Ethiopian Economy’s Bottleneck

Daniel’s Reflection on ‘Logistics Deficit: A critical Challenge for the country’s competitiveness’ By Berihun Mekonnen

This is part II to my previous post titled Ethiopian Business Review (Part I). Taking 8 pages of the  Ethiopian
Business Review’s (EBR) magazine, Senior Editor Berihun Mekonnen, dives in to explore logistics challenges in Ethiopia. Including an interview with Akakas Logistics PLC’s Director of Transit, Shipping and Transport Kassahun Abberu (PhD). Out of the many, here are few of the points.

• According to the World Bank, in the organization for Economic Cooperation and Development (OECD) aka high income developed countries it takes 10 days to import and export, 31 and 37 days in Sub-Sahara countries to import and export respectively. In Ethiopia it takes 42 days to export and 44 days to import (about twice as long as it takes in Kenya, Vietnam and China)
• Ethiopia uses the port of Djibouti for nearly 90% of its import export; accounting for more than 120,000 containers a year
• After the 8 days of grace period, the fee per container per day at the Djibouti port is USD 11
• The average cost of logistics and transportation on the total price of imported goods is 40% (in other words if an individual pays 100 Birr for something that was imported, the 40 Birr levied on the price of the item was due to the logistics and transportation cost that the importer added on)
• A business man says a container which should be released with in a week from the port usually stays for a month or more, costing his company more than Ethiopian Birr (ETB) 50,000
• An addition of 2,000 – 2,500 trucks are needed to ease up the Ethio – Djibouti corridor
• Ministry of trade announced for the FY 2012/2013 export decreased from previous years
• Importing a container to Ethiopia compared to Tanzania and Kenya costs USD 1,095 and USD 310 more respectively (it is USD 2,000 when compared to south east Asian countries such as Vietnam)
• The World Bank’s 2007-2012 Logistics Performance Index (LPI) shows Ethiopia ranked 141 out of 150 countries. Dropping 37 places from its previous 104 ranking in the 2003 – 2007 ranking period
• The privates sector urges the government to privatize the sector but the government argues modernization of the sector needs huge investment, which the government is working on, and the government believes the private sector does not have the capacity to cover the needs, hence why it cannot be liberalized.  

The take away point: Ethiopia is landlocked country and logistics are bound to be a huge challenge. However if we Ethiopians give ourselves a tap on the shoulder and only choose to use where the country was yesterday as a reference and compare that with where the country is today, other countries will continue to have the competitive edge on this sector. Ethiopia has to use other exemplary countries’ as a model and either adapts their ways or find alternate solutions to be on their level. Business as usual and resting our full hope and faith that it will be better soon is not really a solution. We have to judge our competitiveness on the facts on the ground today. Import export delivery taking 10 or more days than the average of the Sub-Sahara African countries is really disheartening. Let us not be in self-denial and be content on the hopes of tomorrow. Because, if today we are rest-assured on where we will be tomorrow, there is no guarantee we won't wake up to find ourselves following way far behind yet again. As we plan to modernize the challenges one step at a time, we must keep in mind so are others. Response to address some of the basic and simpler issues should be prioritized. We got to do better.

In this day and age where globalization is not a choice but a matter of survival, where regional and continental economic integration is a race to stay competitive; partnerships with neighboring countries is a necessity. There need not be a love relationship, but at the very least a working relationship based on a mutual interest. Ethiopia & Eritrea seriously need to go back to a working relationship. Both countries would benefit tremendously from the Eritrea's under-utilized ports. Any grudge and stance of bravado needs to die off. We are both better of looking at the big picture and envisioning for the long term. Don’t think others aren’t quietly laughing at us; to the outside world, it matters less who is the aggressor and who is the victim of of the agression. They are always happily prepared to sell us their expensive goods and services; and even bullets and ammunitions if our ignorance leads us there. Our leaders must remember the limitations of our resources and must not lose focus of their priorities.  The driving force to having leaders, who perform their duties and responsibilities based on the public’s interest however, depends on the existence of an engaged and vigilant public.

Read the full article here.  

Daniel’s Reflection on ‘Business Cards: No insignificant Matter’ by Abebe Mulu

In a 2 page article Abebe explains the importance of business cards and how it is the pinnacle of first impression. An article by PSOW states that, the use of business cards dates back to the 15^th century referred as ‘Visiting cards’ by Chinese elites. Introduced to Europe in the 17^th century, and become to be known as “Calling cards” two centuries later. Entrepreneurs and business card experts say Business cards come in all different sizes and colors. While Business cards promote your company, they should not be used, as means of advertisement and you should always treat the card as you would of the cardholder.

Read the full article here.

Cheers,

Daniel 

Daniel’s Reflection on Ethiopian Business Review (Part I)

Reader's Reflection on Ethiopian Business Review (EBR) is Daniel's reflection on some of the articles published on the monthly magazine (this in particular is on the Aug 2013 Edition No6 which is not yet posted on EBR's website). In this post I am sharing the summary of few of the articles from the magazine.

Reflection on the article, 'Discovering Oil in Ethiopia: A Curse or A blessing? The Macroeconomics of a commodity Boom' by Alemayehu Geda (PhD)

There are reports of a possible oil discovery in Ethiopia, if it does so happens, it will require a careful macroeconomic management in the short run to minimize the adverse effect it will have. One of the possible challenges is going to be, the traditional export sectors could get neglected, a term known as the “Dutch Disease” the domestic currency the Birr’s value will increase in relation to the foreign currency which encourages the consumption of foreign goods and when the domestic currency’s value increases it also leads to decrease in export. The second challenge of a resource boom could lead to mishandling of the resources (corruption) tag of war amongst political elites and distrust and a sense of marginalization between groups; as well as decline in the culture of savings both the public and the private sector.

The take away point: Oil resource discovery in Ethiopia would be tremendous, in that, it would help the country achieve its pursuit to become a middle-income country in the near future and decrease the number of Ethiopians living under poverty, which stands at ~29% of the population. Dr. Alemayehu provides some insights as to how responsible actors could prepare to reduce the inevitable by sighting best practices and policies followed by other countries. I also hope and suggest leaders and decision makers especially those in the specific sector read a book by Pro. Paul Collier called 'Bottom Billion', and pay close attention to the chapter in the book that talks about the natural resources trap. 

Daniel’s Reflection (DR) on The Rise of The Middle Class in Addis Ababa.

Lets look in to at least two of the possible indicators of a growing middle class in a society, vehicle

ownership and housing. Cars are extremely expensive in Addis. A used car that could be bought for USD 3,000 or less in the USA, with out a doubt is marketed and sold for more than USD 10,000 in Addis Ababa. Data shows that in the past 5 years the number of customers has increased dramatically and when comparing 2008 to 2012, the number of imported cars increased by three fold (an increase more than 162%).  The number of car assembled with in the country has also followed the same positive slope. All of this with out having credit services; yet, it seems there are way way too many cars on the streets of Addis. People say, owning a car is no longer a luxury thing, but rather has become essential for work and to get things done around town.

The trend of housing and urban life style is no different. As Addisu Deresse writes, people are no longer looking only for decent living places and backyards. They are looking for spaces that fit their personality, reflect their status and ambitions. There is a growing market for interior designers to satisfy the taste of the growing middle class. With growing economy comes the specialization of skills and more work hours in order to optimize on one’s competitive advantage and that leads to people outsourcing some aspects of their tasks to others; including families hiring maids or people just simply eating out and eating in less. As a result, restaurants and services are seeing constant increase in their customers and noticeable change in their customer’s demographics. To get a sense of in depth insight on the rise of the middle class in Addis Ababa, read ‘On Sale: The Growing Car Market and the Emerging Middle Class by Berihun Mekonnen and ‘The Metropolitan Way of Life: The Changing Life Style of the Urbintes’ by Addisu Deresse. 

The take away point: Although there are no shortage of restaurants and services in Addis, I believe that the market for high-end restaurants and services, is still untapped. If you stumble on to one of such status, it is usually full to capacity. As pointed out in the article, people are choosing for the high-end goods and services over prices, which I think is an indicator of the growing economy and standard of living.

Check back again, soon I will post few more summaries of articles that I found are good read. I will also try to post the links to the original articles onces they become available.

Cheers,
Daniel