The news that the Administration of Prime Minister Hailemariam Desalegn is in talks with a Hong Kong registered Chinese company to divest a reported 40pc of the state-owned Ethiopian Shipping & Logistics Service Enterprise (ESLSE) was met with utter shock by many in the logistics industry and disbelief among some policymakers. Many more are frustrated with the level of secrecy and lack of transparency on how the whole process began and who actually calls the shots.
To date, the manner in which China Merchants Holdings International (CMHI) was invited to the privatization talks and the identities of the counterparts from Ethiopia involved in the process remains unknown. Yet, the Prime Minister has publicly confirmed his administration’s intent to divest certain percentage of shares of the state-owned mammoth logistics firm to a foreign company to raise capital, improve the company’s operating technology, and improve its efficiency.
If many find this approach regrettable, it can be because such is a prescription for a wrongly diagnosed illness of an industry rather ailing from something else. The state-owned company is only a small piece of the larger puzzle on the logistics corridor, which drives many to unbearable frustrations.
Ethiopia has been using ports in Djibouti for over 90pc of its imports and exports ever since it shifted from Eritrea’s Assab and Massawa ports in the late 1990s. In a way, the loss of access to the sea remains a traumatic experience for many Ethiopians, a tragic consequence of Eritrea breakaway from Ethiopia when a 30-year civil war was concluded in May 1991.
No doubt the loss of this comes at a price. As its leaders found out over the past quarter of a century, loss of access to the sea is more than just giving up a title deed for a piece of real estate. Ethiopia shoulders the burden of paying for port services in foreign-owned infrastructure over its investment decisions it has no say.
Add to that the gross inefficiency caused by a monopoly over the ports and on the corridor. It costs more to transport a container from Djibouti to Addis Abeba than to ship the same container from China to Djibouti. Transporting a container in Ethiopia adds an additional cost of 1,000 to 2,000 dollars to a shipment compared to Tanzania and Kenya, respectively, according to a study commissioned by the World Bank.
Three developments since the year 2000 led to this. A directive signed by a former senior government minister, Kassu Illala (PhD), forcing banks not to open letters of credit to importers who fail to use the state-owned national liner or produce waiver from it sheltered the Ethiopian Shipping Lines, the predecessor of the Ethiopian Shipping & Logistics Service Enterprise, from global competition. Although the company made an instant turnaround from its losses and has remained superbly profitable since then, this was done at the expense of consumers across the country.
The second blow to the industry was the introduction of a directive to govern the operations of Multimodal Transport, which otherwise is known as door-to-door deliveries of cargoes. While the directive sheltering the national liner from competition remains in force, adding this was another reinforcement of the hands of the state enterprises operating on the corridor.
The third and the most impactful blow to the logistics industry was the decision to amalgamate the three state enterprises – shipping, maritime and dry ports – as a conglomerate, thus generating much more operational inefficiencies under a centralized command. A self-imposed monopoly on the corridor was created to the frustration and nuisance of many businesspeople and importers over the years.
Reports indicate that the number of dissatisfied and very dissatisfied customers was higher than the number of satisfied or very satisfied customers. Only a few have been satisfied with the services they get from the shipping and logistics sector and many continue to go back to it for lack of options. Around 56pc of clients of the shipping line are not happy with the services they receive, while close to 20pc are very dissatisfied.
This is understandable. The time it takes to import a container is 42 to 44 days, according to the World Bank’s Doing Business report. This is much higher compared to 31 to 37 days it takes on average in Sub-Sahara Africa. The same report finds that there are up to 103 procedures and about 21 documents that are required at different stages of the process to obtain customs clearance. Import and export processes in Ethiopia take about twice as long as it takes in Kenya, Vietnam and China.
The problem with the corridor is enormous; it includes a long chain of intricately intertwined processes that are unnecessary and avoidable.
If Hailemariam’s administration believes it can address the complex and daunting challenges monopoly created here in Ethiopia and over the port administrations in Djibouti by bringing a foreign company as a shareholder, it can only replace a state monopoly by a private one. More alarming should be the involvement of CMHI in controlling a quarter of the Port of Djibouti’s shares, indicating how far the company travels to hold onto the corridor.
The problems on the corridor are beyond the conduct – and rather failings – of one company or an operator. Its impact looms larger than what it does to a particular sector. Inefficiencies and higher costs thereof is an impediment to the growth of the economy, which the government is counting to boost its export competitiveness.
Ethiopia is striving to join the group of middle-income economies, and hoping to transform its economy from subsistence farming to manufacturing, with an eye exporting to the international market. The efficiency and competitiveness of its logistics sector is indispensable in realizing this dream. Exporters, particularly those in the manufacturing sector, cannot afford to see their margin of competitiveness lost to the ineptness of the logistics sector.
What the sector has been deprived for so long, in the false hope of protecting a vested interest of a national liner, is competition. Stubborn state policy not to liberalize the sector and open it up for domestic and international competition emboldened the very few in the state machinery who are bent only on collecting rent.
Yet, the monopoly and the subsequent high cost, whose consequence is shouldered by the end consumer, is not only limited to Ethiopia. The ports in Djibouti too are under the strong hands of a state monopoly. For exporters to be empowered and the operators to work as hard in introducing efficiency and bring down cost, the administration should renegotiate terms with the government in Djibouti and broaden its options to other ports in the region.
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