Ethiopia’s drive to attract more South African investment is being hampered by a government that still distrusts business and a population wary of foreign domination. Africa’s second most populous country wants more foreign direct investment in agriculture, energy, transport and manufacturing, among other sectors, as it seeks to sustain an average economic growth rate of 11% over the past decade, according to Wegayehu Berga, the minister counsellor of business promotion at the Ethiopian embassy in Pretoria.
However, at an investment briefing organised by the Gordon Institute of Business Science this week, PPC and Group Five, which are establishing themselves in the country, detailed tales of a slow-to-reform bureaucracy still married to paperwork, slow in decision-making and still protective of its dominance of the economy.“They are incredibly wary about business,” said Tony de la Motte, managing director of Group Five Projects, a unit of JSE-listed Group Five.
“I couldn’t even get a one-year visa from this man,” De la Motte said, patting Berga’s shoulder at the panel discussion. Tryphosa Ramano, CEO of PPC, had the audience laughing as she relayed a typical annual general meeting of the company’s joint venture attended by a majority of its 60 000 shareholders. Typically, these lasted as long as five hours and venues ranged from hiring a convention centre to a stadium to accommodate the huge numbers.
“Even those with two shares want to attend, everybody wants to ask questions,” said Ramano, whose company has been in Ethiopia since 2009 and expects to complete its plant next year. “And you have to slaughter a cow.”
The only African country to escape European colonisation, Ethiopia, with about 100 million people, boasts a cheap labour force, abundant natural resources and political stability since the fall of dictator Mengistu Haile Mariam’s military government in 1991. However, recent protests by the country’s largest ethnic groups, the Omoro and Amhara, threatens that stability.
Berga conceded that the government had been slow to reform, adding that the recent unrest has taken its attention away from reforming the business environment. The country was also dealing with decades of socialist control and practices, and an acute shortage of foreign currency. “We are trying to improve. We started from scratch,” he said. “We are learning while we are doing. We have to transit from being control-minded to being business-minded.”
The government was building two industrial parks that were almost fully booked, Berga said. Incentives included typical tax holidays ranging from two to nine years depending on location, with those in the capital Addis Ababa attracting the lowest number of years. Also, Ethiopia didn’t charge export tax and incentives applied to both locals and foreigners, he said.
The government also encouraged foreign investors to partner with Ethiopians and banned foreigners from participating in trading and investing in the banking sectors.
Ramano told the briefing the best way of managing political risk and funding risk was to partner with locals, including politicians and seeking funding from development finance institutions. This goes down with a lot of investors like a lead balloon as the “blind” partnerships tried in the past in Africa have almost always become the sibject matter of legal proceedings.