The move by FHC is the wrong one
I am writing this letter from Fassilo Woodworks with regards to the recent rent revision made by the Federal Housing Corporation (FHC) and how the revision impacts Fassilo and other similar companies.
It is a known fact that in this great city of ours there are residential and commercial properties managed by the Federal Housing Corporation (FHC) that are occupied for a tiny fraction of what the market value dictates and so has been for over two decades; and so did Fassilo until five years back, when our tenancy was revised, at which time the rent was increased over 10-fold. The management accepted the increase recognizing the earlier price tag as being very low.
Determined to find our own location, we have been looking for a suitable relocation site to acquire both in Addis Ababa and in nearby cities. But our effort was to no avail. Mostly, Fassilo has found that the prices are too high, or that the locations are too far away to be able to serve our customers without considerable price hike and remain competitive. We would also be unable to attract the skilled manpower needed. In this effort, Fassilo submitted a request for suitable land to lease to various land administration offices within Addis Ababa and nearby cities. That too has not yielded any result and will most likely not as the threshold investment capital required for access to such lease is beyond what any local manufacturing company can muster, which is currently above 70 million birr.
Fassilo has been able to strengthen its position due to the dedicated efforts of its employees and has received a bank loan to finance a planned manufacturing capacity expansion. It also has increased its number of employees to over 130 individuals where most of them have families to support.
It is in the midst of this favorable development that Fassilo – as well as thousands of other companies working in Addis – received a notice from the FHC regarding hike in rent price. The hike completely derails the company of any budget that might have been set aside for various activities. The hikes range between 521 percent up to 6,784 percent, and in our case it is a 1,000 percent increase. Such hikes, for anyone with insight on how companies operate, should lay bare that it will impact the striving business community adversely, which would ultimately lead to a dampening and at worst reversal of developments based on poorly substantiated study. It is a process that has not left much room for the highly praised participatory and transparent approach boasted by senior government office holders led by our Prime Minister Abiy Ahmed (PhD).
While the above in most regards describes Fassilo’s journey, it should be clear that this is a journey experienced by many businesses in and around Addis Ababa, and should serve as a good example of the experience of doing business.
There are good lessons on how government-owned properties can better be managed in various European countries where such ownership acts as a stabilizing factor setting precedence for private-owned residential and commercial rentals. We believe the current move by FHC will likely further exacerbate the situation. Currently in direct opposition to best practices I pointed out earlier, the government has adjusted its rental rate against the private sector.
Government and related enterprises should make an effort to lead and not be blindly led by the private sector. It was wrong when FHC left rent levels untouched for so many decades but it is now even worse to serve such shock increase in one dosage. The short-term solution should have been a gradual increase over a longer period affording us the ability to align our budget, along with a participatory effort where FHC takes the initiative to establish a tenants’ association with the primary purpose of coordinating with certain irregularities the rent levels both for private and government properties.
In the long run the solution would come if the government truly takes a closer look at how to encourage and support local entrepreneurship across the spectrum. The government should not only focus on new establishments and Foreign Direct Investment (FDI). It should also encourage the flourishing creativity and the substantial knowledge of companies that have sustained. That would be in line with Prime Minister’s recent initiative to improve Ethiopia in the global “Ease of Doing Business” index, currently ranking at 159 out of 190 countries.