6 May 2017

Ethiopia: The Northern Star in Two Decades

opinion

I had the pleasure of travelling to Meqelle, the seat of the Tigray Regional State, last week and the Southern Zone of the region on a five-day fieldwork assignment.

Before landing at Ras Alula Aba Nega Airport, I glanced down at the northern star only to get astonished by its rapid expansion: its tall buildings, large industrial estates, and large construction of residential buildings. I received a humble welcome from one of the taxi drivers and got a ride to my hotel. No less was I impressed seeing on my way to Pepsi Factory a large billboard reading, "Welcome to the City of Knowledge". A great branding, I said to myself.

Although I was there 10 years ago and had information about the city's fast growth, I was little prepared for such development in all aspects in just a decade.

Right after the demise of the Derg, the regional state gave priority to environmental rehabilitation and agricultural development, expansion of education and health facilities. Now, after 25 years, the region has over a million of educated, relatively well-fed and healthy youth. The region has four big public universities with over 100 faculties and departments that are sprawled over different campuses located in the main towns of the region.

The cornerstone for the Pan-African University was laid last week. These, together with 12 other private university colleges, technical schools and training centres, have tremendously improved labour productivity and business sense of the youth.

Take for instance a businessperson who has two factories located somewhere in the eastern industrial corridor of the country and one in Meqelle. He plans to erect an additional plant because he found a potential market for his products while labour productivity in his Meqelle facility is higher than his other factory.

I also had the chance to talk with other businesspeople during my stay there. A businessman operating a mill factory is expanding to different manufacturing businesses, including cold rolled products and concrete poles. Another has a cold rolling steel plant and is planning to install a hot rolling facility.

These businesspeople operating on the ground told me investors need to show their commitment to getting land in just a month almost free of charge if it is outside the industrial zone. Within the industrial zone, they get charged 4,000 dollars a year for 100,000Sqm plots. I witnessed that senior authorities and experts of the region were keen in persuading foreign and local investors, facilitating investment permits.

The auctions for land lease during the 58 and 59 rounds show that the average land lease offered for a square meter in central Meqelle was 650 dollars, against 45 dollars five years ago, 15-fold in just five years. Currently, a land is almost free of charge for manufacturing enterprises, although a few years from now, this will not remain in place.

As a result, except with imported items, major industrial products that have been brought from Addis are substituted to a larger extent by commodities from Meqelle and its environs.

Two days in Meqelle, we made our way to the South; the Alamata - Mehonni area is where fully irrigated smallholder and commercial horticulture farms are located. I was pleasantly surprised by the greenery of the area, the efforts of the farmers and their produces.

Golgol Raya is designated as a horticulture corridor of the country, an area where over 6,000hct of land is already irrigated with groundwater of no less than 65 points. The production of horticulture products (in both quality and quantity) here is not less than the famous Mojo-Meki-Zeway horticulture corridor of the country. However, in this area, despite the continued effort, only less than five percent of the potential land is irrigated. If coverage is achieved 50pc in 10 years, this area will be transformed into one of the globally competitive horticulture centres to be spotted in the horticulture world map.

The no-war-no-peace situation with Eritrea and the inefficient logistics services, in general, remain the greatest challenges of investment to the regional state. Hopefully, the planned construction of a railway route that connects Meqelle to ports in Djibouti shorten the distance to only 520Kms, compared to 900Kms of Djibouti-Addis Abeba. The completion of this project alone will significantly divert the traditional trade route (Djibouti-Addis and then to the north, north-east, and north-west regions) towards Djibouti-Mekelle and to the rest of the north, north-east, and north-west regions.

Indeed, this significant logistics services development, together with the most efficient industrial engineering services that exist in Meqelle and the labour productivity, certainly positions the city as the most preferred destination for the manufacturing industry.

Improvement of relations with Eritrea is vital for the growth of both Ethiopia in the north and Eritrea. With proper implementation of policy towards Eritrea, both countries should establish an exemplary friendship, neighbourhood and economic integration. Our Eritrean sisters and brothers will have to be free from their current political predicament to move in and out of their country; and, work and live either in Eritrea or Ethiopia.

Such will be the time to see Eritreans realise their distant dream of developing the African Singapore through hard work and cooperation. The distance between the Port of Mersa Fatuma (small but potential) to Adigrat and Meqelle will be less than 70Km and 200Km, respectively, from Port of Massawa the distance to Adigrat is 300Km, and 100Km longer to Meqelle.

It will no doubt enhance the efficiency of the logistics services in Ethiopia, allowing a smooth movement of goods and services to and from the country.

Over the past two decades, Tigray regional state was leading in the rank of efficient utilisation of resources. A recent research was conducted on the relative production efficiency of regional states, using stochastic frontier analysis with time series of regional budgets, cultivated land, investment, and labour as input variables. Regional gross domestic product (GDP) and other development indicators were also used as outputs.

The primary objective of the study was to see how production efficiencies have been affected by many economic and social factors across the country. The findings show that Tigray's performance was second with a very close magnitude to that of Addis Abeba.

Over the 11 years since 2005, an aggregate of 2,876 private investment projects has invested a total of 28.9 billion Br, of which Addis Abeba claims a share of 52.3pc. This was followed by Special Zone of Oromia with 6.7 billion Br (23.1pc), Amhara 1.85 billion Br (6.4pc), Tigray 1.8 billion Br (6.3pc), Southern Nations 379 million Br (1.3pc) and other regions, including multi-regional projects, on aggregate shared 3.06 billion Br (12pc).

Tigray region has been second in per capita investment following Addis Abeba, albeit at a distance. In fact, recently, investment in Tigray (from the national investors) has grown at a pace that has never been seen in the region over the past two decades. Unlike the preceding decade, where EFFORT's investments in manufacturing constituted the major share, this time small and medium private investments from national investors have the lion's share.

Foreign direct investment (FDI) is also moving to Meqelle and its environs. Several globally renowned suppliers of different products such as Velocity Garment, Volvard Foods, C.C. Steel and over 50 other foreign companies have acquired plots there, which some have finalised preparations to source their products from their Meqelle plants. The successful completion of these manufacturing projects, complemented with fresh investments by EFFORT in gold and iron mining, and chemical projects, are fueling investment and economic growth in the region. Add to this the major industrial parks development in Meqelle and Baeker (Humera).

The investment portfolio of the city exhibits an interesting peculiarity. The Ethiopian Power Engineering Industry (EPEI) is the lone auto-engine manufacturing plant in sub-Saharan Africa. The auto plant that assembles European branded vehicles (Mesfin); the largest windmill in Africa (Ashegoda); the biggest corporation in Ethiopia (EFFORT); Africa's leading micro-finance (Dedebit); Africa's largest and state-of-the-art biotechnology company (TBC); Ethiopia's largest garment producer (Velocity-Ethiopia); Ethiopia's IT specialists producer (Ayder); and the second gold miner in Ethiopia (Ezana) are all headquartered in Meqelle.

An aggregate of 217,636 micro enterprises have been established throughout the country if we take the year 2014 as a recent available date. With 33.3pc of these registered in the Tigray region, it comes second to the Amhara region's 43.8pc. Oromia with 13.2pc, Addis Abeba with 4.6pc, the southern region with 4.3pc and others with a combined 0.7pc follow.

These are micro and small enterprises (SMEs) the government hopes will serve as a basis for industrial development and future national corporations of the country. Government allocates no less than 20 billion Br for their development, where the two state banks advance through lease financing and revolving funds. Despite the remarkable record in the development of micro enterprises in the Tigray region, however, its performance in creating access to finance to businesses is disappointing. It is only limited to Dedebit Microfinance. District branches of the Development Bank of Ethiopia (DBE) and the Commercial Bank of Ethiopia (CBE) have advanced none so far, making the situation completely absurd.

Neither have I found investments in the hospitality industry in Tigray impressive. A region with all types of tourist attractions (Christian and Muslim religious and historic routes, nature and culture) there are only three international and one domestic airport. The regional government needs to work hard to convince federal authorities to open a full-fledged branch office for immigration in Meqelle to process a direct international flight to and from countries where tourists come. Its authorities could have also developed packages with the global wonders of tourist sites in Afar Regional State. Perhaps EFFORT, together with other private investors, could play a leading role in giving a push in this area.

When other regional states were spending their budgets 10 or 15 years ago on the construction of buildings to house bureaus and for the beautification of asphalt roads of inner cities, Mekelle was almost dusty. Not surprisingly, the regional government was busy spending its money on education, health, and rural roads, expanding these deep into the very remote areas.

The people of Tigray, through their respective local Shengos, were subjected to penalties for failing to send their kids to school. The rural poor have also unanimously agreed to conserve water and soil of the highly degraded mountains of the region, providing free labour for over a month of every year. After two decades, almost all the mountains are terraced, and the water holding capacity of the region has tremendously improved.

Now, I understand why the regional government and the people have chosen the way they have come so far. I would like to see them do as much in the next decade, emphasising more on environment management, for I saw inadequate preparations in mitigating environmental pollution.

Ethiopia

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