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My thoughts as the 3rd GERD anniversary is celebrated - Part three

Part I    Part II    Part III

By Orion Demame
Tigrai Onlne - April 06, 2014

Construction progress of the GERD on the 3rd year Anniversary
Construction progress of the GERD on the 3rd year Anniversary - march 2014

The agricultural sector

Ethiopia should protect its traditional crop and cotton seeds.  We all know where the world is going now.  We should be aware that the few agribusiness multinationals are out to control the food and water in the world.  Monsanto is the foremost among these.  It has caused a lot of misery to millions where ever it puts its foot.  It has become the most powerful and vicious company in the world.  What it does is that it corrupts politicians and governments to allow their farmers to accept to use its Genetically Modified (GM) seeds.  It also corrupts the academics so that they can indorse their illicit and unethical business model.  But the use of GM seeds has become a curse than a blessing to the Canadian, American, Mexican, Brazilian, Indian, etc. farmers.  Once farmers start using GM seeds, the soil will never ever grow other seeds so as to use crop variation in the traditional sense.  The farmers will totally be dependent on the GM seeds only.  There are plenty of litigations against Monsanto in the US, Canada, India, Brazil, Mexico, etc.  But it has become real difficult to win over Monsanto due to its very sophisticated and powerful army of lawyers.  As a result, hundreds of thousands of Indian farmers have committed and are still committing suicides following the indebtedness to Monsanto.  Certainly, Ethiopia and Ethiopian farmers don't want that.  The GM seeds include edible crops as well as cotton seeds.  So the only option is to keep Monsanto far away and not to think about it ever.

The much talked-about oil sector

As I see it, all resources in the ground are the properties of the Ethiopian people.  It is very important to be wary when signing agreements with so called foreign investors especially in the mining sector.  Often times, foreign companies are bent on deceiving governments when they inappropriate land for mineral exploration.  They give empty promises saying that you will earn lots of money, etc.  By the time the country realises it is not getting what it was promised, then it becomes too late to dishonour the contract due to some binding clauses.  The foreign companies would also take the case to be judged in their own countries under their legal systems that give them full protection.  Before awarding contracts, the Ethiopian government should make a through checking of the contracting companies.  It should know its financial viability, technological knowhow, logistical capabilities, work ethics, project delivery rate, litigation history, etc.  Then contracts should be formed in such a way that the companies would cover their capital expenditure, operational costs and reasonable agreed profits.  It should also never ever allow disputes to be considered under the jurisdictions of the foreign companies as they happen.  The Ethiopian legal system is as good as any other system and even better in some instances.

Ghana is now bleeding because it signed a contract giving away 95% of its resources in the ground.  I don't know for how many years though, definitely several decades.  Let us for a moment take a highly simplistic example of oil exploration and production contract with the Ghanaian scenario.   If Ghana is producing 500,000 barrels a day at US$100/barrel for 365 days, its annual earning will be about US$1 billion while the foreign contractor takes home over US$17 billion per year. If the total cost up to production is US$2 billion, this cost would have been paid in full and would have already made a profit of US$15 billion in the first year alone.  If the contract is signed for 30 years at which time the resource would have been exhausted, then Ghana would have surrendered over US$500 billion out of the total US$547 billion worth of its resources to foreign companies without benefitting itself.  Why should it be like that?  These types of business deals are definitely the sources of dissent.

Angered by the attitude of the multinational mineral and oil extractors, President Yahya Jammeh of The Gambia ordered a representative of an American oil giant expelled from his country and warned him not to come back ever.  This is because he felt committing crime against The Gambian people if he accepted 5% for its oil wealth and give away unconscionable 95% for the extracting foreign company as the American representative suggested.  This disproportionate formula is not limited to the oil sector only but foreign multinational companies apply it to other mineral extractions as well.  What is alarming is that this disproportionate sharing of the revenue is punitively applied to Sub-Saharan African countries only.

We have noticed that foreign oil companies are not ready to do business in Ethiopia.  There have been many companies that searched for oil in the Ogaden region.  They all left giving flimsy and dismal reasons such as security issues.  Even China that is hungry for oil, gas and other resources seems to be deterred from proceeding.  There was a Canadian company who claimed that the oil that was found in Gambela was commercial quantity and that it would start production soon.  But then it just left faster than anything.  So how do we know that countries like Arabia are not behind all this?  For instance, if Arabia does not want an economically strong neighbour Ethiopia, it has the financial might to either threaten these companies or offer them huge sums so that they shut and leave.  I was given to understand by a person with knowledge of the oil sector that for companies to shut and go, the only reason must be that the quantity is so huge and would be a concern for political instability.  If Arabia is concerned about this, so will US due to their strong all round treaty between them.  By the way, why is the Saudi citizen Mohammed Alamoudi not interested in oil and gas exploration in Ethiopia?  His Coral Petroleum Company would have been the first to get it unless constraint is put on him. 

So what Ethiopia should do is one of or a combination of the following if it wants to get significant benefit out of its oil resources. 

  • One way is to give concessions to Western foreign multinationals often termed as "the first Seven Sisters" (BP, Chevron, Esso, Exxon, Gulf Oil, Shell and Standard Oil) on a fair deal basis similar to that in Saudi Arabia and other Gulf states.  A deal less than a majority of the earnings is an extremely bad deal for Ethiopia.  Ethiopia should have up-to-date full knowledge of what and how much is produced and the amount exported at all times.
  • Explore and extract on a joint venture scheme with foreign companies for a limited number of years.  Over all management should be reserved to Ethiopians and the quantity produced as well as quantity exported should be transparent.
  • The only option that would empower Ethiopia is to start a local public company.  It needs to establish an Ethiopian national oil company with full government ownership that will do the exploration, extraction and distribution.  This national company will join "the second seven sisters" (Brazil's, Petrobras, China's China National Petroleum Corporation and Petrochina, Iran's The National Iranian Oil Company, Malaysia's Petronas, Russia's Gasprom, Saudi's Saudi Aramco, and Venezuela's POVSA all of which are wholly government owned) and become "the eighth sister".  This would allow Ethiopia to manage its own resources and make it full beneficiary.  In order to do that, Ethiopia should open an 'institute of petroleum studies' in one of the universities at MSc level.  It should also identify all Ethiopians working in various oil companies all over the world who have accumulated experiences and involve them domestically.  The Metal and Engineering Corporation is now capable of producing the necessary machineries for the oil industry locally.  What Ethiopia needs is to employ expatriate experts and skilled workers where there is deficiency.  This is the most preferred option for Ethiopia as it will have full ownership and control of its resources. 

Capitalising on Ethiopia's other resources

As the late PM Meles once noted, Ethiopia should work hard to capitalise and benefit from the resources it has.  First things first though.  With population explosion and economic growth, world food consumption would rise.  The land and the water that can produce this food are scarce in most places but abundant in Ethiopia.  The other resources are the good weather and the skilled young manpower the country is endowed with.  If these factors of production are combined with modern farming technology to bring the level of food production to the frontier, then Ethiopia could feed the rest of Africa.  Furthermore, if Ethiopia works in union with Sudan, both countries could feed the world.  Ethiopia has already shown that it can build a solid economy without the blessing of the oil. 

The abundant tourism destinations that the country possesses are another marvel.  It only needs to be well organised and accessible to visitors.  This industry needs creating highly attractive environment including hotels, restaurants, roads, recreational centres, libraries and information centres that are up to the international standard and beyond.  Accessibility of fault frees telephone (both land line and mobile) as well as fast and reliable internet at all destinations is not an option.  It is absolutely a must.  The availability of professional tourist guides is a prerequisite though.  Then marketing it is the crux of the matter.  I don't think it is a good idea to intensify on the marketing of tourism destinations when there is a lot lacking.  Once this is done, intensified marketing in China only could enable Ethiopia to benefit from the over US$360 billion the Chinese spend overseas annually in tourism. 

Then there are the energy and manufacturing sectors that are bearing fruit.  In my opinion, Ethiopia should stop bothering on oil exploration for now.  Once it has built its economy, it can take the oil by itself without surrendering its God given resources to the vultures (the seven sisters and their cousins).  For that matter it wouldn't even be possible for Ethiopia to know how much is extracted because there is a lot of theft, deception, etc. in the oil sector.  Also, Dr Mohamed Alamoudi would have been the first to go into the oil sector through his Coral Petroleum Company unless there is sufficient reason that he knows not to do so. 


One of the most lucrative businesses in the world at present as well as in the future is the pharmaceutical industry.  Most of the medicines in the world are made from herbs, leaves, roots and trees.  The flora in this country is so rich that there are only few countries elsewhere that can compare it.  There are also ample evidences from the traditional medicine men to suggest that Ethiopia could significantly benefit from this gift that nature has abundantly bestowed it.  It has not done in the past but it should be about time to turn this around.  Now that there are so many universities in the country, all or some must be encouraged to train highly bright students in pharmacology and the like.  The traditional medicines must be given scientific measurements and standards and should be patented.  Foreigners should not be allowed to come and benefit from our flora and tie the hands and minds of Ethiopian future generations with their nonsensical intellectual property and patent rules.  If allowed it must be conditional that Ethiopia would claim proprietary or share ownership.  This way, Ethiopia could have a very strong position in the global pharmaceutical industry.  Speaking of intellectual property and patents, these are the two most important ploys with which the haves control the not haves.  I have no problem with both concepts though.  My worry is how long should the exploitation continue.  For instance, a 16 year old who is musically gifted sings a song that became a hit over night.  The work may have taken a week or two yet the intellectual property law entitles him/her to claim royalties for the rest of the life of the singer (e.g. 70 years, assuming he/she dies at 86) plus additional 50 years after his/her death.  Does it make sense?  Not to me.  But this is a ploy by Hollywood who controls and benefits from all this.  So Ethiopia has golden opportunity in not signing or at least, it should give it a very hard thought and look into 300 to 500 years ahead.

Dealing with corruption

Corruption is the worst crime for a country because it has the behaviour of embezzling public assets, halting local and foreign direct investment, retarding development, discouraging entrepreneurship, frustrating creativity of citizens, exposing citizens to migration and can further be a cause for conflicts and political destabilisation.  But the worst of them is signing a contract for oil exploration concession to foreign companies for a dismal 3%, 5% or 10% royalty of the earnings, thus, handing over the rest to the foreign companies.  More so, it is absolutely a crime to allow the foreign companies to keep the earnings in offshore banks instead of bringing them to the countries from where exports were made.  The foreign companies would never think of offering such deals to the Middle East and Gulf States because it is the owners of the resources in the ground that get much of the benefit.  So contracts over allowing concessions to foreign extracting companies of oil and mining should be highly scrutinised by the parliaments the General Auditors Offices and other relevant bodies.

The Ethiopian government shouldn't expect to attract foreign investment no matter how much it tries if there is corruption in the country.  Investors don't just want to move to a country where corruption is rampant and would be a bottle neck for their business concepts.  They would be attracted to countries where there are resources including skilled and cheap labour.  But price competitiveness by itself is not sufficient criteria if they can't do their business fast, efficient and smooth without any sort of rent seeking whatsoever.  Some local contractors in the construction industry are also involved in cutting corners by using substandard engineering materials and works.  Some of them are even so greedy they take contract beyond their financial technical capacity.  They also tactically procrastrate projects so as to claim price increase of materials and therefore raise the cost of the project.  Some of these crimes are done in tandem by all contractors involved.  So in order for the government (owner) to safeguard public money,

  • It should be absolutely sure of the technical and financial capacity of the contractors.  It should also know that the contractor would use the best material that would strictly confirm to the material standard prescribed in the specifications.
  • It should demand from the contractors’ bank guarantors to be submitted together with the tender documents.  What this does is that it protects the owner from loss of its resources in the event that the contractors fail to deliver.  The construction contractor should also demand a bank guarantor from the material supplying contractors and other sub-contractors.  Copies of these should be handed over to the owner of the project at the time of submitting the tender document.  In other words, copies of guarantors should be part of the tender documents that are submitted at the closing dates.  Alternatively, these documents could be submitted soon after winning the contracts and before work formally begins.  This insures that the materials contractor would supply the right materials according to the specifications.  The guarantor banks should also be scrutinised for their viability in cases of litigation over failure of the contractor to deliver strictly according to the specifications of the project and on time.  This is a normal procedure practiced in the UK and elsewhere in the developed world.
  • Contract awarding body should never pay cash in advance.  Payment should be made in trenches on the basis of the work progress.  So first trench (e.g. 30%) should be released after the owner is satisfied that 30% of the work is accomplished.  The last trench would then be paid after 100% completion and full satisfaction.  There must be grace period for determining full satisfaction as well.
  • We have heard some projects such as roads and bridges have been broken within months after completion.  Residents were evacuated from a building that was tilting couple of years after completion.  University buildings leaked before they commenced work.  Sub-standard hospital buildings were accepted as satisfactory only for the massive defects to show soon after commissioning.  There are so many cases like these all over the country.  The behaviour of these local contractors can't be accepted.  One mistake is too many.  So owner must see that there must be a clause whereby the contractor and its guarantor will be held responsible for failures that can emerge up to two or 3 years from completion depending on the project.  Tax payer’s money should never ever be squandered in this way.  That is why the owner of the projects should get its money back from the guarantors of the contractors.
  • Very harsh prison sentences including capital punishment should be given for those who perpetrated for capital gains rather than lack of capacity.  China can't tolerate such behaviour and does not shy to execute those found guilty.  So if we say we have a lot to learn from China, why not, this is the one.

Similarly, hording of consumer goods is another crime against country and people.  It is an economic sabotage that has the potential to be a cause for riots and conflicts.  The government should consider hording as a very serious crime that can't be taken lightly.  Any citizen or groups of citizens found hording consumer goods with the intention of creating scarcity in order for them to make huge profits by raising prices should get capital punishment with immediate effect.  This process has to be repeated as long as it takes until the so called Ethiopian quasi business community gets it.  Some companies started hording consumer goods during the initial period of the Derg regime and were immediately executed.  One of the executed executives (in connection to hording salt) was a person that I know.  I don't mean to subscribe Derg's actions but this was the one and only good decision it made and there was no more hording that took place for a considerable time after. 

One way of controlling crime and corruption is to control on the payment system.  What I mean by payment system is that business to business cash transactions should be discouraged by all means.  Payments should be made from an account of the buyer to an account of the seller through the banking system.  Big quantity cash withdrawals should be discouraged.  I heard recently that a holder of Commercial Bank of Ethiopian ATM card can withdraw ETB50, 000 per day (about £1600).  For one of the poorest countries in the world this is really very generous unheard of anywhere in the developed world.  For instance, the maximum amount an individual can withdraw in the UK is £300.  One needs to go to the counter if he/she needs to withdraw more.  Also, it is very important that banks know the source of the cash money if people come with huge sums to deposit in their account.  This would be an effort to fight corruption and money laundering.  Banks must be held responsible for involving in money laundering and financial crimes.  They should, therefore, ask for the source of that money and get solid evidence.  More so, they must have a forensic financial investigation unit that would facilitate information as and when suspicious transactions occur.  All suspicious transactions and possession of big quantity cash money whose source can't be ascertained should immediately be reported to the police.

All salaries and wages should be paid to the bank accounts of the work force, whether private or public.  So people must be encouraged to open saving accounts.  If anybody is told that his/her salary/wages can only be paid to a bank account then they would be forced to open accounts.  This would directly boost savings in the country. 

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