Integration of the value chain and synergies among its affiliates are putting Tiret Corporate on track to be globally competitive and less reliant on imports. CEO Tadesse Kassa provides clear examples of how the endowment organization is adding to the socioeconomic development of Ethiopia, and where future potential for growth lies.
Africa is rising as an investment destination for both advanced and emerging economies, and, as President Obama stated, the continent with the greatest potential. Why is the continent becoming so attractive for investments?
As you mentioned, Africa is rising. This has been a continent that has slept for centuries, even for one millennium and above. Africa is endowed with natural resources as you know, but Africa was not able to utilize its resources and develop. There might be different explanations for this, but the reality is that Africa remained undeveloped. Africa was not actually aware of the world and the world was not aware of Africa. Now it’s our time. Africa is in renaissance – there are changes everywhere.
Africa’s past relationship with the Western world was not a win-win relationship. Past histories of colonialism have already created an obstacle for the mutual benefit of Westerners and Africans, but now this has changed. We should work together and we should benefit from win-win situations.
Africa has got big potential, and that potential will be actually one aspect of its partnership with the developed world. The developed world should work together with Africa and the old habits, like aid or the former colonial relationship, all of these are obsolete in this new era. It should be a win-win, mutually beneficial relationship.
Ethiopia is the fastest growing economy in the world and the Growth and Transformation Plan is transforming Ethiopia’s economy and driving its openness to FDI. What is your assessment of the outcome of GTP II and how will Tiret Corporate be aligned to GTP II?
When we speak about Ethiopia’s development, we should not only think of the GTP I. It has been a long process as the last 12 years Ethiopia has been benefiting from double-digit growth. This is because Ethiopia has adopted a development strategy that is effective and suitable to the existing situation of the country. For example, the first strategy was the Agricultural Development Led Industrialization (ADLI), which represented the turning point for the development of this country. The government focused all the development in the agricultural sector, which actually employs about over 85% of the population. So, by doing that, it changed the scenery of the country in general. That was the most important change. The development of agriculture will have an impact in the development of other sectors and will positively impact the entire society.
As we are experiencing a downturn in commodities, focusing on specialty products, for which buyers are willing to pay a premium for quality, environmentally friendly and origin-specific commodities is key. How do you work to reach this market niche?
Tiret was established in 1995. Until 2009, we had only four companies: Ambasel Trading House, Tikur Abay Transportation Company, Dashen Brewery and Zeleke Mechanization Farm. Tiret launched a change program, as our businesses were not as successful as they were expected to be. That survival strategy was designed to make the existing companies profitable and effective. Coinciding with the GTP I in Ethiopia, we designed a five-year plan focused mainly on agriculture and agro-processing, manufacturing, and services.
Now, our new strategy is still aligned with the GTP II and with the development goals of the Amhara Region. This plan is based on four clusters: manufacturing, services, agriculture and construction. The agriculture cluster is basically focused on agro-processing. For example, we are developing honey processing, dairy products and sesame processing plants where we produce tahini. We have also established a ginnery factory close to the farm; we are not only ginning the cotton from our farm but also offering ginning services to other companies, farmers and investors in the surroundings.
Our strategy is based in two main principles: integration of the value chain and synergies among our affiliates. Let me give you an example of the value chain integration. We grow cotton but instead of selling it, we gin it and we sell the ginned cotton to the factories. We have already finished a feasibility study to start our own textile business so that we can weave and knit, and eventually we will produce garments ourselves.
Another example would be beer. We established a malt factory. We need bottles, corks, and then we need to pack it in crates, and sell the finish product to the market. We used to import crown corks and crates, but nowadays we have our own crown cork and crate factory. We don’t have a bottle factory yet, but we are working on that.
Sesame production is based on the same principle: We have a sesame farm; we hull it, we roast it and we produce tahini for export. We have been buying honey from the farmers for our honey factory, but now we are preparing our own beehive farming. This is the principle of integrating the entire value chain.
Let’s take again the beer example to explain how our synergy strategy works. In order to produce beer, you need raw materials such as malt, hops and chemicals, among others. Since some of them are not available locally, we import them. So we have Ambasel Trading House, which will take care of auctions, tenders, marketing, and facilitate the contact with international buyers. Then we need logistics and transportation, which is also taken care of by another affiliate from Tiret. We also have a project management and engineering consultancy company that will handle our feasibility studies, select the technologies required, prepare international tenders, etc.
We also have a construction company that takes care of the construction of the factories. The main objective of synergies is resource optimization and effectiveness. Our affiliates are not focused on their own profit but on making the best transaction and prioritizing their sister companies and benefitting the entire value chain.
Working, for example, with Samsung and other world-renowned companies, and manufacturing printers, phones and refrigerators, how important is technology and innovation for Tiret?
That is a critical part. Our main challenge is to be competitive globally and to produce high quality products. In that we are working. Our second challenge is the know-how and capacity building; we need to have a world-class management system, leadership skills, marketing and technology knowledge, etc. We are learning and we are moving in the right direction. Some of our products are ISO-certified. We employ globally known managerial tools like Kaizen, Balanced Scorecard or Quality Management Systems. We are also developing a big Enterprise Resource Planning.
We are working to be globally competitive. We believe that in order to be a successful company, our approach should not be working for the domestic market; what will make us succeed is willing to be competitive in the world market.
Regarding our electronics business, so far we have been only assembling. Our five-year plan envisages moving from assembly to production. We want to be the leading consumer electronics and home appliances brand in Ethiopia. Instead of just bringing the semi-finished products and then assembling here, we will go to the component market and we will buy, and then we will produce here. We are now working with the Ethiopian Broadcasting Agency to manufacture set-top boxes for television. We are assembling refrigerators under the Samsung brand, but we are planning to manufacture also our own brand of refrigerators, washing machines and other home appliances. We are working in partnership with dVentus Technologies for product design and product development. We have a plastic factory that will produce the plastic components of the electronics equipment. Now this is a matter of buying the mold, but in the future we want to increase capacity, design and produce molds ourselves.
How are you ensuring your operations are in line with Ethiopia’s Climate Resilient Green Economy Strategy?
We want to make our operations environment friendly. Our new factories are built according to the climate resilient policies. For example, we use an electrical boiler in Dashen Breweries. Being responsible towards the environment is a priority for us.
Speaking at the inauguration of the Dashen’s new plant the Prime Minister said “this achievement by Vasari, Duet and Tiret indicates that UK businesses can successfully engage in joint venture undertakings with Ethiopian businesses in Ethiopia.” You said Tiret was very interested in setting up joint ventures with foreign investors and encouraging direct investment in the Amhara National Regional State. What opportunities do you want to highlight to the UK’s private sector?
Tiret is an endowment organization; we are not profit-oriented, we are development-oriented. Our gains are reinvested, then the return will not go to the government – it will not go to the individuals – but it goes, again, for the development of the country at large and the Amhara Region in particular.
In this aspect, since we are development-oriented, we are ready to support and work together with whoever is willing and ready to assist these development activities in the country and then in the region.
We want to create joint ventures with foreign companies for three main reasons. We want technology and know-how transfer, we need access to international markets, and we need investment. In order to get the envisaged industrialization transformation, we need machinery and expensive components that need to be imported and thus, we require hard currency.
Regarding our joint venture with Duet and Vasari, they invested $90 million in our new beer factory. Then we have required local banks for additional loans, as the final investment was about $120 million. We have signed a partnership with Arsenal F.C. to develop Ethiopian football. Arsenal’s coaching staff has already trained Ethiopian coaches twice. We are planning to export Dashen, including to the UK soon, so our links with UK are getting very strong.
What is the moment that brought you the most satisfaction since you have been the CEO of Tiret?
Before we started the change program, our Dashen factory in Gondar had been working under capacity. We were able to produce 60,000 crates a week. Within a year, we were able to produce over 120,000 crates per week, without making any new investments. Now, we sell more than 200,000 crates per week, still with no new investments nor expansions. All we did was changing the management, improving the working procedures and motivating the workers. When we started the change we created the motto “Money is not a problem.” So, it is not money that enables the change – it is the idea, it is the willingness, it is the effort.
We have seen these very encouraging results, but still there are big challenges. We have identified five main developing areas within our new five-year’s plan to become a world-class organization: HR development, Management Information System, Ethics and Governance, Corporate Finance, and R&D. Our R&D will focus on three areas: electronics, chemicals and machinery. We are planning to increase our sales and capital dramatically, so we need to ensure highly effective corporate finance management.