and generates at least tens of millions of dollars annually by exporting its products.

I am thinking like this because that is exactly how one can secure huge finance from state banks without collateral.

This has triggered me to think about how such investments come and disappear like this easily as well as the loss and benefits of those investors and the country in general.

So, I decided to look into the official numbers from Ethiopian Investment Commission on every sector and look in-depth to their performance in a series of articles. My hope is that the policy makers in Ethiopia will get the time to revisit what the country has been doing and may try something different.

Out of the total of 357 investments registered in livestock and meat processing and export sector in Ethiopia, 45 were operational a year ago, according to the official statistics from the Ethiopian Interment Commission.

The status of the rest of the investment says, “Implementation”. That means they have started something on the ground like construction, etc but not yet operational.

But when we look at how much Ethiopia has been getting from export of livestock and meat products it is far less than what these companies promised when they secured 70% loan from state banks before they go operational.

Reports show that in 2012 Ethiopia earned $213 million from the export of meat and livestock in 10 months. While the country earned around $72 million in revenue under a nine-month period in 2017 from the export of processed meat and 139.7 million in 11 months.

When we look into the numbers what the country earned in 2012 ten months is more than what it has got in 2017. But the number of companies, which came to Ethiopia in the sector within those five years, has increased. Likewise the incentives these companies should have definitely been increasing.

One may argue that there are other factors such as droughts that have led to the decline of the export earnings. But this is happening on every export item. In fact after the sudden death of the late Prime Minister Meles Zenawi, the investors seem to be relaxed and the total export earning of the country has been going down for the past few years.

Though it wasn’t possible to get the exact amount of bank land the two state banks have provided for meat processing and livestock because they failed to cooperate, but reports on tax incentives provided to such investments has mounted to $3 billion in 2015.

On the contrary the numbers of companies embarking on the priority sectors enjoying the generous government incentives are increasing.

That is why I am urging the government to investigate every sector and company on why did they fail to deliver on their promises and why the income is going down while the incentives are increasing?

I suggest to Ethiopian government to stop immediately the incentives thing and do cost benefit analysis by launching immediate investigations. At this stage I don’t see any reason for the government to pursue its foreign investment attraction policy by doing business as usual.

It needs to stop immediately pouring public money for the so called investors who show 30% of the total capital for their investment requires and snatch the remaining 70% from state banks who ultimately abuse the money and disappear.

In a race to attract foreign direct investment and earn hard currency many African countries have been providing generous incentives. From evicting their farmers from their lands and providing the land for cheap to these investors to offering huge amount of loan from state banks without collateral and pouring tax incentives. Ethiopia is no different from these countries. In fact it is the main country bluffing for attracting $4 billion last year.

What these government officials don’t notice or deliberately ignored is whether such FDI money is indeed injected into the economy or it is being used spoil the resources of the country such as state funding, natural resources and disrupting the livelihoods of the people.

My brief research and reports show that in the case of Ethiopia the damage of these investments is far more devastating than their benefits. From flower to textiles, from leather to chemicals, from meat processing to pharmaceuticals, thousands of investments registered in Ethiopia are more of doggy. They are not delivering on their promises.

They are used to secure loan from government banks with sexy proposal to finally channel the money to other less valuable businesses. While some are established to deliberately to bankrupt after being used to channel huge chunk hard currency to foreign countries.

A few weeks ago I heard on same state TV that the anti-corruption of the country has made a research and conducted a workshop on tax incentives and how these incentives has been used for unintended purposes. In my view it is a welcoming step but it has to go into detail.

It has to check on every sector and the called ‘investors” who are allowed to abuse the incentives and how. So that those who involved in the abuses should be prosecuted and those who channeled the money to unintended sectors should at least pay taxes on those duty-free imported capital goods, among others.

When I say the government needs to stop immediately doing business as usual, I also suggesting an alternative with practical experiences in the country.

In deed there are other ways where the local community can be treated like these investors and become investors on such investment projects. In fact that is the sustainable development model and the way to changing the living standard of the people of the country considered poor yet living in a rich nation – Ethiopia.

In the age of youtube video era, anyone can do anything taking practical tutorial. What these doggy investors be it local, foreign or joint have been telling us about technology transfer, hard currency and creating jobs are all proved to be BIG lies.

What we have been witnessing seen is rather exploitation, evictions of farmers and pastoralists becoming beggars in cities while the youth dyeing trying to migrate through risky routes of the Mediterranean Sea and African jungles.

If Ethiopians who have no clue about finance industry have managed to come together and established profitable banks, insurances and began making decent incomes by recruiting Ethiopian professionals, how on earth is it difficult to do the same on other sectors?

All we need to do perhaps is, to leave to the people what belongs to them, and give them what they deserve.

In my opinion if the government provides same incentives:

It is not a big deal to support wheat farmers in Ethiopia to establish and own a processing plant in their neighborhood, which can produce breads, pasta, macaroni and biscuits recruiting their children.

  • It is not a big deal to support barely farmers in the country to setup and own a malt producing and brewery around them, which can be run by their children.
  • It is not a big deal to support pastoralists setup and own meat and milk processing factory in their areas which can be run by Ethiopians.
  • It is not a big deal to help Ethiopian farmers to setup and own sugar factories where they produce sugarcane which can be run by their children.
  • It is not a big deal to assist people living in limestone and other precious mineral reach areas to organize them and let them establish cement factories, opal digging and shining companies, etc…

I am not saying that private investors be it local, foreign or joint ventures should not invest in Ethiopia. They should be allowed as long as they are investing their own money. I am saying they shouldn’t be allowed to continue abusing public finance like we see now.

We shouldn’t allow to the continuation of the current selfish and ugly face of capitalism being exercised in Ethiopia by these doggy investors. Ethiopians deserve better than this. I suggest to my country’s policy makers to think something different, which is sustainable and addresses the chronic poverty the people of Ethiopia has been forced to live in because of pour poor policies and management of natural resources and public finance.

All it needs is genuine intention of changing the lives of the people for good and thinking out of the box as well as redefining our attitude towards the source of hard currency, which I will talk about in another piece.

But my next article of reviewing sector performance looks into how all biofuel investments registered in Ethiopia have failed and who benefited and who lost.