Ethiopian en­trepreneurs strug­gle as com­mand econ­omy soars

Heavy hand of state seen sti­fling in­no­va­tion

Kuwait Times - - BUSINESS -

AD­DIS ABABA: In Ethiopia, where state spend­ing rather than pri­vate en­ter­prise has been the driv­ing force be­hind dou­ble-digit eco­nomic growth, tech en­trepreneurs like Araya Lakew feel stuck in the slow lane. Five years ago, the 34-year-old spot­ted a niche for a web­site match­ing buy­ers and sell­ers of sec­ond-hand cars in a na­tion where prices of­ten rise even as ve­hi­cles age be­cause of high tar­iffs on im­ports. His web­site, Mek­, re­ceives 316,000 hits a month and adds 20 cars a day to its sales list but he has strug­gled to ex­pand be­yond the cap­i­tal be­cause of poor In­ter­net pen­e­tra­tion and a ropey mo­bile net­work run by state monopoly Ethio Tele­com.

“We are only touch­ing a tiny sur­face of the mar­ket,” Araya said. “We try to op­ti­mize what we have as there are a lot of ob­sta­cles to growth.”In a na­tion where the au­thor­i­ties have lit­tle tol­er­ance of crit­i­cism, Ethiopian en­trepreneurs are re­luc­tant to blame the gov­ern­ment or its agen­cies for the chal­lenges they face. But econ­o­mists say the state’s tight grip and a list of re­stric­tions on where pri­vate busi­ness and for­eign­ers can in­vest risk sti­fling tech and other start-ups that will be vi­tal for cre­at­ing jobs and driv­ing in­no­va­tion.

“The way things stand, this sec­tor may not sur­vive,” said Markos Lemma, co-founder of icead­dis, a tech­nol­ogy hub in Ad­dis Ababa that sup­ports en­trepreneurs. “Ethiopia is leav­ing out a huge tal­ent-based op­por­tu­nity.” Tele­coms ser­vices are in the hands of the state, while for­eign­ers are barred from re­tail and bank­ing. En­trepreneurs strug­gle for funds as banks have to in­vest the equiv­a­lent of 27 per­cent of their loan port­fo­lio in low-yield­ing state de­vel­op­ment bonds, leav­ing less for pri­vate lend­ing.

Araya said pri­vate eq­uity firms had shown in­ter­est in his plans. “But they are put off by the reg­u­la­tions,” he said. Ethiopi­ans only need look south to Kenya to see what a more free­wheel­ing ap­proach could de­liver in a na­tion where tele­coms firms and In­ter­net providers are in pri­vate hands. Two thirds of Kenya’s 45 mil­lion peo­ple had In­ter­net ac­cess as of March 2015, while in Ethiopia, a na­tion of more than 95 mil­lion, it was just 2.9 per­cent at the end of 2014, fig­ures com­piled by pri­vate firm In­ter­net World Stats showed.

Keep­ing a grip

In terms of in­no­va­tion, Kenya’s big­gest op­er­a­tor, Sa­fari­com , partly owned by Bri­tain’s Voda­fone, pi­o­neered a sys­tem in 2007 that al­lows Kenyans to pay bills or re­ceive funds on the sim­plest of mo­bile phones. M-Pesa swept across Kenya, where few peo­ple have for­mal bank ac­counts, and has been mim­icked across Africa. But in Ethiopia, sim­i­lar ‘mo­bile money’ sys­tems are less than two years old and cash is still king. “That is a ma­jor is­sue for us,” said Fe­leg Tsegaye, founder of De­liver Ad­dis, Ethiopia’s first on­line food de­liv­ery ser­vice, adding that mo­bile pay­ments would make his ser­vice more ef­fi­cient. “We are cur­rently not at that level yet.” Mo­bile users com­plain that even ba­sic tele­phone cov­er­age is poor and In­ter­net speeds are slug­gish even in the cap­i­tal, al­though Ethio Tele­com is rolling out faster ser­vices.

But the gov­ern­ment shows no sign of eas­ing its grip, cit­ing eco­nomic growth that is on track to ex­ceed 10 per­cent this year, one of the fastest in Africa. It says prof­its from Ethio Tele­com are ploughed back into a range of in­fra­struc­ture projects, such as rail­ways. The firm gen­er­ated rev­enues of 21.5 bil­lion birr ($1.03 bil­lion) in fis­cal 2014/15 and gross profit of 14.5 bil­lion birr. “Profit is not a mea­sure or a yard­stick for our de­ci­sion but rather its de­vel­op­men­tal im­pact,” Deputy Prime Min­is­ter De­bret­sion Ge­bremichael, who is also Min­is­ter of Com­mu­ni­ca­tions and In­for­ma­tion Tech­nol­ogy, told Reuters.

On a con­ti­nent with poor trans­port and clogged city streets, Ad­dis Ababa opened Sub-Sa­ha­ran Africa’s first ur­ban metro sys­tem this year and is build­ing an ex­ten­sive na­tional rail net­work. The gov­ern­ment says no pri­vate firm would show the same in­ter­est as the state does in pro­vid­ing mo­bile cov­er­age across sparsely pop­u­lated re­gions of a na­tion where an­nual in­come per capita is just $550, well be­low the Sub-Sa­ha­ran av­er­age, ac­cord­ing to World Bank fig­ures.— Reuters

NAIROBI: A pic­ture show­ing a mo­bile phone ap­pli­ca­tion offering a sim­pli­fied guide to child-birth in Ethiopia is dis­played on top of an Ethiopian flag and map. — AFP

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