The Ethiopian Conformity Assessment Enterprise (ECAE) is negotiating with a Swiss-based company, Social General Service (SGS), for a partnership agreement that will allow the former to certify the quality of goods on behalf of the latter and vice versa.
The ECAE sought such deal to get international recognition as an SGS agent and to draw more business. Currently, the six laboratories of the Enterprise are largely idle, according to an official. Mandatory quality inspection applies for only a few imports, such as consumables, whereas most imports are not required to go through quality inspection unless the importers demanded the service.
SGS is one of seven international companies contacted by the ECAE and one of only two that responded. The other one, the UK based Intertake, however, did not proceed into talks with the Enterprise because it demanded an assessment of Ethiopia's economy to be conducted at the Enterprise's expense. SGS had its own assessment, with which it was happy enough to commence talks with the ECAE.
If the negotiations work out, the two will check each other's client's products for quality, safety, and security requirements of both national and international standards.
However, the deal is to serve those importers or exporters who want an inspection to be carried out in order to avoid delivery of substandard goods. An importer who wants to check the quality and quantity of his goods from the Netherlands, for instance, will sign a contract with the Enterprise that will certify the goods at their country of origin using the agent, in this case SGS. Under such circumstances, the SGS will pay a commission to the Enterprise.
The SGS, established in 1879, has around 1,350 offices and laboratories with a total of 70,000 employees all over the world, according to the company's website. The Ethiopian Enterprise, established with an authorised capital of 543 million Br in October 2011 to perform laboratory tests and certification services, on the other hand, only has six laboratories that can test consumables, chemicals, mechanical goods, electrical appliances, and agricultural products.
If the certified goods do not actually meet the required standards when the goods are delivered, either of the responsible parties should cover the damages that the client has incurred.
The deal with SGS could be as risky as it is beneficial, hence it is to be taken seriously, according to the official.
For this purpose, the ECAE is negotiating with different insurance companies, including Ethiopian Insurance Corporation (EIC) and Nyala Insurance, to buy an insurance policy in order to get coverage against the risk of default, according to sources that are close to the issue at the Enterprise. This was also one of the preconditions set by the SGS for partnership.
The Enterprise is also preparing terms and conditions to declare the amount of damage that the Enterprise is willing to incur in the case of a faulty quality inspection. The Enterprise is currently considering covering 10pc of the value of goods certified or 10 times more than the Enterprise's service charge in case of default.
The service charge for clients and the commission that the Enterprise will collect are yet to be specified in a partnership agreement that is scheduled to be inked in August 2012.
The process of this partnership agreement started in May 2011, after the enterprise was established as an independent body, when the now-defunct Quality & Standards Authority of Ethiopia (QSAE), which used to provide services related to standards, quality control, inspection, testing, certification and metrology activities split into four entities.
This company is not new for Ethiopian traders, as it worked for the then-Federal Inland Revenues Authority (FIRA) on price evaluations of imports, six years ago.
A construction materials importer that Fortune talked with was indifferent about the deal that the Enterprise wishes to make with SGS.
"We have not imported from a supplier that we did not have previous business relationship with, so we do not need third-party assurance," he said. "It is an additional cost."
Such complaints were because importers do not care about substandard products coming into the country, an official of the Enterprise said.
It is now looking for any business that could trickle down to it from SGS, and not from Ethiopian importers, according to an official, who said that the quality assurance culture was still poor in Ethiopia.
The Enterprise prevented the importation of 1.5 million Br-worth of goods including electrical wires, food, chemical products, and construction materials, in February 2011 alone, as they did not meet both the national and international standards.
A chemical importer welcomed the move, particularly for imports from China "where we have various suspicions," he said.