Capital Ethiopia Newspaper

Investing in the private sector

Britain’s ambassador to Ethiopia, Greg Dorey, tells Capital that Ethiopia’s government is right to encourage foreign investment in the country, but argues that more should be done. Capital’s Aderajew Asfaw sat down with Ambassador Greg Dorey. Excerpts:

Capital: How do you put the current Ethio-British relationship?
I have been here for 18 months. I am always struck by how strong and increasingly valuable the bilateral relationship is. I don’t mean by this that everything is perfect. There are one or two areas where we could do better. But we have a very strong development relationship. Ethiopia has been our biggest bilateral development partner for some time and we are going to go on giving a lot of money to Ethiopia for sensible development programs for some time to come. I am not sure whether this year Pakistan might not overtake Ethiopia. But at any rate, Ethiopia will remain a very big and an important development partner. We are working in lots of different areas in Ethiopia and we are seeing very good results including achievement of the MDGs in 2015 at the end of the current GTP period.
In terms of trade and investment, I see things taking off substantially and dramatically. There are already some investments. Quite a few potentially big investments are also in the pipeline. So we could end up with a very substantial commercial relationship, though Ethiopia is not, to be frank, the easiest place in the world to do business.
I think in the long term, what will be valuable to Ethiopia is to have a much faster growing and booming private sector that provides wealth, jobs and benefits to the people, rather than donor assistance. That growing private sector is the reliable body that will give jobs to many new graduates of higher education institutions. Governments and donors cannot always provide jobs. 
On the other hand, in terms of regional security in the last few years, we have a very frequent valuable dialogue and worked closely with Ethiopia and Somalia – for instance, where the Ethiopian government played a remarkable role and is very much appreciated by the international community. On top of that, Ethiopia is playing an important mediation role between the two Sudans. It is not always going smoothly.
We very much would praise the Ethiopian government’s climate resilient green economy strategy, which we think is a model of its kind. In DfID, we are working closely with the government on that initiative.
Of course, on a wider scale, Ethiopia is chair of the AU at the moment. So we are talking to the country about continent-wide initiatives that can be taken to the African Union, some global initiatives on climate change.
So, in all these areas, quite apart from the personal ties and friendships that are created by Ethiopians living in the UK, British people living in Ethiopia, educational links and so on, I think it is a relationship which has scope to grow but, as I said, it is a pretty rich, varied and very valuable relationship.
Capital: What do you think is the current status of Ethiopia’s private sector?
First of all, the government has accepted that the private sector here can grow, they want the private sector to flourish and they want foreign investors to come here.
There are certain limitations to the areas where they want to see that foreign investment. So, for example, financial services and communications are off limits. I personally believe that is not forever a sustainable position.
As for competition, I understand that it’s important not to introduce competition before Ethiopian companies are ready for that.   But the trouble is that, let’s take the financial services, without any competition, Ethiopian financial institutions are not going to grow, flourish and be competitive and strong. And I am not sure all of the capital that is needed for the private sector’s growth which can take place in Ethiopia will be provided by the domestic institutions alone.
Giving them the opportunity to partner with international financial institutions and gain access to international funds could be a very sensible step to take. Of course, you would need to regulate the industry to make sure that nobody is taking unfair advantage of Ethiopian institutions but that is possible to do.
When foreign investors from the UK or many other countries look at Ethiopia and think about coming here, they like to deal with institutions they know, because they don’t move around the world. So they like to see the banks they do business with, the insurance companies they do business with and communications companies that do their business. So, by not opening up those sectors, you may be putting off a certain amount of foreign investment – that is difficult to calculate exactly.
So, you have got the beginning of private sector development here, but there’s so much more that can be done to add value in the country to what Ethiopia is producing. It is still largely agriculture produce and the more value that can be added to that produce, the better.
I see many opportunities for the private sector to expand here, to add that value, to actually do things which governments can’t do. Governments are not great at doing business, to be frank.
Nationalised companies are not the most efficient companies, on the whole. You can create good strong private sector companies that are properly regulated. I agree with people, like at (economists) Ernst and Young, that Ethiopia will be at least the third biggest economy in Africa by 2050. But that requires letting the private sector do its thing.
Capital: Compared to the youngest African state, South Sudan, which has opened up everything for everybody, regardless of the nature of the business and the nationality of investors, how do you put Ethiopia’s position?
It is important when you open up to make sure you have light touch regulation, at least to make sure you have good health and safety standards; you don’t allow corruption; you have proper order; transparency of profits has been made so that things can be taxed properly.
Even the philosophers who talked about liberalising the economy in the first place, they didn’t imagine you would have a complete lack of any regulation.  I don’t know exactly what’s happening in south Sudan.
But I think there’s a balance to be stroke here. South Sudan has a lot of problems, so it has got to work hard to encourage foreign investors to go there. But they are going there and, hopefully, we will see the economy in South Sudan take off because they have a lot of poverty to deal with, they have a lot of problems to deal with and they need a proper functioning economy that doesn’t just benefit investors but actually benefits people more widely.
Capital:  What are the investments from Britain to Ethiopia you said are in the pipeline?
A lot of companies that are interested in the renewable energy prospects -ranging from geothermal to solid waste – are already here. There’s been one investment already in solid waste to energy.
The issue with some of these renewable energy projects is that the legislation here is not yet at the right stage to bring in foreign investors in large numbers into renewable. We need to get that right first. There needs to be legislation on power purchase agreements, feeding tariffs, maybe on public private partnerships, once that legislation is in place, I think you will find a lot of interest from British companies.
Actually, we have investors here already including Pittards, Diageo [in partnership with Meta] and Silk Invest [Nas Foods Biscuits]. There are at least three British companies who are actively exploring or want to explore in the oil and gas field and will be prepared to make substantial investments here to do so – Tullow Oil for example.
There are other British companies that want to make substantial investments looking for precious metals here or actually extracting those precious metals.
Capital: Any new financing through DfID?
We have big DfID programmes here already – in particular, they are giving the biggest proportion of development assistance to protection of basic services, including health and education and the productive safety net program [providing work and payment to the poorest people in society].
We are helping in quality of education and water sanitation and hygiene. We have some very striking statistics to show what we will have achieved over the four years which run up to the end of the GTP, because we are investing £1.3 billion over that period.
For example, there will be two million children in primary school and empowered girls by that period. There will be seven and a half million more people provided with basic health care, a million children getting protected from malaria and so on.
But I think what strikes me particularly is that British development assistance saves a life of a child every 10 minutes in Ethiopia.
We are helping on climate change, for example. But what is probably of most interest in this context is what is called the Private Enterprise Program for Ethiopia (PEPE), which has just been launched.  That is doing two main things: it is helping facilitate access to finance by supporting MFIs, banks and equity investors to overcome barriers to providing credit to entrepreneurs, to growth oriented businesses.
It also works with a number of priority sectors like horticulture, cotton and textile, livestock and leather to try to help to deal with the number of market failures within Ethiopia and to try to improve the value chain in those particular sectors, and to try and help the private sector to grow, but also provide more and better jobs for the poorest people as well. That will run from this year to 2019 with a budget of £17 million. 
We are preparing another program called Land Investment for Transformation (LIFT) which will be another £30 million over a similar period to support what the government is doing to implement land certification to drive productive land use.
Our view is that, once you have got that extra security, a proper form of certification, then that actually encourages people to invest more. Not just foreign investors or external investors but people who are using the land, if they know they have got certain years in the future, they are going to put investment into that land. They would grow better crops; they will plan future use more sensibly and so on.
Wealth creation fits in with the future role of the private sector in Ethiopia – clearly there are entrepreneurial people here and others learn to be entrepreneurial. Sometimes those entrepreneurs get very frustrated with all the regulation here and find it difficult to take their ideas forward. So, if we can find ways to help them do that, it is really going to benefit people much more widely.
Capital: Egypt is reportedly trying to lobby countries that finance Ethiopia to influence construction of the GRD as well as other development on the Nile. What is your country’s view on that?
We have been talking to our Ethiopian and Egyptian partners over a period of time and recently, the GRD has featured of course. What we hope is that both countries are going to reach a mutually satisfactory agreement, whereby they can both use the Nile water.
An agreement which shows there is peaceful use of the water so that all of these countries can get something out of this valuable natural resource is important. I know there has been a report from a panel of experts which included Ethiopia and Egyptian experts – we haven’t seen that report, but my understanding is [at least] the operation of the  GRD would accrue a number of benefits  to Egypt, Sudan and Ethiopia [of course  there are a bit difference in each case].
Capital:  The 39th G8 summit held in Northern Ireland with extensive security at a cost of £50 million was criticised as very expensive. What is your take on that?
Well, it was an important meeting. It wasn’t the only meeting of our G8 presidency. There were a number of high level meetings which have taken place. And there will be meetings before the end of the year. But the summit and the meetings leading up to the summit were of particular importance.
We have tried to have a global focus with our presidency and particular theme of the presidency has been the so-called three Ts – Tax, Trade and Transparency, which is partly about the G8 getting its own house and order on these different topics. But also looking at how that will benefit the rest of the world and I think there are particular benefits in Africa. The three Ts have particular resonance in Africa.
The meetings which have been held during our presidency have been in different places. The majority have, in fact, been in London. But the United Kingdom actually consists of four countries all together.
It is important for us – from a national point of view – that not all high-level meetings automatically take place in London. And in fact, when we held the presidency in 2005, the main summit meeting was in Scotland, where I believe it was even more expensive.
Apart from the three Ts, a key theme of the meeting between the G8 leaders was terrorism. The fourth T – it was very symbolically important that the meeting should be held in Northern Ireland in a venue where, historically, there was a huge terrorist problem.
It was an opportunity for people to see a place where terrorism has been successfully dealt with and where the place has taken off economically and is strikingly beautiful.
Ethiopia occasionally has a bit of problem of image because people think back to 1980s images, which are no longer valid in the sense that they were then. Northern Ireland also has an image problem still to overcome. This was a good way to overcome it – even in the time of austerity, I think it was probably £50 million well spent, as it has certainly drawn attention to that area.
Capital: What was the major inspiration for Britain to decide on those three Ts to be theme for the summit?
Often previous summits have focused on things like donor assistance and that was really a key theme in 2005 at Gleneagles, Scotland, to make poverty history. But I think we have come to realise that you can’t just deal with the symptoms of poverty.
You actually have to deal with the underlying causes and there are a number of underlying causes. But, not having transparent systems where tax is not collected properly and trade is not taking place means that many places can’t recognise their economic potential and people in those areas remain poor.
Tax, trade and transparency are not the only underlying problems. But they are three important ones that we can do something about and actually have quite a quick impact which will bring economic benefits to lots of countries around the world.
Capital: What was the outcome of the summit for the world as a whole?
A declaration on transparency has been put out. There were 10 principles, which show how to conduct business in the future, agreed by all the attendees.
The other outcome is more capacity building, through partnership with African countries to help them manage the extractive industries and land use more effectively –  in particular through greater transparency, through capacity building and greater accountability and there have been a number of partnerships set up between individual G8 countries and African countries to take that forward.
There were also talks with the African Union about what they might do in this field as well. Bilateral relations are good but if the AU was able to come up with continent-wide codes of conduct to which people can subscribe, that would be even better.
There is already work underway. There is a land policy initiative, for example, which the African Union and UNECA have been working on together, which is about ensuring transparency of land transactions, making sure that sustainable investment takes place in land.
So, certainly, initiatives like that are parts of the overall picture. I think we need to deal multilaterally and bilaterally with these issues. So, transparency on taxation is a question to make sure that African countries – to put it into an African context – are getting their fair share of taxation.
They can collect revenues that are due to them more efficiently and effectively, so that we can have global standards of what information on tax should be exchanged between countries to make sure people making profits pay the right amount of tax; that we have guidelines about transparency of company ownership so that we know who owns which company , because frankly, at the moment, it can be very obscure who owns what.
So through information exchange and capacity building in this area, we can do a lot more to help African countries get the money that is rightfully owing to them. We have worked – through DfID, for example – with Ethiopia in the past and Ethiopia has done pretty well, doubling the amount of tax raised over the past decade.
And we are going to continue to work with Ethiopia to make sure that here taxation is more efficient and effective and everybody benefits. On trade, it is partly making sure that where we have global initiatives on free trade that African countries can benefit from those global initiatives but also to work together with individual countries in Africa to make sure that the necessary infrastructure is in place, so there will be some investment in that.
Capital: What bilateral and multilateral agreements did your country make as far as the summit is concerned?
There’s an agreement that we will try to negotiate a free trade union between the US and the EU. We are conscious that can concern people. So we want to make sure that it is not an agreement that penalises other countries in the world, including in Africa.
But we also want to make sure that there’s a massive economic stimulus that would come to the States and to the European countries if we actually have a free trade agreement and get rid of all the obstacles that exist at the moment. So, that is an important agreement we want to take forward.
In terms of the UK and the US, I don’t think there’s anything specific as these negotiations usually are taken by the EU as a block and the commission has the competence to negotiate on our behalf. So, we wouldn’t be in a position to negotiate such trade agreements with the States.
As far as Britain is concerned, we would like to work with Ethiopia, for example, on land transparency where actually there’s a reasonably good story to tell here already.  There’s a degree of transparency.  Therefore, we would be interested to work with Ethiopia in the extractives industry as well where there are capacity problems at the moment.
Capital: What is your view on integration among African states?
The African Free Trade Initiative, which we have helped to take forward, is embracing three regional economic communities down the eastern-southern coast of Africa.
We are talking about East African community, Southern Africa Development Commission (SADEC) and Common Market for Eastern and Southern Africa (COMESA). These three communities would come closer and there would be lower barrier to trade between them. Such initiatives would contribute to the continent-wide free trade area that we want to see by 2017 – it is a very ambitious target. But, at least, let’s try to get as much progress as we can by 2017.
So many African countries are trading externally-outside Africa. Statistics show how much economic growth could be stimulated within the continent, had there been free trade agreements in the region. However, when you actually look at what’s happening inside the continent, it is surprisingly little relative to the potential. So the idea is obviously to create that stimulus that will improve the economic benefits for all.
Capital: Do you think the colonial powers are responsible for the African integration to be so clumsy?
First of all, for how long are we going to continue to blame the colonial powers so long after independence?
That is one dimension of this, but also there are issues to do with infrastructure and the way which infrastructure is set up – this may be, in some cases, part of the colonial legacy. But it is not colonialism which is stopping improvements to infrastructure taking place.
Part of that is investment – of course, it is not exclusively investment. It is also about political will and people embracing the vision of free trade and realising what a powerful transformational thing it can be in economic terms.
So there are a number of aspects of this issue but clearly infrastructure, logistical links, communications in a number of part of Africa are not set up to optimise trade between the African countries and that  is what really needs to be addressed.
Capital: How much responsibility do colonial powers have for reintegration?
It is not up to us to manage how modern Africa now deals with economic opportunities. We can’t tell Africa what it should be doing. We can offer help and assistance – sometimes we can offer expertise, we can offer some donor assistance, we can encourage our businesses to come and invest in opportunities.
So there are a number of ways in which we can help – we have to have the dialogue with Africa and then respond to the priorities as they are expressed to us. And hopefully, in a lot of areas we would be able to help.