Manufacturing investment boom in Mekelle signaling environmental concerns
Mulumar Kiros May 7, 2017
I had the pleasure of travelling to Mekelle, the seat of the Tigray Regional State, last week and the Southern Zone of the region on a five-day fieldwork assignment. Before landing at Ras Alula Aba Nega Airport, I glanced down at the northern star only to get astonished by its rapid expansion: its tall buildings, large industrial estates, and large construction of residential buildings. I received a humble welcome from one of the taxi drivers and got a ride to my hotel. No less was I impressed seeing on my way to Pepsi Factory a large billboard reading, “Welcome to the City of Knowledge”. A great branding, I said to myself.
Although, I was there ten years ago and had information about the city’s fast growth, I was little prepared for such development in all aspects in just a decade.
Right after the demise of Derg, Tigray gave priority for environmental rehabilitation and agricultural development, expansion of education and health facilities. Now, after 25 years, the region has over a million of educated, relatively well-fed and healthy youth. The region has four big public universities with over 100 faculties and departments that are sprawled over different campuses located in the main towns of the region. The cornerstone of the fifth and international university, i.e., the Pan-African University was laid last week. These together with 12other private university-colleges as well as hundreds of technical schools and training centers have tremendously improved labor productivity and business aptitude of the youth.
I came across an entrepreneur who has two factories (one is located somewhere in the eastern industrial corridor of the country and another in Mekelle) and discussed about the performances of his manufacturing businesses. He said, he came to Mekelle this time to start construction of additional factory because he found the potential market for his products is excellent while labor productivity in his Mekelle facility is much higher than his other factory. Because of this and other reasons such as the peoples’ obedience to the law and order as well as peace and security in the region, his factory in Mekelle is producing at full capacity level of production and his overall business there is expanding at a fastest rate.
I also had the chance to talk with other business men who reside in Mekelle at different occasions. The first business man has well operating nails factory and is expanding his business to different manufacturing businesses including cold rolled products, concrete pole, etc. and the other one has a cold rolling steel factory and is planning to install hot rolling facility. I queried these entrepreneurs about the business environment in the region. To my surprise, their answers were the same and very inspiring. They said, investors need to show their commitment to get a land in just a month almost free of charge if it is outside the industrial zone. If the land is within the industrial zone, they charge him like 4,000 US$ per year for 100,000 M2. I also witnessed that senior authorities and experts of the region were trying to persuade foreign and local investors to invest in the region and facilitate investment processes on their behalf.
The investment incentives allow a minimum of five-year tax holiday and all machinery and equipment are imported duty free. All imports of raw materials that will be used for the production of manufacturing exports as well as all exports made from the country are tax free. Both entrepreneurs whom I talked to said the benefit for the regional government is the employment opportunity these factories are creating for the youth, income taxes collected from employees, excise taxes of some products (like beer) as well as taxes collected from matured industries, i.e. those operated for over five years.
As a result, these days, except with imported items, all major industrial products that have been brought from Addis to Tigray and the nearby regions are substituted to a larger extent by produces from Mekelle and its environs.
Two days in Mekelle, we made our way to the south: The Alamata – Mehonni area and is where fully irrigated smallholder and commercial horticulture farms are located. I was pleasantly surprised by the greenery of the area, the hard work of the farmers and their products. Golgol Raya is designated as a horticulture corridor of the country, an area where over 6,000 hectares of land is already irrigated with ground water of no less than 65points that are all connected to the national power grid. These days, the production of horticulture products (in both quality and quantity) from Golgol Raya is not less than the famous Mojo-Meki-Zeway horticulture corridor of the country. However, in this area, despite the continued efforts, only less than 5% of the potential land is irrigated as at present. If coverage is achieved 50% in ten years, then this area will be transformed into one of the globally competitive horticulture centers to be spotted in the horticulture world map.
The no-war-no-peace situations with Eritrea and the inefficient logistics services in general have been the major challenges of investment to the regional state. Fortunately, the undergoing construction of the state-of-the-art railway route that connects Mekelle to the Djibouti port will start operation in about two years. This will slash the distance between Mekelle and Djibouti port to only 520 Kms compared to 900 Kms of Djibouti-Addis Ababa. The completion of this project alone will significantly divert the traditional trade route (Djibouti-Addis and then to the north, northeast, and northwest regions) towards Djibouti-Mekelle and to the rest of the north, northeast, and northwest regions. Indeed, this great logistics services development together with the most efficient industrial engineering services that exist in Mekelle plus the high labor productivity will certainly compliment Mekelle as the best destination of manufacturing exporters.
Improvement of relations with Eritrea is vital for the growth of both Ethiopia in the north and Eritrea. Recently, the Ethiopian government has drafted a new policy and implementation strategy to solve the Ethio-Eritrea problem and hopefully this will bring lasting solution towards Eritrea. With the proper implementation of this new policy, my expectation is in 5 years, Eritrea and Ethiopia will establish an exemplary friendship, neighborhood and economic integration. Our Eritrean sisters and brothers will have to be free from their current political predicament to move in and out of their country; and free to work and live either in Eritrea or Ethiopia. It is so painful to see the two brothers and sisters of people on opposite sides of an evil wall erected by their enemies who are repeatedly defeated. For anyone with a sense of responsibility to our people and history, it is a shame to see a wall separating Axum and Adolis: same people, same identify, same language, same culture and common history. Such will be the time to see Eritreans realize their distant dream of developing the African Singapore through hard work and real cooperation. By then, the distance between the port of Mersafatuma (small but potential) to Adigrat and Mekelle will be less than 70 Kms and 200 Kms respectively and from Massawa port to the two towns are respectively 300 and 400 Kms. This will no doubt enhance the efficiency of the logistics services in Ethiopia allowing an easy movement of Ethiopian goods and services to and from the country.
Over the past two decades, Tigray regional state was leading in the rank of efficient utilization of resources. A recent research was conducted on the relative production efficiency of regional states, using stochastic frontier analysis with time series of regional budgets, cultivated land, investment, labor, etc. as input variables and regional GDP (gross domestic product) and other development indicators as output. In calculating this, the research defined the socio-economic role of a government as using human, financial and physical capital (as inputs) to bring about economic growth as well as to produce healthy and productive people (as output). The main objective of the thesis was to see how production efficiencies have been affected by a number of economic and social factors in the country. His findings were very astonishing, indeed: Tigray’s performance was second with a very close magnitude to that of Addis Ababa Admin Region. For my curiosity and with the intention of cross checking some of the research findings, I just browsed in the internet and got data related to investments that entered into operation phase over the past eleven years. I had also data related to micro and small scale enterprises in operation as of 2014. Below is the summary.
Large and medium scale private investments: Over the past 11 years (1997-2007 E.C.) an aggregate of 2,876 private new investment projects who invested an aggregate of Birr 28.96 billion have commenced operation in Ethiopia of which Addis Ababa Administrative Region took the major shank of Birr 15.14 billion (52.3%), Oromia mainly Addis Ababa Zuria Special Zone 6.7 billion (23.1%), Amhara 1.85 billion (6.4%), Tigray 1,834 billion (6.3%), Southern Nations 379 million (1.3%) and other regions including multiregional projects on aggregate shared3.06 billion (12%). (Source: Ethiopian National Bank, 2014/15 annual report, annex tables). Based on these and taking the human population of the respective regions, Tigray has always been second in per capita investment following (in this case at a distance)to Addis Ababa.In fact, recently, as the saying goes as “blessing in disguise” following the attack over the Tigrians and their hard earned properties in the rest of the country, investment in Tigray (from the national investors)has grown at a pace that has never been seen in the region over the past 26 years. Unlike, the preceding decade, which EFFORT’s investment on manufacturing constituted the major share, this time small and medium private investments had a lion’s stake.
FDIs are also scrambling to acquire land in Mekelle and environs. So far, several globally renowned suppliers of different products such as Velocity Garment, Volvard Foods, C.C. Steel and over 50 other FDIs have acquired land which some of them have finalized preparations to source their products from their Mekelle industries. The successful completion of these manufacturing projects plus the fresh investment of EFFORT in gold and iron mining, chemical projects, etc. coupled with the undergoing major industrial parks development in Mekelle and Baeker (Humera) are also fueling investment and economic growth in the region and the country.
Besides its trend, the investment portfolio of the city exhibits an interesting peculiarity. The lonely auto-engine manufacturing in Sub-Saharan Africa (Ethiopian Power Engineering Industry-EPEI); the second gold miner in Ethiopia (Ezana); the only European auto assembly in Ethiopia (Mesfin); the largest windmill in Africa (Ashegoda); largest corporation in Ethiopia (EFFORT); African leading microfinance (Dedebit); African largest and state-of-the-art bio-technology (TBC); Ethiopian largest garment producer (Velocity-Ethiopia); Ethiopian brainy IT specialists producer (Ayder); etc. etc. are all headquartered in Mekelle. And a lot more are coming soon.
What I suggest to my fellow Ethiopians who have the capacity to invest is to enter Mekelle immediately. You can see the offers of the last time land lease tender number 58 and 59. The average land lease offered per M2 in the downtown was US$ 650 against US$ 45 five years ago (i.e., 15 fold in just five years). Currently, land is almost free of charge for manufacturing enterprises, but trust me, three years from now this privilege will never exist and cost of entry will be Vvery high.
Establishment of micro enterprises: Taking the year 2014 (recent data available), an aggregate of 217,636 micro enterprises have been established throughout the country (source: Ethiopian Small and Micro Enterprises Agency). Out of these, 10,061 micro enterprises (4.6%) were registered in Addis Ababa, 72,487 enterprises (33.3%) in Tigray, 95,347 enterprises (43.8%) in Amhara, 28,688 enterprises (13.2%) in Oromia, 9,467 enterprises (4.3%) in SNNPR and other regions on aggregate took 1,586 enterprises (0.7%) of the national figure. These micro and small enterprises (SMEs) are the basis of industrial development and future national corporations of the country. Despite the glorious record in the development of micro enterprises of the region, however, the region’s performance in creating access to finance to these enterprises is low (i.e., only limited to Dedebit Mico-finance). Out of the 20 billion Birr loaning plan of the Ethiopian government for the development of SMEs, (10 billion Birr through DBE for lease financing and another 10 billion birr of revolving fund through CBE), the performance of Tigray’s DBE and CBE districts was insignificant, making the situation completely absurd. This must be changed or reformed in the next fiscal year.
Neither have I found investments in the hospitality industry. Tigray has in excess of all types of tourist attraction sites (Christian and Muslim religious and historic routes, nature and culture) and three international as well as one local airports. The region can also synergize with the global wonders of Afar tourist sites that are located in less than 100 Kms of high quality asphalt road. So, Tigray needs a big push of investment in the hospitality industry and perhaps EFFORT together with other private investors should play a leading role. Also, the regional government has to work hard to convince federal authorities to open a full-fledged regional immigration office in Mekelle to expedite a direct flight from the tourist potential countries to the region’s tourist sites.
Agricultural labor productivity has also improved to a greater degree. That is why despite the last two consecutive years when the El-Nino and La-Nina have made their hardest hit, the environment of the region withstood it and as a result there has no incidence of starvation in the regional state. Thanks God!!
Ten to fifteen years ago, when other regions (on the left and right) were spending their budgets on the construction of big buildings to house different bureaus and for the beautification of asphalt roads of regional cities, Mekelle was almost dusty and the regional government was busy spending its money on education, health, rural roads, and expanded these facilities deep into the very remote rural areas. The people of Tigray, through their respective local Shengos, have also passed penalty for those families who do not send their siblings to school. The rural poor have also unanimously agreed to conserve water and soil of the highly degraded mountains of the region free of charge for over one month every year. After 20 years, almost all mountains are terraced and the water holding capacity of the region has tremendously improved. Now, I understand why the regional government and the people have chosen the way they have been coming over the past two and half decades.
One issue which the regional government has to plan ahead is its environment management. From the visit I made to the industry zones, I have seen inadequate preparations of mitigating environmental pollution.
Have a blessed day!