Demand for real estate and infrastructure is sky high in Ethiopia and is filling the order books of local contractors, such as the Sunshine Investment Group, which is creating milestone developments with international partners Hilton and Marriott, among others. Founder and CEO Samuel Tafese discusses the booming sector, as well as the company’s CSR focus, and advises investors not to hesitate to get involved in helping the country take shape.
Could you please discuss the prominence the African continent is gaining in the international arena, especially to attract investment?
The entire Africa is under construction. Europe and America are already built. In Africa, mining, construction, manufacturing… all sectors in general are still in their infancy. Investors are scanning through Africa in search of opportunities. One may even consider Africa as an infant continent. And that is the main reason all of them are coming here now.
It’s also the youngest continent in the world. By 2040, the World Bank expects Africa to boast a labor force of over 1 billion workers, which is more than India and China combined.
In any country, the most precious asset is the people. The main advantage of Africa is its large population. Labor is very cheap and easily trainable. Africa offers a huge potential.
What action is Ethiopia taking to build its infrastructure and increase regional integration?
Infrastructure is the benchmark for development in Africa, and in Ethiopia as well. Previously, any material from Djibouti was transported by car or by truck. Now, it is easily transported by train. Thanks to this shift, there is 70% reduction in cost of transportation. Transportation by train makes everything easier and cheaper. From here to Kenya, road projects are already under way. In the development of any African country or any country at all, the first and foremost thing is infrastructure. Ethiopia understood its importance and it is committed to investing in infrastructure.
Ethiopia is the fastest growing economy in the world; the construction sector alone attained 24% growth in 2014. How is the private sector taking advantage of this momentum?
For example, our company built at least 150 kilometers of road projects. This growth is geared towards increasing the development of the private sector. For this growth to occur, the first thing that has to be in place is the infrastructure. Firstly, labor is important in the company. Secondly, any development without infrastructure is very difficult. In any country, the most important thing is infrastructure. After infrastructure, the most critical aspects are water, electricity and telecommunication. But in this country, 60% of the government budget covers infrastructural works – the construction of infrastructure. The very secret of the development of Ethiopia is the infrastructural work.
Sunshine Construction is a company that comes to mind when thinking about construction in Ethiopia. Founded in 1984, it is now a holding company with diversified businesses. What would you highlight as the milestones achieved in these three decades of activity and why did you decide to diversify your business?
Government policies were key for the development of the private companies. The government plans the infrastructural and real estate developments – the dams, railways and so on – to enable the growth of the private sector. For example, without the government’s budget, we can’t operate. In most African countries and Ethiopia as well, the government covers all the infrastructural work, but these infrastructural works are to be developed by the private sector. Without the budget we cannot complete this infrastructural work. 60% of the government budget is for infrastructural development. Now our company is fully booked for the next five years.
I have 6,200 employees and they are all assigned to different projects in the following years, we are working at full capacity.
The first thing is the development of our country. And the second is the development of our companies. The big projects we are undertaking are from the government. That is the biggest achievement of our company.
Another milestone is our hotel projects. The next Marriott is under construction as well as the next Hilton in Hawassa.
The government gives us lots of incentives – free land and duty-free privileges, among others. We decided to diversify our business because probably after 10 years or so, the number of infrastructure projects will decrease but the hospitality business will grow.
At the moment, the biggest market for construction in Africa is in Ethiopia. For example, our company is developing 2,000 houses to be finished in the next four years. Why go to another country when there is enough of a market here? Europeans have come here as Europe is now developed, but in Ethiopia there are so many construction projects. I encourage all big international companies to come and join us.
The biggest challenge in this country is forex. We are now working at 40% to 45% capacity but if forex was available, we would probably be talking about 120% capacity. But the opportunity is here. Believe it or not, if you go to Europe, the Middle East or America, your profit is 3% to 5%. If you come to Africa, your profit margin is not less than 20%. That is the big advantage in Africa. But the only problem is this country does not produce construction equipment and materials. If you build a hotel, almost 70% of the materials are imported. Now the government’s policy is to foster industrialization. In the next five years, we will shift from producing raw materials to finished goods.
Since there is no financial markets or stock exchange, real estate investments are among the most attractive, and there is truly a housing boom in Ethiopia. President Mulatu Thesome called you a genuine and successful local real estate developer and said you have been playing a crucial role in solving the ever-growing housing demand. Please tell us about your real estate division.
In the last 10 years, we have delivered more than 3,000 houses. Another area is G+5 buildings; we have constructed more than 134 buildings. For us it’s a good market. Our properties are sold out after three days as the demand is huge and rising. 50% of them are for local clients and 50% are for the diaspora. I don’t put anything up for sale until I am close to delivery, and I do not do it all at once; I do it gradually so I can be able to deliver on time.
You have a vast portfolio going from real estate and hospitality to roads and bridges. How do you ensure to have sustainable quality from planning to materials used to the final construction?
An example is that our company produces most of the construction materials, such as hollow blocks, tiles, aggregates, aluminum doors, and wooden doors – our company locally produces everything. And that is the main advantage to deliver a house on time. Only some finishing materials are imported. Our company produces 60% to 70% of the housing projects. That’s the main advantage. Hard rocks, kitchen cabinets, parquet, aggregate – all of them are produced by our company. That is the main factor to delivering a house on time
It was big news in September when you inaugurated the Marriott Executive Apartments – the first of its kind in sub-Saharan Africa. You are also going to develop a resort in Hawassa with Hilton and upgrade the Marriott Courtyard in Addis Ababa to a five-star hotel. What are your competitive advantages so that these international renowned brands choose you?
Starting from the beginning, our knowledge and business expertise have been involved in construction.
Our hospitality business unit is based on a management and franchise agreement for the Marriott and Hilton hotels.
It is easy to get the clients as most of the foreigners coming to Africa choose international hotels for their stay. Having international hotel brands is critical to the development of tourism in Ethiopia, and it also plays a big role in the image of the country.
All the designs for the development of our hotels were assigned to international companies from Dubai. There are at least 15 to 20 designers involved in the development of one single hotel, starting from architecture to fire and life safety.
For example, there are hardly any air conditioners in our country as the weather is very mild. So our electro-mechanical people have no experience with them. But these international hotels must have air conditioners, and fire and life safety are a must. Security is a must and smoke detectors are a must. All of them have to be designed (as per the operator’s standard), but there are no experienced people in the country to implement this. So we are also bringing international know-how and world-class standards to Ethiopia.
You are a very committed company and created the Sunshine Philanthropy Foundation, engaged in education and health among other sectors. What do you personally feel by being such a concerned citizen?
My interest is to help our people. I started from scratch in this country and now I am a billionaire. I have to give back to the community and help our people. That is why we started the Sunshine Foundation. For example, there are now 1,200 students under the umbrella of the Sunshine Foundation in three Ethiopian regions. We built schools and our company helps each student with an allowance; we pay for their uniforms and all the expenses related to their tuition. I have now a plan to start another school in another region. We also have a house to accommodate the homeless elderly in Addis Ababa.
Bearing in mind we are publishing in the UK and that the government is committed to changing this relationship from aid to trade, what opportunities would you like to highlight to potential investors about Ethiopia? What can Ethiopia offer them?
I would strongly encourage UK companies to come and invest in the manufacturing sector. The government’s first priority at this time is industrialization, as it will bring development and will also help to tackle the forex shortage issue. Investing in industry in Ethiopia is very interesting as the labor is available and cheap, power is very cheap, and the government is offering attractive incentive packages.