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    InterviewSaving the Private Sector: A lifetime struggle

    Saving the Private Sector: A lifetime struggle

    Date:

    Berhane Mewa is not only the former president of the Ethiopian and Addis Ababa Chamber of Commerce and Sectoral Associations, but is also a lifetime patriot in Ethiopia’s private sector struggles against state domination in the economy. Before he was forced into exile eighteen years ago by the EPRDF regime, he took up the struggle to create an independent chamber system and a real private sector in Ethiopia.

    An industrial chemist by profession, Berhane came back to Addis to process a pharmaceutical investment license, to the tune of USD 22 million. He already has a plastic and rubber factory, which he established before his exile to the US.

    Despite positive signs in the politics arena, Berhane argues the chambers system is still far from defending the private sector’s interests and contributing to the economy. Ashenafi Endale was granted audience. Excerpts:

    The Reporter: What was at the core of your struggle for the Ethiopian private sector?

    Birhane Mewa: I was forced to leave Ethiopia eighteen years ago. The government at the time was not happy with struggle in the Chamber, to create a strong private sector. I had no political interests. But after I left Ethiopia, I became a member of Kestedemena and Coalition for Unity and Democracy (Kinijit) political parties in North America.  I was the secretary in Kinijit’s international leadership wing.

    After Kinijit’s leadership were released from prison, I went back to normal life and started working as a business consultant, and then as a project manager. Of course I traveled to Ethiopia in between to attend my wife’s funeral. But now, I came to Ethiopia to process an investment license.

    We are in the process of establishing a pharmaceutical factory in Ethiopia, in cooperation with Ethiopians engaged in the pharmacy business in the US. In general, we are here following PM Abiy Ahmed’s (PhD) call to the diaspora.

    What is the kind of Chamber you want to see in Ethiopia?

    The Chamber was first established as ‘the Addis Ababa Traders Association,’ during the Emperor’s era. Then it was re-established as Ethiopian Traders Council. It was free and active in advising the government, until Derg completely changed that trend. Derg made memberships mandatory and all businesses had to pay a chamber membership fees after they get their licenses.

    Derg also shrunk the number of board members representing the private sector in the council, from eleven to one. At that time, nine of the eleven board members were general managers of state corporations; with only Wubshet Werkalemahu was representing the private sector.

    After EPRDF took power, the general managers of state corporations left the chamber. At the time, I was president of the Ethiopian Private Manufacturing Association. So I became vice president of the Chamber to close the vacuum. And when Kebour Gena left, I became president of the chamber, through competition.

    The fundamental objective of the Chamber is to advise the government before it introduces polices that affect the private sector and the economy. The second is to provide services for the private sector including trainings, information and arbitration. We were successful on both. Both the Addis and Ethiopian Chambers won various international awards, including the ‘best chamber in Africa’ award.

    Nonetheless, the EPRDF was working hard to create divisions amongst, Addis Ababa, regional and sectoral chambers and associations. I worked hard to cut out such divisions and create a stronger chamber. We also managed to get back the chamber’s assets taken by the government. We also managed to access 100,000 sq. m of land for the chamber, on which the Addis-Africa exhibition center is currently being established.

    Where is (should be) the exact line between state and private sector roles in the economy?

    In principle, the private sector is the backbone of the economy, especially in a free market system. But during the TPLF dominated EPRDF regime; the government tried to replace the private sector by state affiliated endowment companies and state owned enterprises, which are still under party control. They enjoy access to finance, bureaucratic support, information, monopoly and other privileges. This has been stunting the growth of the private sector. I am not sure whether the situation still changed. Party affiliations still control the media, not only businesses and the economy.

    Besides those parastatals, there are private businesses parasitic on preferential treatments, provided from the parties. Preferential treatment is still given for businesses, in accessing land, finance, foreign currency, and other privileges. A real private sector, which is self-created and hardworking, is very limited in Ethiopia.

    The parties and government affiliated private sectors, still prevail, only changing its face. If you look at past private businesses currently, it is not hard to find a party or state support.

    The right private sector should be represented only by the Chamber. It should be free, with no political interests, but defend the interests of the private sector. When we say ‘private sector’, it includes the street vendor and Gulit, to the factory and bank owners. The similarity amongst them is that they have a business license, and a common interest. There are various obstacles that hinder the chamber.

    Ethiopia’s future depends on the real private sector. Foreign Direct Investments are also necessary but the domestic private sector is critical in terms of self-sufficiency, sovereignty and retention of repatriation. FDI’s can leave anytime.

    Even in the USA, the private sector supports either democrats or republicans. Can a real private sector exist without any affiliation with the ruling party?

    If you go to Mercato, everyone works for their own interests. They are not paid by the government but they pay taxes to the government. What the government can do is improve and equalize the playing ground.

    Of course the private sector in the US supports parties. The difference is corruption is legal in the US. It is called lobbying and it is not a crime. It is also regulated. But in Ethiopia, parties establish affiliated businesses and keep taking money. The biggest problem appears when the parties themselves engage in the business. This is the biggest problem in Ethiopia. Nobody knows where the money from public enterprises goes to.

    Political parties must exit from businesses and the economy. In the US, individuals and businesses giving money to parties, is publicly known, and audited. The tax authority also knows it.

    Do you think the existing private sector in Ethiopia can be changed into a real private sector, or should we start over?

    A real private sector is not something we create. What the government should do is create conducive environment for a ‘real private sector to emerge.’ It is the demand and supply dynamism that creates a real private sector. There are shoe shiners who have become millionaires. Did the government create them? Of course the government can facilitate support, but without political affiliation.

    PM Abiy’s administration rolled out privatization and liberalization initiatives in the past three years. Do you think it is sufficient to re-balance the state dominated economy previously under the EPRDF?

    There are positive signs but still some individual businesses are close to the government, instead of organized business communities under the Chamber. I do not think this is good. The government must recognize, capacitate and work with the Chamber. There are improvements regarding regulatory issues and public services. But still there is a chain of corruption in the government system. It is related to power and partisanships, which is a big obstacle that must be reduced. The government has good intentions. There are various issues studied and forwarded by the chamber and sectoral associations. Things will improve if the government reacts on those issues. If it does not start punishing corruption and avoid party affiliation and preferential treatments for selected businesses, the problem will get worse. It is the government that creates a corrupt private sector.

    Corruption is also unavoidable when the public servants are paid meager salaries. The government must pay public servants sufficiently. So, corruption is high not because people are bad, or the officials are greedy, but the civil servant takes corruption as supplementary revenue.

    The government also drafted a new proclamation to re-establish the Chamber. The draft proposes membership as mandatory, among others. How can a strong chamber be established? Recently, two chamber officials also defected to the US. Why is there always an internal feud inside the chambers structure?

    There is a structural problem in the Chamber. It is intentionally created. Making memberships mandatory generates revenue for the chamber. But it hinders the chambers from providing quality service for their members. This was seen during the Derg regime. Immediately after the EPRDF came, it worked hard to weaken all institutions, including the chamber, teachers association, and others. The EPRDF made memberships willingly, to shrink the chamber’s revenue and finally close the chamber due to a lack of fund. But we managed to survive, by improving services and generating revenue from creative works.

    Especially, the Addis Ababa Chamber became stronger, at the time, while there were some problems in the Ethiopian Chamber of Commerce. When I was about to leave, there were efforts to change the Chamber’s laws and the government wanted to re-design the Chamber, to fit to the politics.  

    The Chamber serves wherever there are private businesses, not government structures or political leaderships. But the government shadowed and dominated cities’ chambers, by chambers of regional states. These regional state chambers are under the control of party officials. The Ethiopian chamber also fell under the influence of party members. We tried to avoid those influences and somehow succeeded to maintain a Chamber that represents only the interest of businesses.

    The proclamation tried to further divide the chamber across sectors, on top of the regional structure, dissecting the interest of the private sector. Kiosk and garage owners have different interests, but also have common interests. These specific interests should be solved under sectoral associations, and their common interest under the chamber. But what the government did is bundle the sectoral associations and the Chamber together. Businesses with different interests sat on the same table, and failed to agree. So, there is still a structural problem.

    I have seen the new draft proclamation too. We are unfortunate the draft did not address the problem still. The chambers and the business community still did not reach a consensus on the draft. The Addis Ababa and Ethiopian chambers are in agreement and sectoral associations have also their won perspectives.

    Chambers should work only on general issues that represent the common interests of all businesses and the economy at large, aided by sectoral associations formed separately, representing interests of businesses in specific sectors. Thus, the chamber and sectoral associations should be established separately. I do not know the status of the draft proclamation currently, but if it is ratified, it would take another generation to amend.

    So, do you believe the Ethiopian chamber should be the all-encompassing strong umbrella?

    Not necessarily. My point is the chamber system should be separate from sectoral associations. Whether at local, cities or a national level, chamber must be strong. But they must align. The issue of sectoral associations is completely different. For instance, leather industries have problems that can be solved both through the chamber, and their association platforms. This is the right way.

    For instance, there was the Ethiopian Manufacturing Industries Association. It was challenging the government regarding manufacturer’s interests. Its strong momentum even empowered the chamber. Then the EPRDF practically dismantled it. It even prohibited the association from renting an office. The EPRDF regime never wanted such strong associations and chambers. The reason why the government overlapped chambers and sectoral associations is to deny them on common grounds.

    If the draft is ratified, it only maintains the problem. Currently, the government’s system prefers individual businesses, than the organized private sector.

    So the draft should be revised and discussed again?

    The process of crafting the proclamation has problems from its very inception. The chamber members and business communities have no consensus on the draft. The Ethiopian, Addis Ababa, and regional chambers must sit down and discuss on the issue.

    The Ethiopian government is trying to allure investments by the diaspora. If the diaspora invest and save in US banks, or in Ethiopia, which return on investment is attractive? Or do you think the government should design incentive packages for the diaspora?

    Businesses in Ethiopia are more profitable than other countries. The reason the US government devised AGOA from the beginning, is because African businesses can be profitable. Even in terms of savings, the return in Ethiopia is higher than Europe or elsewhere. The problem in Ethiopia is not on returns, but convertibility. Repatriation might be difficult. Saving in Ethiopia by itself is profitable, let alone investment. There are so many profitable business sectors in Ethiopia. Many sectors are emerging, and not exploited yet.

    The other problem is that the Ethiopian diaspora has lost trust in the government back home. So, the current government must reverse that perception, through transparency, commitment and service efficiency.

    Thirdly, the diaspora needs information supply on feasible businesses and projects in Ethiopia. Then the diaspora can form share companies, joint ventures, PLC’s or other investment modalities. If the diaspora know feasible businesses and the laws, then they can invest. Currently, the diaspora is placing their money on the stock market and other businesses abroad. They can divert that money to go back home.

    Especially, the profitability in the financial industry in Ethiopia is very lucrative; but the government should facilitate currency convertibility. Plus, most diaspora’s in Europe and the US left Ethiopia three to four decades ago. They are at s retirement age now. So if the health system in Ethiopia is improved, most diaspora’s would prefer to go back to Ethiopia.

    The diaspora also wants transparent systems to complain in cases of corruption and bad services. There is corruption in Europe and the US. But it is political corruption not work corruption. Political corruption is trying to twist or influence introduction of policies, proclamations or directives. Work corruption is bribing officials, institutions, and public services. There must be a complaint window for this.

    The west has been shifting away from Ethiopia and imposed sanctions. Substantial number of Ethiopians vote, especially in the US. Can Ethiopians and black Africans use their voting power to discard unfavorable officials or parties in the US or influence to reverse such sanctions?

    The diplomatic system has a more crucial role in this. To be specific, the US faced unprecedented situation in Ethiopia. A government that refuses foreign pressure emerged in Ethiopia.

    The US even used the UNSC to pressurize Ethiopia, meeting twelve times within six months. On top of the strong refusal of the Ethiopian government to surrender, the #nomore movement strengthened the support for Ethiopia, rallying Africans behind Ethiopia. The movement is stronger than election powers. The movement eroded US’s credibility in Africa, and in the world.

    Even during calls that Addis Ababa will fall to the hands of insurgents, one million diaspora opted to come back home. I believe Ethiopia will regain its rightful place in the international stage.

    Unlike any time before, the diaspora is on the same page now, regarding national issues. Before this, the diaspora’s were highly divided and turned against each other. The division created a negative energy. If the diaspora was united before, the EPRDF could have been long gone. The Diaspora and opposition figures abroad were used to strife, not unity.

    Can we say that the US’s pressure is normalizing since the tension with China over the horn escalated?

    Their strategy differs. The US wants to ensure its interests through political influence, while China does it through investment and economic empowering. The US’s and China’s struggles will continue, whether Ethiopia is there or not. China, Russia, Turkey, Iran and India, to some degree, are joining the friction now. They have certain interests with or against the US.

    The US’s fear is not what China will do in Ethiopia, but the kind of measures Ethiopia takes. For instance, Ethiopia’s normalization with Eritrea and the alliance with Somalia is a threat for the US. When the US told Ethiopia to stop the war, Ethiopia rather turned a deaf ear. Ethiopia filled the renaissance dam, when the US opposed it. These are some of the bold moves against US interests.

    These moves have nothing to do with China, but they are decisions emanating from the nature of Ethiopians. So, the confrontation between the US and China continues, while Ethiopia strides to protect and implement its national interests fully.

    I do not think Ethiopia will completely shift its diplomatic ties towards China. Imperialism is always imperialism, but it changes its face. The US always wants a government that listens to them. If a government refuses to carry out their interest, they depose that government, including assassinations. In cases such as Libya, Iraq and Syria, the US’s footprints in the countries politics can be seen from afar.

    The US put the same type of pressures that worked before, and in Ethiopia’s case, it has failed. But the pressure will continue. Ethiopia has passed a major obstacle. Yet, Ethiopia needs to sharpen its diplomacy more.

    At what stage is your investment process currently? What are your future plans?

    We are establishing the pharmaceutical factory in Ethiopia, in collaboration with highly professional pharmacists, scientists and business people in the Ethiopian diaspora. Finance, knowledge and vision are required to establish a medicine factory. If you have capital, you can buy knowledge, since it is a commodity.

    Our vision is to manufacture medicine and medical equipment’s in Ethiopia and provide for Ethiopians. It is not even about profits. We wanted to improve the medicine supply shortages in Ethiopia.

    We have been preparing for the past two years. We came to invest in Ethiopia, amidst the rhetoric that Addis Ababa is about to fall. Our team strongly believes in Ethiopia. Currently, we are processing the investment license.

    How much is the investment?

    The initial investment will take us between USD 20 million to USD 22 million.

    What is your conclusion on the soundness of the Ethiopian economy, especially in post-pandemic and post-conflict endeavors?

    My first impression when I came to Ethiopia after almost two decades was that all the negative narratives about Ethiopia and Addis Ababa are wrong. There is still an active economy. Across streets of Addis Ababa, day and night, residents are scrambling to buy from street vendors. This indicates to a huge demand in the economy. This is a living economy.

    But it does not mean there are no problems in the economy. There is a forex shortage, industrial inputs shortages, logistics problems and others. Yet, the economy has a big potential, especially if public services are improved, corruption is eliminated and bureaucracy is improved.

    Do you think the government should maintain protectionism?

    The US and Europe are not afraid of protectionism. Why should Ethiopia be afraid of it? Ethiopia is eager to join the WTO. But Europe is still protecting its agriculture. The US is prohibiting import of wood, aluminum and other items, especially trump did everything to protect local industries. So, Ethiopia must also protect its industries.

    After America banned Ethiopia from the AGOA, US companies left the Hawassa industrial park. If it is a local factory, they would not do so.

    Before, the US’s private sector had no national interest, instead they go for profits. That is why US industries moved factories to China, in search of a cheap labor. But now, the US government is asking them to come back and create jobs in the US.

    The country needs a nationalist private sector. The private sector cannot just seek profits and become a pure capitalist. It must contribute to the social wellbeing and development of the country.

    Even FDI’s must be undertaken in a joint venture scheme. If it has a local element, the investment can be sustainable.

    How can one balance profit seeking versus national interests? Scholars also say the psychological make-up of Ethiopians is not compatible for capitalism.

    Corporate governance, labor unions and social responsibility can balance capitalism. National security should be a concern of the private sector. If there is no security, there is no transport, meaning there is no market. Drought should concern the private sector. These make the private sector become a nationalist by default.

    One of the major tasks of the Chamber is to make businesses discharge their social responsibility.

    Thus, your conclusion is capitalism can work in Ethiopia.

    The old way of capitalism, which is seeking only profits, does not exist anymore. Of course, you are responsible for your shareholders and board members. At the same time, you have to be responsible to the society.

    Why you are not investing in the banking sector rather than pharmaceuticals?

    The government said it opened the banking sector for the diaspora, but still, there are unsettled problems. It said the diaspora had to invest in foreign currency. This is an obstacle.

    But the major reason I joined the pharmaceutical project, is because it is a matter of professionalism. Manufacturing is difficult in Ethiopia. We have a big purpose to bring change in the medical supply shortage in Ethiopia. We will produce capsules and tablets. We will also export, once we address the domestic demand. The company will also establish an R&D wing, which will conduct studies for other firms. Most of the founders are also researchers.

    Are you a chemical engineer by profession?

    I studied chemistry. I also studied industrial chemistry at Bahir Dar polytechnic. I already have a factory in Ethiopia, which produces plastic and rubber. It is expanding now.

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