What are zombie companies? One can find a number of criterions by which one can define zombie companies. The straightforward and easy answer is; zombie companies are those that have become unviable in the market place. What is meant by ‘unviable’? Here, one has to resort to traditional parameters to assess the health of companies in a given capitalist economy. Again, what are these parameters? Traditionally, a company’s health is/was ascertained from its books, i.e., its audited financial reports. This served as the main ‘certificate of health’ for companies, big or small. Up until recently, GAAP-Generally Accepted Accounting Principle; was the most used standard in the audit business. This standard served to streamline valuations and evaluations of companies in the various jurisdictions of the world system. In the past few decades, however, this standard/GAAP was increasingly demoted, so to speak. In its place, different parochial systems were instituted, to help accommodate the unviable zombie companies of the world!
ENRON was a company that started out in 1985 and folded in 2001. Fortune, the business magazine, named Enron ‘America’s Most Innovative Company for six consecutive years! Sure enough, it was amongst the first few companies that pioneered ‘creative accounting’. When its assets appreciated, it borrowed abundantly, when it assets go south, it magically concocted new figures to compensate for its deceased asset prices, with a view to borrow even more. The once prestigious accounting firm, ‘Arthur Andersen’ was the auditor of ENRON. It also went kaput along with its generous client. WORLDCOM was another of these ‘unicorn’ companies that used creative accounting to mislead/fool, not only shareholders, but also governments and the public at large. WORLDCOM, more like WORLDCON, started out in 1983 and soon became one of the largest telecommunication companies in the US. It acquired many corporations by cooking its books and pushing the massive losses on the gullible investors. Like Enron, it ungraciously collapsed in 2002. ENRON and WORLDCOM outshined old-fashioned corporations that had to rely on traditional parameters such as earnings/profits, etc., via GAAP to secure their places in the hierarchy of corporate-dom. Zombies can’t stand such hassles!
Here is another way of defining a zombie company. It is an entity that cannot pay the interest on its debts from operating income. By and large, this phenomenon is pronounced in countries where companies have to rely on bank credits rather than the stock market, to finance their operations and expansions. In other words, zombie companies are like sovereign states. States do not pay their debts, (sovereign bonds) they just roll them over, so to speak. They pay their outstanding debts by issuing more new debts; new bonds replace old bonds! Zombie companies are the equivalent of states, in the domain of the market. Just like the states, zombie companies need to borrow more new money in order to pay the interests on the old borrowed money. In short, these entities are bottomless money pits! Today these companies are a dime a dozen and dominate plenty of economies across the planet, ranging from the small to the large. Most importantly, they tend to be ‘too big to fail’ within the economies they operate. Zombie companies are almost always protected by their respective states and are not forced to face the vagaries of the market place, like the others. When zombie companies proliferate in a given country, it is a sure sign that economic collapse cannot be far behind!
Companies like Tesla, Amazon, etc., are hardly profitable, but that is not the main criterion they have to adhere to. There are plenty of entities like them that are fully supported by the States, with a mission to change the whole business environment of a given economic sector. To this end, financial institutions and equity markets are given the green light to support them, come what may! The long-term objectives of these companies seem to be the weeding out of healthy competitors, who have become unwieldy to the desires of the ‘permanent government’ or the DS (Deep States). Besides the hidden agenda of the DS, there are visible problems confronting late modernity. One major problem is the issue of unfunded liabilities. For example, pension funds, insurance companies, etc., are major players both in the global equity as well as debt market. Pension funds expect an average of 7% return per annum from their diverse investments. Their actuarial policies are based on this magic number. However, today’s global bond market only delivers zero or negative interest. In addition, dividends from equity investments are negligible. Therefore, to assume such a consolidated return of 7% is at best preposterous. Therein lays one of the major problems contemporary capitalism!
Since many of the world’s major pension funds are players in the equity and bond markets, all kinds of maneuvering and manipulations are used to give the impression that adequate returns are there to sustain pension payments, even though the facts on the ground do not support this ridiculous supposition. This is one of the reasons why zombie companies are allowed to flourish in the market place. For instance, almost all of the zombie corporations in the world have insignificant tangible assets. To compensate for this shortcoming, their balance sheets are beefed up astronomically, by assigning crazy numbers to their intangible assets! This holds true even in the case of ‘blue chip’ companies like Microsoft, etc.
ZOMBIE COMPANIES
Mines Ministry debunks ‘natural gas field transfer to US firms’ as false rumors
Ministry of Mines (MoM) dismisses claims being made about the central government agreeing to transfer the natural gas field in Ogaden Basin to US companies. Nonetheless, the ministry has confirmed that US companies are potential prospects to take over the field.
It can be recalled that in last August, Ethiopia received its first natural gas certificate for the energy resource located in Somali region, Ogaden Basin, following a comprehensive five month study carried out by Netherland, Sewell and Associates, Inc (NSAI) which proved that there were oil and natural gas reserves in Ethiopia.
The certificate confirmed the presence of 7 trillion cubic feet of natural gas reserve in the area, which was controlled by different companies on various occasions to develop the resource, without anything materializing.
The last company that took over the field was Poly GCL, a British Virgin Island registered company, which lost its concession by MoM owing to intangible results despite possessing the area since 2013.
After different signaled warnings to start operations falling on deaf ears, in September, MoM revoked the natural gas and crude oil exploration and production license of Poly GCL.
Since then the ministry has been engaged on changing the face of the history seen in the sector by actively looking for development partners with a good track record.
Takele Uma, former Minister of Mines, during his leadership era said that most of the companies that had agreed with the Ethiopian government to develop the natural gas did not have a well-established reputation and some of them were not even known, “This is one of the reasons that have hurdled development in the mining sector.”
He explained that since internationally renowned oil companies got to see the certificate, they have been showing interest, “We have approached some of them directly.”
“Since NSAI approved the reserve through the involvement of the US ambassador in Ethiopia, I had talked with some US companies and we have had fruitful discussions with them through webinar. Similarly, as per the order of PM Abiy Ahmed I have traveled to UAE and discussed with the well-known gulf oil company Abu Dhabi National Oil Company /ADNOC to convince them to invest on the energy sector in Ethiopia. Similarly, in collaboration with Turkish Ministry of Trade I also visited Türkiye and directly discussed with Çalik Energy to invest in Ethiopia,” Takele told Capital in a recent interview and added that there are also other huge companies including the Russian GAZProm, and Sinopec and China Petro of Chinese who have become interested since the certificate was disclosed.
“As you may recall, we had terminated our contract with the Chinese firm Poly GCL. The company was incapable so we are directly approaching trustworthy and reputable huge companies in different countries to change the history of the sector,” he explained.
However, he dismissed the claim that cited that during the PM’s visit to the US, certain US oil companies were promised an award for the natural gas field site in eastern Ethiopia.
“We are talking with the Russians, UAE, Turkey and US companies including Baker Hughes and Chevron and Chinese companies who have shown their interest. We are waiting for a company with a strong track record to table a proposal for our country. Since I wasn’t there with the team which paid a visit to the US, I am not sure about their discussion. But one thing I can assure you is that we are still waiting for the best company so as to take on the project,” he elaborated.
However some experts in the sector and Kaleyesus Bekele, CEO of Origins Media, viewed the issue at an angle that huge companies interests are far beyond natural gas fields and require additional resources to lure these renowned companies to the country.
“The certified reserve amount is not big for the companies stated by the government but they may have interest if there is a possibility to get additional reserve at the area,” Kaleyesus, who closely follows the petroleum exploration and reporting told Capital whilst sharing insights on the progress of the sector over the years.
“Small companies interest might be sparked, however, companies weather in US or others that MoM mentioned will certainly not be interested in such small amounts of reserve,” he added.
“The sedimentary basin at Ogaden is very big that covers 350,000km2, while as far as my knowledge about 50 wells have only been drilled in the area, which is very small. So if additional exploration wells shall be drilled more resources can be realized. However, the approved resource confirmed by the MoM is not big,” Kaleyesus elaborated.
However, he confidently stated that the government will give the field for well-known companies that have money, technology, and knowledge to utilize the resource in the near future.
In the second Home Grown Economic Reform (HGER) that will be approved by the Council of Minister in the coming weeks, the mining sector is stated as one of the priority sectors.
“Regarding the natural gas development, we have targeted to commence development, which is at the second stage after exploration in the second HGER which will be a three years economic development plan,” Takele explained.
Natural gas development includes the construction and installation that will be followed by production of methane gas that is transformed to ammonia, which means the country stands a chance to produce fertilizer.
In related development, on Wednesday January 18, on his social media account, Takele disclosed the discovery of over two billion barrels of crude oil at parts of the Abay Basin.
He said that oil exploration is being conducted in 5 basins throughout Ethiopia. “In an oil exploration study conducted in Warra Iluu, part of the Abay basin, the study showed that there are more than 2 billion barrels of crude oil.”
Oil seeps were first discovered in the Woreilu locality during the imperial regime. Ogaden, Gambela, Mekele, Omo Valley and Abay are the five sedimentary basins considered to be highly prospective areas for oil and gas discoveries.
Currently, the Ogaden and Gambela basins have been relatively better explored compared to the other basins.
Foreign companies ditch rules to engage in booming businesses
Foreign national companies deviate from stipulated rules by engaging in investment areas which are not allowed for foreign investors based on the investment regulation.
According to sources, the number of foreign companies which are engaging in investment areas only reserved for local investors has been noted to be increasing from time to time, as various fields of business continue to boom in the country.
As sources who prefer to stay anonymous inform capital, the investment commission has also been made aware of the issue yet there has not been any legal action taken by the commission or other respective government authorities.
According to sources, foreigners from mainly Middle-East, Asia and European countries are said to be engaged in investment areas majorly in; Brokerage services, private employment agency services, producing bakery products and pastries for domestic market, hotel, lodge, resort, motel, guesthouse, and pension services, excluding those that are star-designated; Restaurant, tearoom, coffee shops, bars, and nightclubs.
As per regulation, investment areas not listed under Articles 3, 4 and 5 in the regulation which are Investment Areas Reserved for Joint Investment with the Government Investment Areas, Investment Areas Reserved for Domestic Investors, Reserved for Joint Investment with Domestic and Foreign Investors is said to be open to foreign investors which is subject to applicable by the law.
The investment regulation No. 474/2020 reserves 32 ‘Investment Areas’ only for Domestic Investors including banking, insurance and microfinance businesses, excluding capital goods finance business, Transmission and distribution of electrical energy through integrated national grid system, Primary and middle level health services, Wholesale trade, petroleum products, Retail trade, Export trade of raw coffee, khat, oil seeds, pulses, minerals, hides and skins, products of natural forest, chicken, and livestock including pack animals bought on the market; Construction and drilling services below Grade I; Hotel, lodge, resort, motel, guesthouse, and pension services, excluding those that are star-designated; Restaurant, tearoom, coffee shops, bars, nightclubs, and catering services, excluding star-designated national cuisine restaurant service, Travel agency, travel ticket sales and trade auxiliary services; Tour operation; Operating lease of equipment’s, machineries and vehicles, excluding industry-specific heavy equipment’s, machineries and specialized vehicles, Producing bakery products and pastries for domestic market, Barbershop and beauty salon services, smithery, and tailoring except by garment factories, Quarrying, Lottery and sports betting, Laundry services, Translation and secretarial services, Security services, Brokerage services, Private employment agency services.
Capital’s effort to contact investment commission authorities was not successful.
Akobo Minerals eyes gold production for March
Akobo Minerals of Etno Mining discloses that it will declare an additional huge gold reserve from its exploration site at Gambella region, close to South Sudan’s border. The mining company revealed that it has its eyes set for gold production towards the end of the first quarter of 2023.
The company which has been engaged on gold exploration in the south west tip of Gambella region for over a decade secured a large scale gold mining license in September 2021 through the Council of Minister, for its first production at Akobo area, on the reserve that it found.
Tesfaye Medhane, General Manager of Akobo Minerals, said that the company has been engaged on exploration, and with the license its received the production of the precious metal is well on course.
“If you get three or four grams of gold from the crushing of one ton rock it is profitable but when it comes to our site we are expected to produce over 21 grams of gold from one ton of rock, which is a very high grade,” he explained showing that the site in contrast to the global mining sites was highly profitable.
“Currently, we are on the development stage to start production by the end of March,” he said, elaborating that at the initial stage the company will crush ten tons of rock per hour to mine the precious metal .
So far machineries that are vital to commence production have arrived at the site, which is 10 km from the South Sudan border and about 750 km south west of Addis Ababa. Similarly the company has hired IW Mining, a South African company, to operate the underground mine and transfer knowledge for local staffs, who will take over the operation when the contractor eventually leaves the site in the coming few months.
Tesfaye stated that the South African company has already started excavation with the quarry already prepared for crushing to mine the gold.
As Tesfaye explains, stemming from the information of about a year back, the approved reserve that was accepted by global advisor, SRK Consulting, was 52,000 ounces to which the company is set to start production.
The mining firm’s total exploration area is noted to be 182 km2, while the mining license it secured covered 16 km2 at the Segel Deposit.
The General Manager added that the company has got additional huge reserves on the exploration area to which the company is continuing to assess the precious metal, “We will declare the reserve amount as per the process we are undertaking.”
In the past about two years, the Norway based public listed company spent USD 20 million with expected additional investments of up to USD 30 million in the coming two years to expand the production.
He said that to lateralize the operation the region and wereda has provided strong support.
Umod Ujulu, President of Gambella, said that so far in his region artisanal miners are dominating the gold production, while Akobo Minerals is one of the two who are working to produce the metal on large scale.
He said that his regional administration is closely following the progress of the company, “the mining development will help to improve the locality life, the region and the country and in our end, we are providing our support for the company to embark its production.”
