Lessons for the Private Sector: the Ethiopia Amalgamated Ltd Case

The saga of what prompted the government to auction the assets of Ethiopia Amalgamated LTD through its bank has been played out in the media for the past few months and it is hoped the case has helped many private businesses to evaluate the precariousness of their own positions and to draw hard-learned lessons.

Although the Ethiopian government overtly pledged allegiance to free market principles and invited the private sector to participate in the economic development of the country, it covertly pursued policies that favored party owned enterprises to engage in commercial activities such as fertilizer importation and distribution to create steady revenue streams to finance party activities to the determent of genuine private sector companies, and the poor Ethiopian Farmers who live from hand to mouth.

Taking the declared policy of the government and the terms of the bilateral agreement the government entered into with donor countries at face value, Ethiopia Amalgamated LTD continued to engage in essential commodities (fertilizers) trade, offer services to farmers at competitive prices, and help them to market their outputs locally and regionally at fair returns. This obviously went against the grain of the covert policies making the company the target of discriminatory practices such as the unilateral cancellation of contracts, denial of access to the fertilizers market, frustration of sales and distribution contracts, intimidation and harassment of Amalgamated's appointed agents, application of discriminatory interest and service charges by banks etc.

EAL is proud to have played a vital role in the life of the Ethiopian farmers. The 10 million Birr paid by party owned enterprises in excess of the price offered by EAL for the same type and quantity of fertilizer could have fed for at least a year ten thousands Ethiopian's that go daily without food.

Ethiopia Amalgamated LTD has never denied it borrowed money from the banks to run its business, but the record has to be set right that the ballooning of its debts was caused by the hostile and discriminatory measures taken by the government in the bid to make room for party owned or affiliated businesses in direct violation of agreements signed with the donor agencies and its own declared policy. As a regular course of business practice for over 3 decades, EAL regularly borrowed and paid the principal and interest. What is being contested and on the pretext of which the assets of the company are being auctioned are the arbitrary bank service and interest charges that accumulated as a result of actions taken by the government to drive EAL out of the market for party owned enterprises to take over its fertilizer business. The party resolution of June 1992 that came to our attention recently clearly reveals the government's decision to control the fertilizer business for the economic and political gain of the party.

CBE claims that EAL owes birr141million, while the actual loss suffered by EAL as a result of the discriminatory practices described above amounts to birr 200 million excluding the claims by suppliers and service providers and the damage to goodwill that EAL worked hard to build. The government has not demonstrated any willingness to come to a roundtable and reconcile the claims and counterclaims. The government must own up to the consequences of its own actions and engage in a constructive dialogue with EAL to establish the level of actual debt owed and the means to settle it. Had it not been for the discriminatory and unfair practices waged by the government, EAL would have had no problem in meeting its financial obligations. EAL's history of over 35 years attests to this fact. In spite of the problems EAL was facing, it should be known that it paid over birr 150 million to the government in the form of taxes and interest charges.

Ethiopia Amalgamated has brought the injustices it suffered to the attention of the Ethiopian Parliament, the Chamber of Commerce, the Ethiopian Employers Federation, the Confederation of Ethiopian Labor Unions, the Ethiopian Economic Association and the international community that have Ethiopia's economic and social development interests at heart. EAL is still waiting to hear their verdict. We are confident that these institutions will contribute their share to ensure that justice will prevail before the auctioning of the company's asset is closed.

In addition to the above, the dispute has also been brought to the attention of the highest officials of the country in the manner described below. Running parallel and closely linked to the debt repayment dispute is the international arbitration proceedings currently ongoing between the government through its Banks on the one hand and EAL on the other hand for the unilateral cancellation of a valid contract for the sales and delivery of 75,000 metric tons of fertilizer affecting several suppliers and service providers of different countries.

The Corporate Council on Africa (CCA) played a vital role in attempting to bring the dispute to a resolution by bringing it to the attention of the Prime Minister of Ethiopia. The CCA is a respectable organization that is engaged in promoting trade and investment between the private sector in Africa and the 182 American Corporations and individuals that CCA represents of which 85% have invested in Africa. It is while all the above efforts were being made that EAL's assets were put on the auction block and its employees were disbanded to join the ranks of the unemployed.

What the public has to know is that the measures taken against Ethiopia Amalgamated Ltd are symptomatic of the aversion the state harbors towards the private sector which will sooner or later spill over to others that are considered a threat to businesses that owe their survival to party affiliation.

What the economic managers of the country should realize is that the role of the government should be to create the environment that enables private business to operate freely, to generate employment and contribute its share towards alleviating poverty, the enduring enemy of the Ethiopian people. Without the participation of private business no meaningful growth and development could be achieved. Companies like EAL generate much- needed employment to university, vocational school graduates and citizens of other class. EAL had created significant employment opportunities, paid a substantial amount in taxes and bank interest and in so doing contributed to economic growth in a more tangible way. It is mind-boggling to close private businesses such as EAL and dismiss its employees to serve partisan interests in a country where unemployment is rife and deeply pervasive. The perception that Ethiopia's problems could be solved by the intervention of party owned companies alone needs a radical rethink. All able-bodied Ethiopians must participate in the search for solution and in its implementation. History and the future generation will judge us harshly if we fail in this endeavor.

The amount of fertilizer Ethiopia utilizes annually compared with the size of population that needs to be fed is extremely minimal. For example, Kenya whose population is less than half of that of Ethiopia (32 million) purchased 141,000 metric ton in the year of 2000, while Ethiopia with a population of 70 million imported 157,000 metric tons. Clearly, the per capita use of fertilizer in Kenya is double that of Ethiopia despite the small size of its population. Egypt, with a population of 75 million bought 1,270,000 metric tons of fertilizer in the same year, comprising nine times the quantity utilized by Ethiopia. The lesson that should be drawn from these examples is that it would be prudent to expand the market for fertilizers by pursuing policies that enhance the purchasing power of the farmer and encouraging the participation of as many companies as possible in the fertilizer business than giving party owned enterprises a monopoly over a limited market. Such policies enable the farmer to obtain inputs at competitive prices and market its outputs at fair prices.

With the intention of mitigating its losses and damages, Ethiopia Amalgamated Ltd had submitted a business plan through which it intends to service the debts imposed on it by government action without prejudice to all its rights. Ethiopia Amalgamated Ltd has made it clear to the bank that the proposed plan is of the parties mutual advantage.

We trust the private sector will stand alongside Ethiopia Amalgamated Ltd. and its employees and make sure justice prevails in bringing this case to a speedy and satisfactory conclusion. We look forward with great anticipation to the action the Ethiopian Parliament will take to bring this issue to a satisfactory conclusion and to reassure private businesses to continue to participate in national development efforts.n