29 July 2012

Ethiopia: Demonstrable Engagement


Politics is the daily language of Stephen O’Brien, parliamentary under-secretary of state for international development of United Kingdom. He has previously served as shadow minister for health and shadow secretary of state for industry. His immense experience in the complex political culture of the United Kingdom has made him insightful on most subjects of development from job creation to foreign assistance. His interest in private sector development seems to emanate from his previous role as an executive director for Redland Plc, a tile manufacturer based in Mexico. Stephen’s master’s degree-level education in law from Cambridge, UK, has also vividly helped him in the analysis of complex subjects such as foreign policy. In this exclusive interview, the under-secretary deals with issues as varying as the London Olympics and democratic reform. Excerpts:

Fortune: In looking to the Olympic Games that London is hosting, what is the message that Britain wants to send to the world?

The Olympic Games is a fantastic opportunity to bring the world together in the spirit of friendship and the enjoyment of seeing the excellence of wonderful athletes in the fair competition that it represents. It is also an opportunity for all of us in Britain, to forge deeper relationships with peoples from around the world, particularly with whom we have already enjoyed extremely good relations, such as with Ethiopia.

Most European countries have actually made a cut, a sizeable one, in their budget for international development assistance. Eventually, Britain has managed to maintain the assistance that it extends for many of the least developed countries. Where does this lasting commitment for international development originate?

The commitment of the British people to play their full part in supporting and partnering with all of the countries in the world who need to have the opportunity to raise their opportunities, to have a fair chance to compete, to enjoy greater prosperity, and have basic services is something that all of the political parties have committed to. The coalition government, when we were elected two years ago, decided that, despite the very tough economic conditions in Britain and the world back then and those continuing today, we must honour that commitment and honour our promise to the poorest nations of the world and the most vulnerable people of the world who would like to see us raise our support to seven per cent of our gross national income by 2013.

This slightly heads, by two years, where other European countries that made similar commitments are at. We are well on track to delivering that. We are, therefore, in a position to commit to the sustainable programmes of partnership that we have in development, above all, in Ethiopia, which is now the largest programme partner we have in the world.

But some political analysts see that the situation would have not been similar if either of the parties, rather than a coalition, was leading the country. What is your take on that?

The clear position of the British people, through their government, is to maintain their promise and their commitment to development and also, of course, to humanitarian and emergency response, depending on circumstances. We do this through a combination of both actual humanitarian aid and development. I think it is fair to say that this is one of the issues that rises above party politics and is a commitment across the political spectrum.

Once upon a time, the UK was actually considered to be "the guardian of democracy," globally. That seems to have changed now with the adoption of a new foreign policy direction that is more focused on national interests. While this might have led to assertiveness in countries like Libya, experts say that it has led the nation to support authoritarian governments in developing regions, including Africa. What is your take on this?

I would dispute their characterisation of our support. We reach out to governments that have the capacity to represent their people and whose authority is derived from the people.

However, whatever the character of a government, if there is a very high demand in terms of human development needs, through poverty or other circumstances, then, we do seek to find ways to show that our support can continue to be given but not via government agencies or other parts of the governing structures. So, that is the way that we look at development. But, with our support, we always make sure that there is safe access and a kind of confidence that there will not be corruption or diversion of the partnership.

Let me just add that your initial phrasing of the question suggested that perhaps we have changed our approach. I think this is not right. What we have done is that we have made it much more logical.

The force of argument favours being a good global citizen, enabling countries to have the ability to meet the Millennium Development Goals (MDG), seeking to eradicate poverty, and ensuring that people have access to basic services and the opportunities for growth and prosperity within nations, which would, of course, apply to good education opportunity, as well.

It, of course, requires freedom under the rule of law; that there be an independent, skilled judiciary; and that there be the confidence for investors and risk takers to be able to gain a return on their risk in the private sector. It has to be a clear commitment, on the part of the partner governments, that they are joining in the fight against corruption and making sure that public money is reaching the intended destinations.

So, the idea that, somehow, we have moved from democracy being one of the key ingredients to development is far from reality. We do see, however, that development is integral to a broader global security and trade outlook.

We understand the logic and the faults of those arguments. We do our development, while informed both from their point of view and from the point of view that it is the right thing to do.

Of course, it has a good reason because it does have some national interest to the British citizens. Part of the great dividend in eradicating poverty is to make the world safer because poverty turns out to be one of the opportunities for those who wish to carry out ill intents and bad deeds. They will have no option to do so if poverty is not carrying on.

Can we say that your ever-increasing engagement with the Ethiopian government shows your satisfaction with the democratic reform going on here?

I think the progress in Ethiopia on all fronts is clear and demonstrable. Ethiopia has the highest known growth in Africa.

I have just visited the very impressive Ayka Addis Textile Factory, which is both involved in processing raw cotton and yarn and then in processing that for dying and garment manufacturing to access, at the highest quality, the European market.

This is a great opportunity and example of a combination of foreign investment and the active support and trust of the Ethiopian government to enable that to get rooted and established. There is no better result than the jobs each and every one of those employed in factories like this now has, which they did not have before.

It means that they, themselves, have been lifted out poverty and are looking after their families. They have the acquisition of skills, it means, whether that job is long-term or short-term. They, now, have a track record where other people can acquire their skills, and they can, therefore, be adding value and give their contribution to the growing Ethiopian economy.

You see examples like that, which gives others the confidence to recognise that the blend of development to overcome some of the shortages and basic services will be superseded by economic growth and confidence. So, the progress has been good, and, of course, part of that progress is to recognise the commitments to the increasing openness and transparency and democratisation, which, at all times, we seek to continue to encourage the Ethiopian government to pursue.

It was in 2009 that the Department for International Development (DFID) established its comprehensive private sector development strategy. Since, then, private investment has shifted towards agriculture, specifically in Africa. What have you done since then to align this strategy with the current situation in Africa?

Well, we have real trust in the private sector development. It really started in 2010, after the coalition government came to office.

Obviously, it requires a high degree of skill to really understand what promise drives the confidence for entrepreneurs and business managers to take the commercial risks to make products, which are therefore available, affordable, and meet whichever markets of choice have a need or a want.

That is the paradigm of the business world that has to be achieved in order to put the greatest possible number of people into jobs, which is the best possible way of taking the maximum number of people out of poverty. So, it is one of the best ways of delivering the global ambition of the MDGs.

The challenge of going forward is recognising that there is a role for the government locally, a role for external donor partners, and [a role for] other advisors. There is a role, of course, ultimately for businesspeople and entrepreneurs.

So, our changed focus involves helping developing countries remove some of the barriers to investment and job creation. I think that applies to agriculture, also. We can rightly say, then, that we are in line with the current.

In the end, the engagement of British companies in the Ethiopian market is dismal. The information that I have is that only 10 companies have shown interest since the London Investment Summit held last year. What is your general assessment of the business climate in Ethiopia?

I would like to see more interested British companies. I think the business investment climate, now, in Ethiopia is vastly improved.

Of course, there are more areas where it could be improved even further. But, this is the time for potential investors to be looking at whether you can bring the skills or experience to partner with local entrepreneurs, whether or not they need to get into a dialogue with the government to establish the parameters within which they are able to operate freely as businesses.

I think the business climate here in Ethiopia appears considerable better than it was, and I think that it is important for people to come and see it for themselves so that they are not wrongly bound by any perceptions that emanate from a distant past.

What do you think are the major snags for more aggressive engagement of British companies in Ethiopia?

There are a number of companies who are actively looking, such as Diageo and others. I think that is very encouraging, and I think it is also extremely important to recognise that most investors like to identify local business partners with whom to come and work alongside or joint venture with, and there are not that many businesses here in Ethiopia that are truly independent commercial businesses without some relationship to the state.

Well, that is not, in itself, an impediment. However, it does call most business investors to hesitate more than they would if it were just a straight business-to-business relationship. So, that is one of the areas. The growth of more private sector businesses in Ethiopia would attract more interest.

The key, here, is also not so much about businesses coming but it is about whether there is access to finance for business, for people to start and grow businesses in Ethiopia, or for private citizens who used to have access to be able to borrow against whatever starting wealth they may have, to purchase their own homes, to secure the land on which those homes are situated, and, if they can do that at reasonable interest rates for a long time.

That, in itself, would grow confidence in the market, which will, in itself, be one of the biggest incentives to bring investment in because the confidence will always lead to higher purchasing power. If interest rates are low enough and terms of loans are long enough, then, there will be residual disposable income, which gives Ethiopians the purchasing power, which will then enable the middleclass to emerge and to become a powerful market by releasing the pent-up demand.

As the home of the global financial hub, London, what do you think is the competitive advantage Britain has in filling this financial gap that you have mentioned?

As you said, we are one of the global centres of finance, in the city London. It enables us to bring help and advice to help grow the financial services industry to satisfy the unmet need of the market.

We can also be present where the skills are required and build up the banking process in addition to the security of deposit taking. This is one of the areas we, the British government, are putting together and designing a package of partnership and support for, to boost the private sector here in Ethiopia as part of our development programme.

One of the areas is very much focused on access to finance and how you ensure that the savings industry can help fuel lending ability and support entrepreneurs and developing businesses. It will be a net contributor to the Ethiopian economy and enable the multiplier effect, by engaging more people in jobs and productive activity. This, in time, will lead to delivery of greater wellbeing to the Ethiopian people.

In meeting most of the British businesspeople in Addis Abeba at events such as the World Economic Forum (WEF), they repeatedly mention the political risk that they would be taking whenever they plan to come to African countries, including Ethiopia. What do you think African governments must do towards reducing the political risks that British businesses think is hindering them from engaging in Africa?

It is true throughout history that it takes a long time to build a reputation but a reputation can be lost over night. The difficulty for many countries across Sub-Saharan Africa is, even when they have had a real commitment to growth and prosperity and economic good governance, at some point along the history of any country, it can be lost, and it takes a long time for those memories to be erased.

That is why I encourage British businesses and all businesspeople to come to Ethiopia and see for themselves and invent a programme in the continuing transformation that is taking place in this country for the good, and I think it is important to recognise that a real commitment to open government, to transparency, to the rule of law, and to having open markets, as well, is here. But, as we, in Britain, call the golden thread of development, it is a tradition for businesspeople or entrepreneurs to come seeking to gain a return for risks they are prepared to take.

They do not take risk irrationally, which is because they pose an opportunity to provide good services. In all cases that they get profit, they give a chance to re-circulate the money either in terms of return or further investment in business.

It is precisely for that reason that Ethiopia's progress does need to be seen and to be understood. But, I think they need to recognise how important open governments and a commitment to continue the fight against any corruption and to continue to fight against unnecessary costs from bureaucracy and to recognise the business of the private sector, which will develop well when they have the freedom to do so.

If there is one new thing happening in this whole calculus it is the increasing engagement of China with Africa. Though, officially, most governments claim that the engagement with China is a good thing to see, they always want to diversify their portfolios by engaging with Western governments, like Britain. What is your perspective of the engagement of China in Africa and its impact on reforms that would facilitate private sector investment in Africa?

I think the continuing investment participation of China in many parts of Africa, particularly in relation to infrastructure, is very welcome is what all countries around the world that are looking forward to the potentials of Africa ought to participate in.

I think China is very good in identifying its comparative advantages in terms of scale, but I think that many other countries bring many other benefits equally to the growth and prosperity agenda in African countries. Increasingly, I hope, there will be greater collaboration between countries from all parts of the world.

What do you think African countries like Ethiopia can learn from the ongoing crisis in Europe?

I hope, in many ways, we can all learn from each other. The economic crisis in Europe is quite simply that governments have spent money that could not be earned.

The deficits have built up to such a degree that the cost of servicing them has become a major impediment to sustained growth and investment in our economies. So, we have to unshackle ourselves from the burden, and the only way to do that is to reduce expenditure. If you increase debts upon an already unsustainable debt, that in itself, will not help spur growth.

It must never be confused that increased activity for growth implies profitability and productivity. That is where we have to learn to not lose sight of the economic fundamentals.

You should never spend money that you have not earned or cannot identify, even if it comes with what seems to be an affordable rate. The lesson, therefore, is for all of us to emphasise sound public finances and a commitment to transparency.

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