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South Korea: from model to partner

South Korea: from model to partner

Ambassador Shiferaw Jarso is Ethiopia’s ambassador to South Korea, a country which is said to be one of the models for Ethiopia in designing its industrial and manufacturing growth. Shiferaw took the post a few months ago and says that he has already embarked on the economic diplomacy work that his embassy is tasked with. Formerly, he served at various government positions including as head of the Ethiopian Sugar Corporation, Minister for Water and Irrigation, Government Whip in the House of People’s Representatives. Pursuant to his new assignment, Shiferaw looks to be fascinated about the South East Asian growth narrative and says that reading about it and witnessing it work on the ground were two completely different experiences. However, his task is not about drawing lessons anymore. He is measured and evaluated for the level and quality of investment that his embassy can attract to Ethiopia. Hence, on the verge of departing to Ethiopia for a business forum and official visit of South Korean President Park Geun-hye, Shiferaw sat down with Asrat Seyoum of The Reporter at the Ethiopian Embassy in Seoul for an exclusive interview. Excerpts:    

The Reporter: How would you characterize the relationship between Ethiopia and South Korea? Are the two countries trading partners, political allies or have a donor-recipient relationship?

Ambassador Shiferaw Jarso: Politically, we have a good relationship. As you know, the diplomatic relationship between the two countries goes back to the 1960s. When you ask a common South Korean, they will tell you that role Ethiopia has played in the Korean War is held with high regards among the people. It is not only limited to the answering the UN calls at the time or taking part in the war; rather the Ethiopian soldiers back then took part in a very critical battlefront and managed to defend the nation. They say that that battle was so critical that had it not been for the Ethiopian soldiers the outcome of the war could have been different. So, in memory of that, there is an Ethiopia village in South Korea dedicated to the heroism that Ethiopian soldiers have displayed. When we look that Korean industrialization, until the 1980s, it was a country that does not even grant access to foreign currency to its business so that all of the country’s resources are kept in the country. In that sense, it was a very inward looking nation until very recently.

So, back then, when the war was raging in the Korean peninsula, the Ethiopian emperor has also contributed financially to help South Korea. This, for an inward looking nation, is a big deal in most respects. So, politically, we have a good relationship. On the economic front, the inward looking approach did not allow them to explore markets like Ethiopia. As a result of this inward looking approach and sheer dedication, they have registered one of the fastest economic developments in recent history. In the past 50 years they have managed to rise to the level of one of the top 11 world economies at the moment. Hence, it is only after 1988 that Koreans started to see outwards, mainly because the industrial development by itself necessitated integration with the global economy. Even after that, they focused more on their own region; on countries like Vietnam, Indonesia and China. They have started to look towards Africa only recently. Hence, as far as investment and trade is concerned it is only recently that the South Korean economy itself started to look for opportunities in Africa and by extension Ethiopia. So, investment exchanges were highly limited. With regards to trade, the balance of trade between the two nations is highly skewed towards South Koreans since there are only a few commodities they import namely coffee and sesame.

Apart from that, up until now, Korea International Cooperation Agency (KoICA) has been funding some development programs in Ethiopia. They have also financed some road projects in Ethiopia so far namely the road from Arsi Negele to Aella is financed by KoICA. So, we hope this support will grow significantly following the visit of South Korean president to Ethiopia next week. We also expect a number deals to be signed during her visit to Ethiopia. As far as investment is concerned, currently we are seeing some sort of interest from South Korean businesses. So recently, some big textile firm has made the first move to join the textile manufacturing sector in Ethiopia. This area of investment was rather an unexplored opportunity for both Ethiopia and South Korea; and they also have given a great emphasis to investment opportunities in Africa as general wage levels continue to rise in Asian markets. And no doubt form the African continent, Ethiopia is one country that stands to benefit a lot from this move.

On the bilateral aid arena, we have been informed that President Park will be presiding over the initiation of a new KoICA program called Korean Aid. What will be the breadth of this new program? And how much money will be allocated to its?

When you consider the size of the Official Development Assistance (ODA) of South Korea to Africa, it is not even the biggest part. It is by no means, the biggest contribution that is to be obtained from that country. Generally, it is a program where they finance mobile health centers in African countries. It is just one part of their ODA package, but no way significant. What we are focused on is the investment exchange in the area of industry and technology. You see this is more important to our economy and it is certainly the most sustainable of all the exchanges as it is in their own interest as well. Now is the right time for their companies to go to Africa and Ethiopia is uniquely positioned to benefit from this. But, the Korean Aid program is not significant in context of the overall engagement they have with the country. We are expecting other big projects that are going to be announced by the president when she visits Ethiopia. We expect, close to 20 Memorandum of Understandings to be inked during this visit. These agreements would be mostly in the area of science and technology.

As you know, we take Korea to be one of our development models in our industrialization drive. And now, I think we are entering into an era of concrete investment ties with South Korea. On the other hand, we also like to extend our exchange in the area of tourism. As you know, Ethiopia has very long Christianity tradition and currently there is an emerging trend in South Korea of long religious pilgrimages to Israel and other nations. So, we want to tap into that raw potential in quest to transform our tourism sector.

Coffee is another potential selling point for Ethiopian tourism sector. I don’t know if you have noticed but Ethiopian coffee has exploded into the South Korean markets; it is highly popular. Since Ethiopia is the origin of coffee, we are thinking of harnessing that historical significance for tourism. Another one is mountain trekking; we also see great potential in that regard for enhanced exchange between the two nations. Now, if you examine the Korean economy at this time, around 18 million Koreans have a well-entrenched culture of touristic expeditions around the world. Out of this number, the share of Africa is almost zero. So, there is great potential there for Ethiopia to exploit. But, we have a long way to go in terms of promoting the nation. There are many Koreans who think Africa is one country as a whole. But, I am observing their government is seriously working on this is developing a strategy towards Africa strategy.

In terms of overall diplomatic work, how is your embassy approaching this economic diplomacy concept so far? What is your strategy in this regard? Can you show us the whole picture what your embassy is doing in Seoul?

When we speak of economic diplomacy, one of the biggest elements in this strategy is investment promotion. We are promoting the investment opportunities in selected industries like textile or leather and the shoe sectors at the moment. We have some companies who have already made commitment to investment in Ethiopia and some others seriously considering joining the Ethiopian market. We have our own plans as to how many investors we need to attract annually to Ethiopia; we are working according to that plan. We are evaluated by how many investors we managed to bring to Ethiopia and have them start working in a short time. To understand the importance of strong investment promotion, one has to see how the world market in textile or leather functions. Whether you like it or not, the global market for these commodities is dominated by some giant companies which have strong ties and relationship to one another. So, if you want break into the global value chain, you need to bring part of these companies.

Yes, local firms can produce these products but the global market is so concentrated that they could not break into this market chain that easily. Some of the biggest firms in the global value chain, when it comes to textile, for instance, are Korean. If you look at these companies, one of these textile makers has an annual turnover close to our industry’s cumulative registered capitals. Now, from the supply side, South Korean banks and financiers are ready to avail the necessary finance to their companies should they make their move to Ethiopia. Hence, we are seeing that, some of these big companies want to be engaged in some serious investment in Ethiopia in sectors like power, railway, pharmaceuticals and others. Of course, it is just at the beginning. The thing is, they have just started to open up and Ethiopia is lined up to benefit from it. Although we do have some operation work regarding the Ethiopian community here, I can say that my embassy is solely focused on attracting such investment prospects from Korea at this time.

What are the lessons for Ethiopia specifically with regard to industrial clustering and industrial park development in South Korea? How did they manage to gain so much from this model of industrialization?

When we look at the Korean industrialization history, we can see that around the early 1960s, the time where they started their industrializations, they began mainly by focusing on light industries for which there is huge demand locally. They had limited foreign currency at the time and this strategy was the only way to start industrialization. Later on, around 1962, they concentrated on the southern regions to setup some basic metal and related industrial facilities including the auto industry. Since they could not afford to lay down infrastructure for all parts of the nation, they focused their energy to southern parts that availed the necessary resources and infrastructure to develop industries.

At that time, what they have done is set up few big and fundamental industries to lead the process of industrializations. As you know, this strategy has been criticized by many people. This provided the industrial base for the nation from where the government started to devise other strategies like industrial clustering and industrial parks. As it was starting, this industrial clustering was done mostly by the private sector and the regional distribution was highly off balance. Hence, later on, government started to develop industrial complexes to maintain the regional balance and equity. After that, they went to the agro processing sector. What they did there was provide the necessary infrastructure for small and medium enterprises to invest their own capital in agro processing industries. You see, when they first nurtured big industries in the southern regions they were chasing after import substitutions; however, later on they realized that import substitution alone cannot sustain the growth and they started to support small and medium agro industries which are export oriented in nature. You can see that Ethiopia is also moving to pretty much the same direction. At this time, they are at the high-tech age. They have various technological parks in the county.

However, most of the light industries have now lost their cost rational in Korea as wage start to rise successively. That is why textile and leather is now in Bangladesh, Vietnam or China. So, those big firms working on light industries could not stay competitive in the global market while based in South Korea. Now, they are also facing the same challenges with regard to middle and small enterprises. Mind you these medium and small enterprises are large firms by Ethiopian standards and what we plan is to take in great numbers is from this pool of companies. So, now they have moved into the high-tech industries with close to 4.5 percent of the GDP spend on R&D at this point. Currently, their unemployment rate is about 3.2 percent and a great number of this group are youngsters who are less inclined to take formal jobs. The young is now predisposed to innovate than hold formal occupations. So, they are now focusing more on innovative service sectors to create jobs. However, their industrial park management and policy is very dynamic. They make sure that they are up to the challenges. So, we have to make things conducive to attract these companies.

So, based on the South Korean narrative, where can we say Ethiopia is today in the industrialization scale?

As you know, just like the Koreans, we started the whole industrialization drive back in the days in more scattered manner. We had some factories popping up in the peripheries of the Addis Ababa in a scattered manner. It is only recently that the government started to organize and set up state-sponsored industrial parks in Ethiopia. So, in a way, you can say that we are currently at a level where they were back in the eighties. One thing that would be different in our case is that we don’t have to take all the steps they took when they were climbing the industrialization ladder. We benefit from the late comer advantage. That means that, as we build basic textile and leather processing factories and industrial parks, we will also have the opportunity to build techno-parks, something they are pursuing at this time.

However, we have not reached the age of innovation as they might have at this point; but we do benefit from some late comer advantage. Basically, we are pursuing two independent strategies when it comes to attracting South Korean companies to Ethiopia. The first one is offering them the state-built industrial shades and facilitate the condition for them so that they can start exporting their produce sooner. On the other hand, we are offering them another modality that is the opportunity to develop their own industrial complexes in Ethiopia. For those willing to develop, industrial parks by themselves, there are wide variety of benefit packages which includes tax exemptions and lease free plot of land. So, the final target for the government is building national parks by itself while facilitating the provision of infrastructure for development of parks by the private sector.

Recently, team led by Arkebe Equbay (PhD) and other officials was in South Korea for an investment forum where a number deals and MoUs have been signed. Can you tell us some of these concrete outcomes of the meeting?

The investment forums were held at different venues in South Korea. The first and biggest was the meeting with federation of textile industries in South Korea. At this platform, the Ethiopian team made an in-depth explanation as to what it offers to investors who are willing to come and work in Ethiopia. The team introduced the various incentive structures that are available to foreign companies that will invest in Ethiopia. Now, head of the textile federation runs one of the major textile factories in South Korea called Youngone Corporation. In fact, the head of this enterprise has been to Addis Ababa two times now. He has already selected production site at Bole-Lemi Industrial Park and is in talks about setting up its own industrial park as well. So, the upcoming business forum that is going to be held in Addis Ababa during President Park’s visit, we expect it to be a culmination point of the talks and actual agreements are expected to be signed at that occasion.

Furthermore, Youngone Corporation will be a big boost for Ethiopia since it will encourage other small and medium enterprises to come and join this emerging sector in Ethiopia. The coming of a big company like Youngone will definitely build confidence among other firms. What has to be clear is that industries like textile are becoming highly specialized industries at this time. Every piece of garment today is not produced without knowing who the end user is and which market it will be sold at. Production is highly linked to markets these days. So, it is absolutely important to have companies like Youngone break the global market and put the country on the global textile map. This is something that would be difficult to achieve by local companies in a short time span.

How many companies have shown interest to explore the Ethiopian manufacturing sector at this business forum?

We had a number of firms taking part in the investment forum. However, we estimated as much as twenty showing real business interests in Ethiopia. Still, some seven have gone further to pursue investment in Ethiopia and they will also be part of the delegation going to Addis Ababa. I think from the government’s side there is a better preparation to host investors in Ethiopia as it has already availed manufacturing shades to work in. However, what one can see is the fact that all investors would always choose a production site with the highest concentration of infrastructure. As you know, we now have parks in Addis Ababa, Adama, Dire Dawa, Hawassa, Kombolcha, Mekele and Bahir Dar. However, the level of infrastructure varies from place to place. So, this is the main challenge for us now. We have to finish all the parks and their infrastructure in time; otherwise every investor wants to go to the park where there is highest infrastructure density. Most of the companies that I have talked to are more concerned about the distance from the parks to the market outlet and vice versa. And want know how long since infrastructure projects like railway becomes operational. So, investment promotion is neither promises nor propaganda; it is really healthy conversation with the investor and explains what is on the table.

The government has been saying that South Korea is one of the countries from which it will draw valuable growth lessons. However, the man who made all this happen and his methods are still highly divisive in Korean politics mostly for his tendencies to repress democratic rights. Similar issues are raised in Ethiopia regarding human rights and political freedom. Shouldn’t the adoption be selective?

Of course, it is obvious that we need to adopt very selectively when we draw experiences from other countries. To begin with, the two countries have so much difference in the area of culture and the culture of democracy itself we can directly import whatever lessons that we can get from there. We have to have our own separate way although it would not hurt to learn how they achieved industrialization. To begin with, we could not afford to not have democracy and economic growth since Ethiopia is a multiethnic nation; it would be unsustainable. So, for Ethiopia, democracy is not a luxury that we can afford to let go; it is a must. I do admit that the path Park Chung-hee followed is quite uncompromising.

Especially, when he selected few big companies to represent the nations’ export oriented manufacturing sector he faced some criticism for exclusively supporting these companies. Nevertheless, we should not forget that he had made a miracle happen in a space of a few decades in South Korea. If you see what he has done with South Korea’s natural environment with Saemaul movement and how he rehabilitated the environment that was left heavily disturbed after Japanese colonization, I think he did a remarkable job. In fact, this movement is one factor that brought all Koreans together. It does not mean that we need to do whatever they have done. We will be selective. However, you can understand that some things are common. For example, we need to give the same emphasis as he did to infrastructure and education; because thinking about growth without these two would be pure emotion.

One thing I can tell you is that I held various positions at government and party levels in the past and I was highly immersed with such type of government-led development thought. But since I have come here to take up the ambassadorship I have seen what we have been reading about working on the ground. I come to know that, if we had such clarity with what the thought and practice is form the start, we would have done something worthy of being called a miracle by now. Had we had the exposure and understanding that Meles Zenawi had back then, we would made headways in many respects. Anyway, we still have to do what needs to be done. If you ask me, the biggest thing they did was their investment on what they called the spirit of the development agent and the people. When we speak of spirit, it is what we call the attitude. You see attitude looks like it is purely a conceptual construct but one can really see concrete changes to policy application and follow up by the government when this unity in attitude is achieved. You can see that even in Korea there are still unfinished issues like in equitable growth.

Prior to this, you held a position as head of the Ethiopian Sugar Corporation for many years. The lag in a host of sugar projects and the country’s importation of sugar when it should be exporting looks to be turning some heads these days. In your view, what is missing in the Sugar development sector?

Since I have been working there for many years I can tell you a thing or two about the sugar sector. It is important to know that what we tried to do in sugar development projects was twin strategy. One was frog leap our sugar production level by constructing sugar plants. Meanwhile, we also targeted to nurture our domestic capacity in sugar technology while developing our sugar projects. So, in this framework, we experienced a lot of ups and downs through the years. So, what we experienced first was the whole ordeal with Tendaho Sugar Plant. You see, when we started the project we had less financial capability to depend on and hence we sought best ways to finance the project. Then we floated a bid and contracted an Indian company on EPC contract basis. We selected the company because we needed the credit line from Indian financiers. But, it turned out that this company was not producing the plant technology itself and it dragged us along for many years without success. So, the capacity to manage our builders and contractors was also an issue. Unfortunately, sugar is very transparent sector; you plant sugarcane, you erect factory and then start producing. Hence, it easily catches the eyes of the public. Most of our projects have actually progressed to a certain level, but with sugar there is no such thing as one step from production or commencement; you are either producing or not. That is why there is a lot of uproar.

However, a lot of work has been done in our sugar development efforts granted none have fully started to deliver on the anticipated outcome. Plus, our beginning was at very large scale and we faced problems to proceed as fast as we need to do so. I think the basic things are infrastructures, the dams and irrigation technologies. When these are up and running it would be an easy walk form there. Yes, we have not progressed as we would have liked. But I don’t think we can say that resources in sugar development have been wasted. All the infrastructures are there on the ground; it is a matter of building on them and getting them to where they are needed.

As you have said, developing local capacity entailed involving domestic companies like the Metals and Engineering Corporation (MetEC) to build these sugar projects. But, the delay is now observed in these projects. What happened there?

Don’t forget sugar is a complex industry. So, as you target nurturing domestic capacity there is bound to be cost because you are creating a capacity which was nonexistent. Both MetEC and the Ethiopian Sugar Corporation did not fully grasp the challenges of developing sugar industries; but we did have the commitment. So we were building while enhancing our own local capacity. This, as can be expected, can take a toll on the project. However, one has to see what we got out of the experience in terms developing our capacity. Also, you have to know when we say local capacity, there are still some technologies that we need to get from abroad. So, one can fairly say we were ambitious not in our strategies but in the timetable we put to complete the job. And apart from that, for some of the projects, we can see that their finance have been secured only recently (those built by the Chinese) and that they cannot be said to have lapsed their project lifetime. Nevertheless, we also have fully completed projects up and running too. For instance, Wonji’s expansion project is almost at a scale of a new sugar plant. Fincha’s expansion has added 6,000 TCD to the production capacity of the existing factory; it is quite big in itself.