Ethiopia’s infrastructure has changed beyond all recognition compared with 20 years ago, and the momentum of its development is gathering pace, with the government pulling out all the stops to help local contractors, such as Afro-Tsion Construction Ltd, build capacity, resources and portfolios. General Manager Sisay Desta explains the substantial growth in the sector and the big opportunities it holds for investors.
Christine Lagarde, Managing Director of the IMF said in her “Africa Rising” conference in Maputo that Africa has three challenges: build infrastructure, build institutions, and build people. What are Ethiopia’s efforts regarding people and infrastructure development?
Ethiopia is among the fastest growing economy in the world. Twenty-five years ago Ethiopia was getting out of a period of instability and conflict. After the military regime, the country was working to come up with a constitution that could address the will of the people, as opposed to the one back that reflected the will of the rulers, establishing a federalism form of governance and the necessary institutions, and drafting and enacting various policies, etc. There was a need to provide basic infrastructure facilities, improve agricultural production and productivity, and improve health and educational coverage, among many other things.
Back then we had two public universities, while now we have 33 and, in the coming five years, the plan is to have around 50 universities all over the country. Back then we only had 3,000 students enrolled in higher education; now the number has grown to 400,000 students. This shows the commitment of the government to investing in education and have skilled manpower. Local contractors built almost 100% of the universities.
During the last decade we have benefitted from high growth, so the government could start focusing on bigger projects such as roads, renewable energy plants, dams, etc. As a contractor, now we have plenty of opportunities to be involved in the construction of those types of infrastructure, especially now that the government is investing in industrial areas.
When foreign investors arrived in Ethiopia, they faced problems of land availability and infrastructure. Those challenges will be overcome thanks to industrial parks. Now there are lots of opportunities for investment. We are working on capacity building as well as financial support. For local investors, so far as they contribute 25% of the initial investment; the remaining 75% is to be provided by the Development Bank of Ethiopia.
The country has an easily trainable workforce at a very cheap price. It also has stability and conducive policies, and a government commitment to promoting investment.
Thus it is the time for both local and foreign investors to take part in the growth plan and make Ethiopia become a middle-income economy in the next decade.
What makes you one of the preferred choices of the government and how would you describe the public-private partnerships in Ethiopia?
I founded the company 17 years ago with a starting capital of $2,000 in terms of the current exchange rate (nominal value). At the beginning we were only involved in health buildings and primary schools. Now our revenue reaches around $100 million and we are engaged in big projects. The total value of the 15-20 projects we are currently undertaking is up to $250 million. We are building the Jinka Airport and we finished the structural part of Gambela Stadium in less than eight months. We also built six out of the current 33 public universities in the country. We are engaged in diversified projects, such as roads, airports, office buildings, hospitals, etc. We have the required skills and trained manpower; we currently employ around 7,000 people. We have around 200 engineers working for us. As the government is highly encouraging technical jobs, 70% of the students are enrolled in natural science fields and most of these are engineering studies.
Afro-Tsion started as a Grade 7 contractor and is nowadays a Grade 1 general contractor and complies with ISO 9001-2000 standards. How do you ensure quality from planning, materials used to the final construction?
When we were Grade 7 contractors we were engaged in small projects. Later on we were given capacity building by the government together with GIZ from Germany. We trained our staff in quality and management systems and the biggest project we were engaged in until that moment worth $500,000. It was the government who helped us to increase our capacity and be involved in large-scale projects. It required also a lot of training of our engineering and financial departments. We highly encourage in-house training and capacity building although we also outsource training in some areas. We plan to have more projects in line with the government’s GTP II.
You are also engaged in manufacturing of construction materials. How are you and your clients benefitting from this vertical integration?
We have a shortage of materials supply, more specifically such materials as aluminium, bricks, ceramic, granite, marble, and wood products, among others. This problem would adversely affect our performance, profitability and goodwill. Thus we need to manage it better. As a result we were obliged to engage in the import and export business and in the construction materials manufacturing business, in the interest of reducing cost and improving the quality of construction by using quality inputs, and for timely delivery too. Hence a couple of years ago we decided to invest in manufacturing construction materials. Now we have a brick factory, many HCB (hybrid composite beam) factories, woodwork factory, aluminium factory, and now we are investing in establishing an aluminium extrusion factory (which will be the first of its kind in terms of size for the country).
On the other hand, we have a business unit dedicated to imports and guaranteeing top quality materials. We also plan to build a granite and marble factory within the next 2 to 3 years because we were given the opportunity to get long-term low-interest finance for 75% of the investment from the government.
Importing materials also involves delays in the completion of the projects. Some construction projects that could be completed in less than a year take up to 2 years to be accomplished due to construction material shortages and import delays or the lack of hard currency availability. That is why the government is encouraging Ethiopian contractors to manufacture construction materials locally.
Since there is no financial markets or stock exchange, real estate investments are among the most attractive. How is your real estate division integrated in Afro-Tsion?
We started our real estate business to respond to the growing demand for housing and shopping malls. Our expertise in construction and buildings has given us the required skills to win these types of bids. This area has huge potential for us.
What would you highlight as the milestones achieved in the company’s almost two decades of activity?
Our biggest achievements were possible after the government started being engaged in larger-scale projects. 60% of the national budget is invested in infrastructure. Being involved in these projects is critical for capacity building. Although the construction sector is growing steadily, there is still a lot of room for improvement. We are aiming to be involved in bigger projects such as dams, railways and big roads in the coming five years.
What opportunities do you want to highlight to UK’s private sector?
In the last 100 years our relationship with the UK has been based on aid, but now that Ethiopia is growing very fast we also need investment, technology and knowledge transfer. We need investment not only in infrastructure but also in manufacturing. We have a large, disciplined, and young trained and trainable workforce. Ethiopia is also one of the safest countries in Africa.
It is the right time to invest in Ethiopia. In order to further develop our infrastructure we need financial resources and thus foreign investment. Currently, Chinese companies are involved in big projects but we are open to the entire world. I am aware that 20 years ago Ethiopia did not offer the best conditions but now I can assure you Ethiopia has the biggest potential in the entire African continent.
Why should international investors choose Afro-Tsion Construction as their partner or as their contractor in Ethiopia?
Afro-Tsion is a big local contractor offering trust, good quality, on-time delivery and competitive prices. We are very diversified as we are engaged in various construction projects, including airfields, buildings, housing, stadiums, roads and bridges, etc. We are also very accessible and we have flat hierarchies to facilitate communication across all departments. What is more, the fact that we are engaged in importing construction inputs and in the export business to earn hard currency coupled with our investment in construction materials production makes us dependable to count on and to work with.