Old Relation, New Hope for Investment

Kassahun Yimer (PhD) has been displaying solar products from Japan at Sheraton Addis on Monday August 31, 2015.  The products were made by KOYO Business Service, Inc., a Japanese company with 30 years of experience in LED lights and five years in making solar equipment. Kassahun, who speaks Japanese and translates it into English when visitors come, has a company named GH Engineering and Trading Plc that was established in 2014 and works on consultancy and on feasibility studies for new projects.

KOYO, that has established a very recent presence in West Africa, Senegal had been selling LED lights to Toyota and Honda vehicle companies according to Koji Makita, general manager of the company.

“We did not come to Africa before because ‘toyika’” said Makita – toyika means it is too far.

But now his company is looking for a reliable partner with whom he can work to establish an East African KOYO business.

The products on display were solar street lights with integrated LED light and storage batteries, solar mobile chargers (which are handy), solar home systems, solar torches, and solar fans.

Kassahun also believes that the products that came from Japan are higher in price than the ones that are sold in Ethiopia, and the quality also differs. The Japanese products on display, according to Kassahun, who is also an assistant professor at the Addis Abeba University Institute of Technology School of Mechanical & Industrial Engineering, are durable for at least 20 years.

Although Japan is said to be distant from Ethiopia, other East Asian countries, like China, are investing on the continent, particularly in Ethiopia.

Chinese investment in Ethiopia between January 2010 and October 2014 amounted to 467 projects according to data from the Ethiopian Investment Commission. In contrast, Japanese investments in Ethiopia totalled 11 projects. India, another Asian country, has investment of 204 projects.

Diplomatic relations between Ethiopia and Japan started in 1930 with the signing of the Treaty of Friendship and Commerce – ironically at a time when most of Africa was still under colonial rule.

That budding relationship led to a visit to Japan the following year by the then Foreign Minister of Ethiopia, Bilaten Geta Hiruy Weldeselassie.

The relationship was cemented by the subsequent visit of His Imperial Majesty Haileselassie I to Japan as the first Head of State to visit that country after World War II; and by the visit of Japan’s crown prince to spend his honeymoon in Ethiopia.

The country’s elites of the day, also had the high tendency of emulating the development model of Japan.

“Japan Endemin Seletenech” [How Japan Became Civilized] by Kebede Mikael and “Hizibina Mengist Astedader” [Public and Government Administration] by Gebrehiwot Baikedagen were seminal works that discussed economic and governance issues focusing on the Japanese system.

With the relationship between the two countries going to the extent of investment, Japan had pioneered in Ethiopia’s textile industry prior to 1974, after which the industries were nationalised and the relationship between the two countries was again diluted throughout the military regime.

Currently the textile industry is dominated by Indian and Turkish investors.

The blossoming relationship diminished when Italy invaded Ethiopia and Japanese ambassador to Italy, Sugimura Yotaro, announced that his country had no political interest in Ethiopia and confirmed that it would stay neutral during its invasion.

Decades later Abebe Bikila’s marathon victory at the 1964 Japan Olympics would make history that remains vivid in both countries.

“My name is Abe, but everybody teased me at school, calling me Abebe,” Prime Minister Shinzo Abe joked during his visit to Ethiopia in January 2014, as quoted in the Japan Times newspaper.

The visit dubbed as “Japan’s Diplomacy towards Africa: Strengthening Each Individual, One by One” covered three selected countries in Africa – Cote d’Ivoire, Mozambique and Ethiopia. Its main objective was promoting trade and economic growth partnership between Japan and Africa.

During his 20 years as Prime Minister, the late Meles Zenawi visited Japan four times. The first of the visits was in 1996 and the other three were to attend meetings of the Tokyo International Conference for Africa Development (TICAD) in 1998, 2003 and 2008.

TICAD which is held in four year terms, has been held five times and the sixth one will be taking place in Nairobi Kinya, in the coming year.

TICAD has become a platform to discuss and improve relationships between Japan and African nations according to Arkebe Oqubay (PhD), Minister, and special adviser to the Prime Minister.

The frequent visits TICAD’S out comes however did not translate into significant investments from Japan compared to many countries that are economically and geographically close to Japan.

The major export items to Japan are coffee, oil seed, flower, beeswax, processed oil seed, finished leather, leather products, shoes, natural honey, textiles and garments, pulses, meat and meat products, beverages, mineral products (other than gold & tantalite ore), spices, metals, chat, fruits and vegetables.

According to data from the Ethiopian Investment Commission, only 11 Japanese investors are licensed to operate in Ethiopia, which lags far behind China, India and Turkey. The Chinese have 467 projects and Indians 214.

Arkebe sees three main hindrances to the lagging investment of the Japanese in Ethiopia.

The first one is the Japanese economy that has been upgraded to capital, technology and skill intensive industries unlike the labour intensive industries that are coming to Ethiopia currently.

The second one according to him, most of the Japanese existing labour intensive industries were relocated in other Asian countries like Singapore and Taiwan.

“Asia has big advantage to Japan,” than the distant African countries he explained.

The concept of Africa Rising became popular very recently, though Africa is still known for war and fragmentation which did not allow the Japanese investors to see Africa is the third reason for Arkebe.

“Particularly famine, drought and war were images of Africa; it is only now that people are recognising that Ethiopia is growing,” he stated, answering particularly to a question raised by Fortune.

“Japanese are slow for investment and once they come, they live forever,” Arkebe said.

This stand of Arkebe is also shared by Kazuhiko Sasaki, Second Secretary for Economic Division at the Embassy of Japan in Ethiopia.

“It takes time for Japanese companies to expand business overseas, while they tend to settle down and take root in their destinations; once they decide and start to invest in the places,” Sasaki told Fortune. “Although Japanese companies take time to decide business expansion overseas and make little investment first, they gradually expand the size of their investment and keep investing for a long time.

“To encourage Japanese companies’ speedy decisions, we suggest to enhance the investment environment particularly in the logistic and financial areas,” suggested Sasaki.

But the frequent visits of the officials have contributed much to the relationship of the two countries in terms of trade according to Arkebe. The visits have contributed to promote Ethiopia and enhance exports.

The major export item of Ethiopia, coffee, was banned from the Japanese market because of pesticide residues. Within eight years of the lift of the ban, only 1,500tn of coffee was exported.

As data from the Ministry of Trade for the year 2014/15 fiscal year indicate, Ethiopian exports to Japan amounted to 98.27 million dollars absorbing 3.3pc of the total exports of the country. This makes it the eighth largest destination of Ethiopia’s exports.

Currently Japanese imports of coffee stand at 22,039tn generating 87.6 million dollars in the fiscal year 2014/15 only. This is 11.2pc of the total coffee export of Ethiopia.

But, these are surpassed by exports to China that earn a 12.6pc share of the total export gain. The sum gained from exports to China is 377.8 million dollars this fiscal year. Earnings from exports to the United States totalled 174.78 million dollars with a 5.8pc share of the revenue. Japan moved from the 12th rank it had in the last fiscal year to eighth this year in export absorptions.

The volume of trade between Ethiopia and Japan amounted to 26,478tn generating revenue of 98.27 million dollars. The volume for the 2013/14 fiscal year was 76,100tn and the revenue gained through this export was 22.2 million dollars.

According to the website of the Ministry of Foreign Affairs, the trade volume (both imports and exports) between Ethiopia and Japan ranged between 2.5 billion dollars in 2007 and 1.6 billion dollars in 2009.

“But the balance always remains in favour of Japan,” states the site.

Ethiopia’s exports being mainly agricultural items, the imports of the country are industrial supplies, machinery, fuels, transport, consumption goods, food and beverages, according to Ethiopia’s External Trade Performance in the Recent Past- paper submitted at the 13th International Conference on the Ethiopian Economy by Alemayehu Semunigus in July 2015.

Among the few Japanese investments in Ethiopia is Elmi Tours Plc, which was re-established as a Japanese-Ethiopian joint investment in 2008. The company that works in the tourism sector had been working as a sole proprietorship for six years with the name Elta Tours before entering into a joint investment.

“I had only one vehicle before coming into working with the Japanese investors,” says Elias Wolde, general manager and shareholder of Elmi Tours. “Now the number of vehicles has grown into six, which have been imported duty free.”

Elias met the Japanese that are working with him now when they came for a visit.

But now the Japanese are coming to Ethiopia because the increased labour cost is pushing them as shared between Arkebe and the Japanese International Cooperative Agency (JICA) vice president Hiroshi Kato.

“There are two factors to look into Africa now – push and pull factors,” he said, answering Fortune’s question.

The push factor according to him, is that the Japanese population that is becoming older.

In Ethiopia for example, 60pc of the 87.9 million population is between the ages 16 and 35 according to Central Statistics Agency.

The pull factor is, according to Kato, the economic stability and stable macro-economic situation in Africa.

Looking particularly at Ethiopia, the country’s gross domestic product (GDP) has been registering an average 10.5pc over the past ten years and the inflation rate was maintained to stand at single digit.

Arkebe sees more investments from Japan in the near future with the TICAD and industrial policy dialogue held every six months being a platform for creation of relationship and the coming of the Africa Japan Business Investment Forum.

Ethiopian and Japanese investors are also in discussion to establish a Japanese specific industrial zone in the coming 12 months according to Arkebe.

But for Alemayehu Semunigus, an economist engaged in research on trading between Ethiopia and Japan for the Ethiopian Economists Association, trade is not feasible in terms of costs for the country. The country’s major exports going to East Asian countries are more prone to high transportation costs than the export to US because of the distance between the two regions.

“This also discourages foreign direct investment as everyone wants to minimize cost as much as possible,” Alemayehu told Fortune.

He suggests the exploitation of the nearby African market as a better alternative.

“There are potential markets around that are consuming 20pc of the country’s exports currently,” he said.

Aimed at enhancing trade and investment relations between Africa and Japan, the second Africa-Japan Business Investment Forum attracted 200 to 250 participants from around the world including prominent politicians, technocrats, and member of the international business community, according to Darren Moore, senior project manager at I.C. Publications, a London based event organiser that works with Nikkei Business, a business publication in Japan.

The major discussion items on the event were quality infrastructure, financing for growth, knowledge economy, energy, agriculture, Africa-Japan Industrial Policies, healthcare, doing business in Africa and Economic diversification session.

“Basically in terms of trade and investment, Japan is a little bit slower, which is why the Forum is aimed at increasing the amount of trade and investment,” Moore told Fortune. “The presence of China is well-recognised and Japanese names are seen in relation to quality brands such as Toshiba and Kamatsu despite its limited presence.”

He believes that with the current Africa Rising concept, this forum is a perfect opportunity to see alternatives.

“It should be asked why not now, for holding the forum and Ethiopia is a natural choice as a capital of Africa,” Moore emphasised.

Markos Tekle, Ethiopian Ambassador to Japan states that the Forum is a very important platform to change the political and friendly relationship of the two nations into investment.

“There are up to 10 – 15 companies that are studying the market in Ethiopia and they will be investing in three years,” Markos told Fortune.

Ethiopian Airlines started flights to Tokyo in April 2014, making it the first direct flight connecting Africa and Japan and making that country the airline’s 11th destination in Asia.

The Forum will gain attention from the international media, commented Elias, who expressed the hope that there would be more opportunities for Japanese investors to explore Ethiopian investment opportunities.

Published on Sep 08,2015 [ Vol 16 ,No 801]



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