“In the end, of course, there has to be liberalisation,” he said. “But our hope is that this could be postponed for a significant time.” That’s a quote by Prime Minister Meles Zenawi, concerning Ethiopia’s telecommunications and banking sectors, from an interview on Wednesday, July 8th with Reuters reports Barry Malone and Andrew Cawthorne. In one of the least developed countries in the world, such a protectionist stance forbids any hope of bringing in real outside investment or capital.
The telecommunications and banking sector’s in Ethiopia are nearly non-existent. You have a better chance of calling a coin flip than you do in connecting cell phone to cell phone calls, even within Addis. Land lines are no better, as they are nearly always down. High speed internet is nonexistent, though the government would claim otherwise – my apologies, but whatever goes through the supposed ‘broadband’ connection (where available) is something other than high-speed internet. Dial-up, at 54.6 kbps is your best bet; that only works a few days a week, if you’re lucky. I still can’t figure out whether or not the phone line working is correlated in any way to the power outages. I do know that power is out every other day now, and the phone line doesn’t work then. The phone line also fails to work on days (such as today) when the power happens to be on.
No doubt, however, Ethiopia Telecommunications Corporation has things under control.
Now to the banking sector – even China has allowed outside banks to underwrite investment deals and some services. Not that China is any model of development, but the level of outside investment and joint ventures in that country is considerable. Ethiopia stands little chance of garnering real outside investment by continuing to restrict the banking sector to Ethiopian nationals. Though the number of ATMs in Addis has expanded greatly in the past three years, online banking does not exist, and only recently have ATM cards been issued to Ethiopian nationals (most ATMs are for foreigners who wish to withdraw local currency from their checking accounts abroad). Nearly all over-the-counter transactions are cash based. Moreover, the birr (Ethiopia’s currency) is worthless abroad. Once you change your money to birr, it’s for keeps and only for use in Ethiopia – you can’t even re-change it on the way out of the country.
Foreign investor’s are, however, allowed to remit funds. As stated in Investment Proclamation No. 280/ 2002:
20. Remittance of Funds
1) Any foreign investor shall have the right, in respect of an approved investment, to make the following remittances out of Ethiopia in convertible foreign currency at the prevailing rate of exchange on the date of remittance:
a) Profits and dividends accruing from investment
b) Principal and interest payments on external loans;
c) Payments related to a technology transfer agreement registered in accordance with this Proclamation;
d) Proceeds from the sale or liquidation of an enterprise;
e) Proceeds from the transfer of shares or of partial ownership of an enterprise to a domestic investor.
At least it’s possible to remit funds. Now, wouldn’t that be a lot more comfortable transaction if there were several competitors to the National Bank of Ethiopia for your banking and remittance services? Who knows, maybe most foreign investors are completely confident and comfortable with the exchange rates and services offered by Ethiopia’s state bank.
While we’re at it, let’s not forget the electricity situation. As mentioned by PM Zenawi in the same aforementioned interview, there are two dams expected to come online in the fall which should address the widespread, frequent power outages. Let’s hope so. Hear say has it that Ethiopia has the potential to generate enough hydro-electric power to meet its own needs, as well as export power to its neighbors. That would be nice, and sooner rather than later.
Now back to foreign investment. For-profit development is one of the few tried and true development tactics. It has its own faults and short fallings, no doubt, but at least it has a proven track record. Rather than open-up to outside investment, Ethiopia prefers a façade of being friendly to outside investment while in reality, many sectors are reserved for domestic investors. As stated in Council of Ministers Regulations No. 84/ 2003, the following areas are reserved strictly for domestic investors:
1) Retail and brokerage;
2) Wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by foreign investors of their products locally produced);
3) Import trade (excluding LPG, bitumen and upon approval from the Council of Ministers, material inputs for export products);
4) Export trade of raw coffee, chat, oil seeds, pulses, hides and skins bought from the market and live sheep, goats and cattle not ra(i)sed or fattened by the investo;
5) Construction companies excluding those designated grade 1;
6) Tanning of hides and skins up to crust level;
7) Hotels (excluding star-designated hotels), motels, pensions, tea rooms, coffee shops, bars, night clubs and restaurants excluding international and specialized restaurants;
8 ) Travel agency, trade auxiliary and ticket selling services;
9) Car-hire and taxi-cabs transport services;
10) Commercial road transport and inland water transport service;
11) Bakery products and pastries for the domestic market;
12) Grinding mills;
13) Barber shops, beauty salons, and provision of smith, workshops and tailoring services except by garment factories;
14) Building maintenance and repair and maintenance of vehicles;
15) Saw milling and timber making;
16) Customs clearance services;
17) Museums, theaters and cinema hall operations;
18) Printing industries.
Essentially, any area that doesn’t require an extraordinary amount of capital, technology or other expertise, and that may be considered a reasonably plausible area for investment, is reserved for domestic investors. The following areas are then reserved strictly for Ethiopian nationals:
1) Banking, insurance and microcredit and saving services;
2) Forwarding and shipping agency services;
3) Broadcasting services; and
4) Air transport services using aircraft with a seating capacity of up to 20 passengers.
These last four areas are by far some of the most impactful areas to a country’s development. Surely the government would not want to increase competition – which spurs innovation, customer service, and quality – in these key areas, lest anyone besides a select few Ethiopian nationals benefit from the growth and development of Ethiopia.
Now, be sure not to misinterpret my intentions. I am all for ensuring that Ethiopians, first and foremost, benefit from the development of their nation. However, such a protectionist stance is by no means the way to go about doing so. Put some restrictions on investments and foreign investors to ensure that Ethiopian nationals have a hand in deals, and also that there are benefits associated with hiring Ethiopian nationals as opposed to foreign employees. However, the only way to attract real outside capital, in addition to outside corporations, tourist, etc., is to provide basic infrastructure services – high speed internet, transport sector services and online banking by reputable international banks – common in so many other nations, even throughout the developing world.
I would love to see the day that Addis Ababa is known for more than housing the second largest United Nations headquarters. The UN does superb work, and it’s nice to know that the UN chose Addis as one of its top headquarters. It would be even better, however, if Addis and Ethiopia at large were considered pro-business, open to outside, environmentally friendly investment (I could launch into another tangent here, but I’ll refrain – the main point is that all investment, everywhere, must prioritize the protection and enhancement of land and water resources). Thus, development would be based on for-profit motives that benefit investors while simultaneously enhancing the environment, providing jobs and lifting the standard of living of all Ethiopians, rich and poor alike.
JTV
Addis Ababa, Ethiopia
