The new 800km Addis Ababa-Djibouti railway line is on track to open fully this year and its anticipated impact on the socio-economic development of the country, and indeed the region, is expected to be dramatic. The result of new technology, talent and trust, it comes just months after the Ethiopian capital inaugurated sub-Saharan Africa’s first light rail system, similarly signaling rapidly changing times in the country and its unprecedented economic optimism. Dr Getachew Betru, CEO of the Ethiopian Railways Corporation, reveals just what the project – a central link in a vast planned railway network – means to one of the world’s fastest growing economies and its people.
Africa is a growing investment destination for both established and emerging economies and, as President Obama stated last year, it is “the continent with the greatest potential”. Could you please discuss the prominence the continent is gaining in the international arena?
Africa’s predicaments have changed during the last five or six decades since the withdrawal of the European colonial masters. Back in the 1950s and 1960s, we Africans were actively engaged in issues of pan-Africanism. The likes of Nasser, Nkrumah, Haile Selassie, and Senghor were all focused on the pan-African flag. This did not last for long, and then came the 1970s & 1980s when the military juntas took over. During the 1980s and 90s came a new generation of Africans. These third generations of Africans, including the late PM of Ethiopia Melese Zenawi, understood that the challenges of Africa are not black and white issues, but economic transformation and maintaining peace.
I believe now the game has changed for Africa. We are in the era of the “African Renaissance”. We are experiencing it today.
In case of Ethiopia, we cannot be an isolated case; the Government of the Federal Democratic Republic of Ethiopia follows a clear strategy towards development. The economic growth that has been attained did not come by accident, but by good leadership, well-crafted strategy, and policy. This has been successful on the first Growth and Transformation Plan (GTP I) and will continue to produce results during the second Growth and Transformation Plan (GTP II). This is the railway engineer’s view of Africa; this is how I see Africa. There is a big shift from pan-Africanism and anti-colonial thinking towards developmental thinking, towards infrastructure building. Countries like Ethiopia and Rwanda are good examples and there will soon be many countries similar to these.
Road and railway projects are a major element of the GTPs as a means of connecting Ethiopia’s growing economy to the regional and global trade routes. Transport Minister Workneh Gebeyehu told us “the development of a country cannot be confined by the borders of that country.” Could you please discuss Ethiopia’s regional integration efforts to foster intra-African trade and even peace?
Africa is a huge land mass and this is why we must have very well integrated land transport. The railway system will change everything. Road transportations are good, but they have their drawbacks, i.e. increased environmental impact and reduced energy efficiency compared to railways. Currently we use diesel as a source of energy for trucks to go from Addis Ababa to Djibouti, which is about a distance of 800km. Various studies showed that roads are three to four times more expensive compared to rail if the journey is more than 200km. Also, if you think about it, this is very expensive and not environmentally conducive. If we use renewable energy – i.e. electricity from hydro, geothermal, wind and solar energy sources which are emissions free and which our country has estimated potential of around 45,000 megawatts – would make the transport in this corridor environmentally conducive and cost-efficient.
I believe that the African continent has a lot of resources but those have to be developed properly and linked through efficient means of transport. My generation is trying, but it is the next generation, the youth, that will transform Africa, and we will see the real impact on education, health and economy in the 2020s.
If you look at the middle-income countries, the railway infrastructure is their engine of growth. If you build a railway in a certain corridor, it will impact the region at least 60km from all sides and therefore enhances its socio-economic development. This is the definition of development. I believe that the Djibouti-Dakar corridor of development, with its movement of people and cargo can bring peace and stability to the whole corridor.
The good thing is that new technology makes the exploitation of all of the resources easier. We have surveyed 5,000km with new technology called LIDAR remote sensing and came up with high-resolution maps with alignments for our national railway network planned to be linked to the neighboring countries in all four corners. It used to take 15 years to construct a railway and the Addis Ababa-Djibouti railway project took just a few months over three years. The new technology gives us hope; it is willingness that is required to achieve results. If we get the software and the technology right, and manage our internal issues, then the result will come. The technology is there and we can do it.
The 98-year-old Ethio-Djibouti railway ceased operation, giving way to a new, modern railway expected to be in full operation in early 2016, which has been called a game changer by all our interviewees. How will this project ease trade and investment, attract FDI, and impact the government’s industrialization efforts?
Currently, it takes a few weeks to bring a consignment from other parts of the world to the port of Djibouti. Bringing it to inland Ethiopia has always been complicated as the roads are dilapidated and need maintenance. With the railway, we can bring any consignment in one day or less than a day. Not only that, we will bring around 3,000-5,000 tons in one go and clear landside port areas quickly to avoid congestion.
We also have what we call transit-oriented development along the corridor. All the towns you know along the corridor are formed because of the old railway. The creation of all these urban centers and integration of their resources through good transportation linkage will enhance the industrialization of Ethiopia and elevate its society to a better socio-economic environment.
Also, competitiveness in the global marketplace used to be a challenge due to high local transportation costs and the extended delivery time. Now one can produce anything and it will be on a ship in half a day. Perishables, such as flowers, fruits and vegetables, will be getting an advantage too. We can move on to high-value products. After all, the Middle East is not that far away. I found out that during the Ramadan season in Saudi Arabia, Bahrain and UAE, there is a demand for around 2 million sheep. At the moment they are importing New Zealand sheep, but they much prefer Ethiopian mutton.
We are a niche market in a good geographical position. This is why the railway mode of transport is called a game changer.
One question regarding cost-efficiency is, you said that railways were not a tool for business enterprises. Do you think that with this boost of efficiency, railways are also going into that business environment and are going to boost investment relations between countries on an international level?
Yes, what I meant is that if you look at a railway as a business enterprise and look at its cost-benefit analysis, the cash flow is not immediately positive. It will have a long maturation period of possibly 20 or even 30 years. The sideline benefits that you get make it an engine of growth.
When we were building the Northern line we were told that there has to be a transport demand in the transport plan. We saved the potentials of resources; the potentials of tourism… all the things that can be projected in the next 2-5 years. We say that we need to build the railway first and then everything will change along the corridor. That is really the cash flow issue and the demand-driven issue. It is a question of making the railway either demand driven or the growth engine because we are adding value to the resource along the corridor including land value, we will capitalize on these as source of revenue and pay for the cost of the infrastructure. Railway is an infrastructure built by the government as engine of development; it is not a commercial venture with short-term return for investment. It enhances the social and economic standing of the community. It improves the lively hood of the society at general.
Apart from the Chinese, you are working with Yapi Merkezi, a Turkish company, to build railways. How would you describe the collaboration with the private sector and what other examples would you like to highlight, especially for the National Railway Network of Ethiopia’s second phase?
This is a very good question. I will give you a specific example. A few years ago nobody took us seriously. When we got involved in the railway project we went to see various banks of bilateral countries such as China, India and Turkey. They wanted us to present our case and give them different options. At the time, the reputation of Ethiopia with the drought, war and famine did not play in our favor. We had to articulate our case very carefully, addressing the issues of bankability. We segregated what could be done with local and foreign investment, as we did not require 100% of the finance in foreign currency. And we presented our case giving them several options.
For example, Addis Ababa-Djibouti was our first mega railway project. We saved 55% on the issue of local capacity as we have the cement, sand and labor. In fact, we applied for foreign investment after completing 30% of the project. This is when people started taking us very seriously. And this is when these people came and audited us. Of course, contractors were there for the money and wondered if we could finish the job. And, along the way we developed trust with people we were working with, and once we succeeded in that they came to us with big open arms and embraced us.
On the Turkish side of the project, they gave us a small amount, but also put us in touch with the big Western banks – Credit Suisse. We were holding negotiations at the office in Canary Wharf. This was a billion-dollar negotiation for our project. All of sudden, big players, such as Barclays and Hong Kong bank, started approaching us too and we had to explain to them that this was not a donor-recipient relationship but a commercial relationship. I have to admit, once Credit Suisse is involved in your project – you have made it.
Of course there are always issues and requirements when working with banks, such as environmental issues or resettlement action plan (RAP) issues. If you are creditworthy and comply with all the requirements, then you are in business. I think the fourth generation of Africans will pick up from where we leave and I think we will prevail. This is the story.
Speaking about business, the GTP is driving Ethiopia’s demand for and openness to foreign investment, and the Prime Minister was keen to speak about opportunities such as BOT. How are you and the stakeholders promoting and encouraging private sector investment in the transport sector?
The previous agreement was that we would take all the risk. In the financial agreement, the government provided sovereign guarantee. The new agreement encourages people to put all they have towards infrastructure development. My questions are: why did they put that much and why don’t we put this much for them? At the end of the day, it is all the same. The only thing is that sole ownership is given a finite time, meaning in 30 years they might own it. The only concern is whether they will make a return on the money they spent during the operations. This is the concept. We will put an article stating that if you don’t get your money, we will support you to get your money back. If that is the case, then we eliminate the risk for them. I have been inundated with a number of proposals from banks. First, they wanted to know that we were serious and the Addis Ababa Light Rail project was a good example. There was no cost overrun, no time overrun, and it was completed up to the agreed standards. The same with the Ethio-Djibouti Railway project; we are still on time and we have completed 90% of the job. That gives a green light to anybody who wants to come and invest in Ethiopia.
The investment environment in Ethiopia is excellent and the issues of capacity building are coming in. We are training a lot of local young people to build railways. Hopefully, by the end of 2020 all the railways will be made in Ethiopia by Ethiopians. This is how we are really planning at the moment, including the operation, maintenance, and the physical building of bridges and tunnels; we are also building the next generation that will do this job.
The impact of the rail network on the overall economy is obvious. But I wanted to ask you how would you assess the impact you are having in related industries, such as being provided trains by METEC?
The railway is an industry in its own right. We have what we call a package within the industry localization, localization in terms of building the bridges. Operational engineers used to not know what workmanship was. Now we have this new technology in civil engineering construction of putting the foundations as deep as 50 meters down in the ground, from where the columns and bridges come out. We manufacture them elsewhere and bring them together as elements.
We visited GE and Alstom Locomotives and saw how they make engines for locomotives. We take photographs and write reports, and METEC (Metals and Engineering Corporation) is working with us. They have already made a prototype of a light rail vehicle and are currently testing it. It is not far from here – hopefully 2020 will be a milestone year for that. And by 2025 we will be building something else.
We are building not only the railway line, but we are building an entire railway industry and all the related things with the railway industry.
We also want to impact tourism via railway. We want to have different sources of revenue. The revenue from the freight consignment and from passenger will not pay our debts. It’s a heavy debt, so we want to get into the logistics chain, we want to get into tourism, we want to go into several other enterprises that will generate a lot of income for the railway company. We are working with METEC, we are working with big players in the tourism industry, we are also working with the logistic organization. We want to be the main players in the logistic chain. In order to maximize the overall transport efficiency, along with Ethiopian Shipping Lines, we want to move goods from ship to warehouse instead of depot and vise versa. Ethiopian Railway Corporation is a strong company with a big vision.
Tackling climate change, Ethiopia has taken a lead and adopted a Climate Resilient Green Economy Strategy to be carbon neutral, in which your institution has a key role in reducing carbon emissions. What numbers are you working with and how will this allow you to access climate finance funds?
Interesting that you mentioned that. We are one of the organizations that are taking this issue of climate change very seriously and not only from an environmentally and politically correct point of view, but also from the financial point of view. We hired an international consultant in order to study how to access carbon credit and understand its bankability. We wanted to know how carbon credit can be used to subsidize our payments for operation and maintenance, and also capital payment and interest payment, and so on. We are planning to access carbon credit and we have already been earmarked by the United Nations that looks into projects all over the world.
We are going to do the same for the Ethio-Djibouti Railway project. The amount of carbon we will emit if we use the lorries and the fact that we are changing to renewable energy is our case.
The first thing anyone who wants to build a factory in Africa asks is about infrastructure. What confidence building message do you want to send to the international community regarding Ethiopia’s transport infrastructure?
By all standards, the Ethio-Djibouti project will change the way things work for any investor, particularly one who wants to get involved in manufacturing. The transportation cost will be low and it will be very reliable. Ethiopia will become a competitive force in the global marketplace.
On the energy issue, we are highly competitive as well. Dams are being built and clean energy will be generated; that will put into the textile, leather and other related industries.
Also, the integrity in the way business is done is not that bad in Ethiopia. Ethiopia is a traditional country that has its taboo subjects, but business and legal integrity is not bad at all. You can make things work. These along with the huge local market size and human capital, the low energy and labor costs, and the reliable transportation means coming up are our competitive advantages.
Like many Ethiopians, you left the country during the harsh years of dictatorship, but returned with a doctorate in engineering and a vision that has you now being called Ethiopia’s Isambard Kingdom Brunel. What do you feel by leading such key projects for the development of your country and what would you like to leave behind when you leave office?
I’m an employee of the Ethiopian Railway Corporation. I have been given a job to do and I am doing the job to the best of my capacity. I have been trained in the best universities overseas and I think it’s a payback time for me. I have prepared myself and I’m very enthusiastic about the job. People say, “You are making history”. That is not for me to decide and analyze.
What I want to see is that the perception of Africa, the perception of Ethiopia with its poverty, will change.
I always say Ethiopia is not poor. The people of Ethiopia are highly resourceful and they are very imaginative. They are good runners who won medals, and we are hoping to win three to five medals in the Olympic Games in Brazil.
The good God has given us 13 months of sunshine. We have always had this beautiful setting, but we did not use our resources properly. If the good governments continue their job with the current pace, common sense will prevail. We will see 2020 when we meet and we will meet in a different Ethiopia.