Investors Told You Snooze, You Lose

Attracting investment into a variety of sectors is crucial to catalysing Ethiopia's growth ambitions. Such a drive is being stalled, however, by various issues, which has led to the revocation of a large number of licences. There is a belief, however, that such a move will open up investment opportunities to others, reports FASIKA TADESSE, FORTUNE STAFF WRITER.

Investment is   a core area through which Ethiopia aims to affect the process of transformation, from an agrarian to an industrial economy. With an ambitious five-year plan, which stipulates projected gross domestic product (GDP) growth of 11 to 15pc each year from 2010 through 2015, Ethiopia aims to extend vast investment opportunities, primarily in the agricultural and industrial sectors.

If seen next to the recent situation at the Ethiopian Investment Agency (EIA) -the governmental body mandated with the duty of approving and issuing investment permits and providing registration services to newly incorporated business organisations – this plan is far from progressing in a smooth manner. Around2,500 investment licenses were revoked by the Agency for two reasons – failure to renew licenses and remaining idle after receiving licenses.

The revocation has resulted in potential investors pulling out of planned projects. For the Agency, the measure constitutes ensuring that a proper service, finance and investment land is available for active investors.

“All of them have stayed idle for over four years,” says Getahun Negash, the public relations director at the Agency.

The Agency did not strictly enforce the two year limitation, decreed in proclamation 769/2012 and ratified in September 2012, for what an anonymous official said was the Agency’s desire to not disrupt new and already committed investors who were on the right track, based on the Agency’s assessment. The Agency makes its assessment once every six months.

The Agency tolerates lapses in license renewal after the second year,only if they are in the process of acquiring land and other materials, or if there are other compelling reasons, says an official at the Agency.

The Agency, which is also authorised to approve foreign investments and facilitate the acquisition of land by providing all other pre and post-approval services to investors, took back the land received by all of the revoked investors, as well as other benefits.

“They will also be expected to pay tax for machineries they imported using the duty-free offer,” Getahun said.

Although investors, for their part, have reasons for delaying engagement in the projects, ranging from delays in land acquisition to procurement delays, a number of them, including Ameha Hailesellasie, owner and general manager of Sheba Tour & Travel Agency, also attributed the negligence in renewing their licenses to the failure of the Agency to remind them to do so. Yenegew Sew Education SC, which lost a plot of land it had leased, said the problem was that it needed more time before it could begin the construction of a university building, according to its general manager, Ali Endris.

The proposition for expansion of the school to include a university college came in 2003. It then leased a 1,700sqm plot at Lebu in Lafto District in 2008 on a 50-year agreement. Yenegew Sew lost the plot, as well as 700,000 Br out of an advance 1.2 million Br it had paid for the lease.

A similar case emerges from the Abyssinia Steel Rolling Mills Plc, which took alicense to manufacture aluminium, household products and construction materials in 2011. Its lofty ambitions failed to take off due to the unavailability of raw materials and foreign currency issues, Varindra Tiwari, managing director of the Company, said.

The Agency complains that it has a limited capacity to supervise all those that have taken licenses, says Getahun. Moreover, some have been licensed by regional investment bureaus.

Adinas Agera Tour & Travel Agency is one of those who readily admit to failing to renew their licenses on time. Licensed in 2010, the Agency was listed as one of the 2,500 that could lose their license if they did not come up with convincing excuses, on February 7, 2014. His license has already been revoked.

In other cases, investors have simply forgotten that they had taken licenses in the first place. This is what happened to Abadir Mohammed, who took out a license to engage in a tour & travel agency operation named Abadir Tour & Travel Agency, but engaged in some other business with foreign investors.

The Agency says that most of the investors, whose licenses it revoked for failing to begin operations, had already left Ethiopia.

The Agency has also become stricter, requiring applicants to show a deposit of the capital investment and to submit an action plan and proposal, says Getahun.

“We issue licenses only after analysing actual plans,” says Getahun. “We also do so only after ensuring that investors have a deposited initial capital.”

The public relations officer could not respond to some of the concerns raised by investors, citing the difficulty of reviewing all of their documents.

The Agency has issued 5,197 licenses in the last five years, 4,057 of which are to foreign investors; the remaining 1,140 to local investors.

Only 672 out of the total have commenced operations, while 517 are in the implementation stage. About 4,008 of them are in the pre-implementation process. The number of those revoked is a whopping 1,593.

For Daniel Alemayehu, an expert on investment issues and a former employee of the Agency, the measure to revoke licenses opens room for other investors who never had the opportunity to get  contracts from the Agency.

“But where I have a concern is with the root cause of problems on the part of investors to engage in investment activities,” he said.

The Agency should identify the root cause for the failure of the investors to engage in their investment within the time limit they are given. It should identify their problems for not renewing their license on time. Such follow ups will help to minimise the gaps between the Agency and the investors, according to the expert.

Providing necessary support for investors, by way of encouraging them was another suggestion from the expert.

When the Agency cancelled the licenses of 114 investment projects that have been idle for five to 10 years, in July 2013, half of the revoked licenses, all issued by it, were in Addis Abeba, with the other half in Oromia.

Some, like Alemayehu Arega, the general manager of Adinas Agera Tour & Travel Agency, whose license was revoked for failure to renew on time, says the Company is ready to resolve the matter by working together with the Agency. Likewise, the Agency is ready to address such issues, Getahun says.


Published on January 26, 2014 [ Vol 14 ,No 717]



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