Ethiopian Business Review

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Why Converting Great Idea into Reality is Defficult for entrepreneurs in Ethiopia

Entrepreneurship is the process of designing, launching and running a new business, which is often initially a small one. The experiences of many successful countries reveal that when entrepreneurs create new businesses, they, intensify competition, and even increase productivity through technological change. This high level of entrepreneurship, in turn, translates directly into high levels of economic growth. Despite this fact, the level of entrepreneurship remains insignificant in Ethiopia. EBR’s Ashenafi Endale explores why it remains undeveloped in Ethiopia. 

The atmosphere at blue Moon Advisory Services, Ethiopia’s first youth agribusiness incubator, located in Bole District between Edna Mall and Atlas Hotel, is, as usual, friendly but serious. So it was on the afternoon of Friday June 8, where almost 20 entrepreneurs were brainstorming in neat cosy room. Bethlehem Dejene, 25, an ambitious, and visionary young lady eagerly talkED about her thorny journey to becoming an entrepreneur. 

“I have had a unique business idea since I was a university student,” Bethlehem told EBR. “My idea involves with establishing a company that produce paper and packaging materials from waste.  However, changing my idea to reality was very difficult.”

Bethlehem knocked on the doors of Micro Finance Institutions (MFIs) and banks in search of financing to realize her dream. However, none of them were familiar with investing in ideas, until she found blue Moon a year ago. “Since I graduated three years ago, I have been trying every possibility to realize my dream. I went to MFIs, individuals and banks, including the Development Bank of Ethiopia, for financing,” she explained.

However, even with the incubator’s support she found translating her idea to a practical application has been a Sisyphean task. blue Moon is a pioneer in its field,  established by Eleni Gebremedhin (PhD) a year and a half ago, to help youth with unique ideas realize their dreams. Eleni is also known as the founder of the Ethiopian Commodity Exchange and its first CEO. 

The company mainly works on nurturing and facilitating finance for entrepreneurs in agribusiness by providing facilities, from laptops and internet to professional consultation for entrepreneurs below the age of 29. blue Moon also assists entrepreneurs to develop their ideas to the implementation stage by creating networks with potential investors. The company itself invests up to USD10,000. 

Currently, Bethlehem’s dream is at the final stage. “The business proposal is already done. We decided to start from a small scale, because producing pulp at a large level needs huge investment. Mine is estimated to cost ETB15 million. We are installing the factory in partnership with blue Moon,” she says. 

Rahel Hiruy, a self-made entrepreneur of 37, also has been through some tough times. Growing up with a mother who was involved in importing cosmetics products, Rahel developed the idea of manufacturing cosmetics locally when she was in grade nine. “I studied pharmacy at university, conducted research and prepared a business plan to produce cosmetics and herbal supplements from plants,” she told EBR. “But I could not get the necessary inputs such as finance, land and manpower.”

After exhausting every option, Rahel decided to start the business at a small scale, with ETB20,000. Five years after she started production, her capital has reached ETB1.7 million. She produces 12 types of cosmetic products, essential oils, herbs and traditional spices.

Still, her troubles are far from over. “I can’t access additional finance for expansion. I asked for 100 hectare of land to cultivate plants. However, the government only gave me six hectares, 600 kilometres away from Addis Ababa in the state of Oromia.” Rahel currently has contracts with 400 farmers to cultivate and supply the necessary plants.

Bethlehem and Rahel’s experiences show the critical issue entrepreneurs in Ethiopia face: there is little room to develop their ideas to the production and marketing level. This is because the country has no strategy, and very few incubation centres and acceleration models that help entrepreneurs to realize their dream. 

“From start to finish, entrepreneurs have no choice except transforming their plans until the final stage,” argues Samuel Efrem, an expert at Precise Consult International, a company involved in financial and investment consultation as well as supporting innovative ideas. “This calls for a new approach and strategy that can nurture and develop the unique ideas conceived by talented minds.” 

The closest Ethiopia came to a strategy that promotes entrepreneurship was 13 years ago, in 20005, when the country introduced the Micro and Small Scale Enterprises (MSEs) development strategy. The strategy focuses on job creation and ensuring urban food security. 

Yet, stakeholders believe that this strategy  no longer fits the current condition. “In Ethiopia, the concept of entrepreneurship is buried altogether in the SMEs development strategy,” says Gorefe Teklu, public relationship expert at the Urban Job Creation and Food Security Agency. “The strategy has no place for entrepreneurs.”

In fact, the strategy fails to address the problem it was intended to address, let alone promoting entrepreneurship. Thirteen years after the MSEs development strategy was introduced in Ethiopia, less than 15,000 enterprises have managed to graduate from micro to small, and from small to medium levels, although close to a million enterprises were formed during the period. 

Dugasa Tesema, acting general manager at the Entrepreneurship Development Centre (EDC) says the MSE development strategy was primarily introduced to develop indigenous industry but remained inefficient.  “In Ethiopia, many people still prefer to be employees, because of the many hardships faced while starting a business,” he says. “Our trade and tax systems are not friendly for entrepreneurs. As the result, starting a business becomes the last resort.” 

EDC is a UNDP programme which helps to develop employment opportunities, especially for young people graduating from colleges and women. The center started its program in 2013. The plan was to adopt the program as a national plan by 2016. However, it was extended to 2020, according to Dugasa. 

Bethlehem explains how inefficient the MSE development strategy is for addressing the problems faced by entrepreneurs like her. “When I went to government offices, they’d tell me to form an enterprise with friends. However, they only support enterprises engaged in a few sectors, which leaves people like me with unique ideas behind. Even at the Ministry of Trade, there is no category under which my business idea falls.”

The experience of Yohannes Abraha, another candidate entrepreneur at blue Moon illustrates the multi dimensional problems faced by entrepreneurs. “The certification and registration as well as patenting processes involve overextended procedures,” explains Yohannes who studied chemical engineering and developed degradable materials and environmental friendly pesticides from plant and animal extracts. 

“I learned how to prepare a business proposal, execute project networks and much more at blue Moon. Then we established a company; production will start after the certification process is over. There is no business category for my project yet.” His project is estimated at ETB25 million.

“The agricultural sector supports close to 85Pct of the population while youth constitute a large portion of the population,” stressed Biruk Yosef, incubator coordinator at blue Moon. “Therefore, nurturing and supporting entrepreneurship in the sector helps to transform the economy, significantly. That is why blue Moon works mainly on agribusiness. The company has facilitated the establishment of 30 companies, and incubated over 60 entrepreneurs in three batches since it was established one and a half years ago.” 

Abraham Hailemariam, director of the Trade and Investment Promotion Department at the Addis Ababa Chamber of Commerce and Sectoral Associations, argues resources are not available for entrepreneurs. “The government provides significant resources for people organized as MSEs but without unique business ideas and innovations, while entrepreneurs go through many hardships. This is wrong; the aim should not be only job creation. Entrepreneurs must get every drop of support, regardless of their attitude, background and political inclination.”

As a result, Abraham says the country must replace or improve the existing MSEs development strategy with an approach that serves entrepreneurs best. “Investing in many more incubation centres is needed. Learning from best practices and experiences from successful countries is also necessary, in order to design an efficient and robust entrepreneurship strategy.”

In the Western Hemisphere, the dawn of the digital age has spread innovation and entrepreneurship. Renowned multinational companies such as HP, Intel, Apple, Microsoft, Cisco, Oracle, Yahoo, eBay, Amazon, Google, Facebook and many other classic companies all started with just an idea. 

Even developing countries inclined to strong government intervention in the economy have fuelled economic growth further by deploying attractive entrepreneurship strategies.  China, where entrepreneurship has grown at an exponential rate over the past two decades, is exemplary in this regard. While the profit of government owned enterprises showed a seven-fold increase between 2000 and 2014, profits of non-government companies increased nearly 23 times. 

China and Malaysia are among the countries that provide special tax breaks to pioneer firms that produce new products and services. India and Korea, on the other hand, adopted small business innovation strategies following the public-private partnership model to provide incentives for entrepreneurs and start ups. 

Sub-Saharan African countries such as Kenya and Ghana also have efficient entrepreneurship traditions. Easy access to finance, tax breaks, intrinsic rewards, and autonomy motivates entrepreneurship in these countries. Policy makers in these countries design incentives based on the uniqueness of ideas and commitment of entrepreneurs. 

Samuel argues that the reason for the inefficiency of the government in Ethiopia, although it works extensively, is the lack of the strong entrepreneurship support observed in these successful countries. “The one size fit all strategy does not work for promoting entrepreneurship. Need-based support, more incubation  centres and changing the mind set are necessary.”

Eyob Tekalign, an economist at Schultz Global Investment sees the bigger picture. “The industrialization policy is rigid and focuses only on a few common sectors like textiles and leather. The industrialization policy must be revised to be flexible, and help new frontiers to emerge.” 

To make this happen, both Eyob and Samuel stress the country must allow various financing scheme such as venture capital, future contract and lease financing to grow. 

According to Dugasa, who was involved in the preparation of a new strategy, the drafting process of the National Enterprise Strategy is now at 70Pct completion. The Ministry of Industry is the main actor in this process. In the strategy, entrepreneurship will be included in the education curriculum. Regulatory frameworks in trade, registration, licensing, tax, innovation, supports and incentives will be improved, according to Dugasa. 

“So far entrepreneurship efforts are fragmented, and efforts are duplicated. The strategy will solve all these bottlenecks. Financing will be provided if the idea benefits society. The main job will be equipping entrepreneurs and detaching them from dependency syndrome,” he explained.

Yet, Dugasa underlines, the MSEs development strategy should be efficiently utilized. “Universities must establish more incubation centers and start developing ideas up to the prototype level.”

Samuel agrees with the notion that higher learning institutions must work on entrepreneurship. “Many research papers are shelved at various universities. I do not think universities lack finance, just commitment. They must start to go further than conducting research.”

On the other hand, Eyob stresses that minor adjustments alone will not help to fully reach the potential of entrepreneurs like Bethlehem and Rahel. Unless the government completely acknowledges the importance of the private sector, entrepreneurship will not bloom. The entrepreneurship strategy underway must target to fully address problems facing entrepreneurs by adopting new approach that fits the current scenario rather than making some adjustments and improvements,” he said  EBR


6th Year . June 16 - July 15 2018 . No.63


 

 

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