Though a number of large scale construction projects, worth hundreds of millions of dollars, are taking place with the primary involvement of foreign contractors, local companies are not benefiting in terms of the transfer of technology or knowhow, according to Samson Berhane, Fortune Staff Writer. This is despite the fact that such process is a key element of the government's second Growth and Transformation Plan (GTPII).
Daniel Kedir, in his mid-70s, was showcasing his products at the 13th International Construction Exhibition during Fortune’s visit to his pavilion. He is a construction chemical specialist and has his own company, Danko Water Proofing Systems and Chemical Treatment.
Daniel has been in the business for almost forty years now. He thinks that the increase in the number of foreign contractors in Ethiopia will increase the transfer of technology and knowhow, though he asserts that the government’s policy in insuring such a transfer takes a deep hold is lacking.
The country’s modern construction sector registered a marked increase in its growth rate after the 1960’s. The main driver behind this rapid rise was the emerging urbanisation that has transformed the country over the last few decades. Ethiopia is currently going through something of a construction boom. In line with that, the transfer of technologies from industrialised nations has been on top of the policy agenda. It is viewed as a key element to address the low level of technology penetration in a developing country like Ethiopia.
A relatively large number of modern technologies were introduced in Ethiopia during Menilik II’s reign. In comparison, the military government that seized power in the mid 1970’s undermined private innovation and state investment, with its state-led economic model. As a consequence, they diminished technological transfers at that time. However, after the dawn of a mixed economy, the country is experiencing a rapidly increasing engagement of foreign companies in local development programmes and, to some degree, realising technological transfers – particularly in construction.
One of the policies adopted by the government in the second Growth and Transformation Plan is creating a linkage between local and foreign companies to promote technology and knowledge transfer.
Daniel has worked for over two decades in Saudi Arabia. He argues that some countries, like the Gulf States, compel technology transfer as a policy framework when foreign contractors operating in their countries to promote the development of their own national champions. Many are now equipped with a competitive technology and skill set.
However, Daniel disagrees on how much knowhow is being transferred from such interactions in Ethiopia.
“Since most of the foreign companies have the potential to work solely, most clients award them without highlighting the need to ensure the participation of local contractors,” Daniel underscored.
Another issue Daniel has with foreign companies and technology transfer is his understanding that they are usually here with short-term interests.
“They often think very short term; some even delivering below standard outputs owing to the utilisation of poor quality inputs,” he stated.
Studies show the long term advantages of technology transfer include sustainable economic growth in the future and the commercialisation of technology.
On the other hand, the increasing number of foreign contractors seems to be a boon to local clients, who benefit from the wider choices now available. For local companies, however, the influx often appears to catalyse a demise.
“There are a multitude of benefits to all players in the technology transfer arena,” said Samson Wondimu, communications head of the Ethiopian Roads Authority (ERA).
“Most multinational companies have an efficient management system, which enables them to finish the project based on the terms of agreement,” Samson underscored.
In the last fiscal year in road construction, the ERA reported that 31 local and 22 foreign companies had been working on 51 and 47 road projects, respectively.
Recently, a Chinese company, China Communications Construction Company (CCCC), completed the road construction of the Akaki-ICT Park (Goro) and Akaki-Lebu asphalt road, which connects to the Addis-Adama expressway, six months before the scheduled time.
“Local companies should learn from such multinational companies that deliver both in quality and time,” the Prime Minister said during the inauguration of the road in June 2016.
Conversely, Biruk Kebede, a surveyor at Hagbes, thinks “the flooding of the construction industry by foreign companies is not contributing to the technology and knowledge transfer as much as it could do.”
“Many large scale contracts involving multinational contractors, have key positions in the project occupied by foreigners,” Biruk contends. “In such situations, there is no way to achieve the technology transfer.”
“They are not open to sharing their knowledge even though they are equipped with the best technology,” an employee of Daewoo Construction & Engineering – a South Korean construction company, currently engaged in an 88-million-dollar four lane highway project linking Meki and Batu on the road from Modjo to Hawassa – told Fortune.
“A regulation should come into force stipulating that foreign contractors should either form a joint venture with local contractors or locally sub contract a percentage of the work to attain technology and knowledge diffusion in the country,” Biruk added.
Biruk makes his assertion in light of the value the construction industry has in the country. Of the total number of investment projects in 2014/15, though declining by 14 pc compared with the previous year, about 12.3 pc were in construction.
Abebe Dinku, a professor of Civil Engineering, argues that the impact of the rising participation of the multinational contractors is subjective.
“Even though foreign construction firms share the market with local companies, their new technological innovations can lead to the creation of new markets and give birth to new consumers,” Abebe told Fortune. “The government should compel foreign contractors to transfer their knowhow and build the capacity of local contractors.”
Abebe believes that foreign companies should subcontract at least 20 pc of a given project to local companies.
“Local contractors don’t have the potential to get involved in the construction of large projects, like industrial parks,’’ Arkebe Oqubay (PhD), Special Advisor to the Prime Minister with a ministerial rank, told Fortune in his interview back in October, 2015, after the government had awarded a 246-million-dollar turnkey Hawassa Industrial Park project to a Chinese construction company.
Arkebe has lost hope, particularly in large projects that need timely and quality delivery, with local contractors, following the poor performance they demonstrated at the Bole-Lemi Industrial Park. It took five years for 23 local contractors just to complete the first phase of Bole-Lemi. Conversely, China Civil Engineering Construction Corporation (CCECC) completed the Hawassa Industrial Park within nine months.
Clients, like the ERA, compel the participation of local contractors in all road projects, except those which need a high amount of capital, expertise and technological knowhow.
“The government can’t rely on foreign contractors, even though the project is big,” said Abera Bekele, who’s on the board of directors of the Ethiopian Contractors Association. “Such projects, like industrial parks, will not stop after building two or three, so they should be expected to be contracted fully to locals in the long term.”
The government is currently adopting an FDI led industrialisation, aiming to catalyse technological transfer. Increasing the skilled manpower, providing assistance to small and medium enterprises, supporting research and training, and encouraging start-ups and innovations are all strategies adopted by the government to attain the technology transfer, according to the country’s second Growth and Transformation Plan (GTPII).
The Construction industry contributed more than half (56.1 pc) to the performance of Ethiopia’s industrial sector, 56.9 billion Br, and 8.5 pc to the Gross Domestic Product (GDP), in 2015/16. The industry also constituted 3.2 pc of investment capital in the country, which is around 133 million Br. Construction in Ethiopia employs over 507,000 people across the country, according to a 2015 report by the Central Statistics Agency.
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