Ethiopia…Of All Places!

by Keith Basik on July 11, 2012

I decided to take a break from the standard blogs to fly my readers off to a place that one would not think of in terms of business activity.   That place is Ethiopia.  This blog is part of a three-part series on the Ethiopia.Exporting from Ethiopia

Actually, I was surprised to find myself somehow involved with Ethiopia.  I have yet to set foot into Ethiopia but that hasn’t stop my involvement.  It started several years ago when I was asked by a local university to assist a gentleman with raising money for a footwear manufacturing initiative in Ethiopia. Who would have ever combined footwear with Ethiopia?  Not many that is for sure.   In fact, besides the gentleman in question, Richard Siegel, no one was trumpeting the call to run to Ethiopia to commence footwear manufacturing to export to the major US footwear companies–the idea seemed “out there” to say the least.

The initiative had started three years ago under the auspices of the World Bank, and then USAID.  It was difficult to get US footwear companies to initially take their eye off of China–the manufacturer of 90% of US footwear–to set their sight on Ethiopia, a country with no historic exports to US in that industry.  Yet, Mr. Siegel was able to convince numerous major footwear wholesale companies the merits of looking for an alternative manufacturing market and to begin sending test orders to Ethiopia.

China, for all its strengths in the footwear industry, is starting to show signs of changing course.  The Chinese government is looking to higher ground, in particular, looking to graduate from the mundane, laborious, and environmentally taxing manufacturing of footwear and move to a higher grade of manufacturing, namely automobile. As a result, over the past 3-4 years, hundreds, if not thousands, of footwear producing manufacturing plants have been closed.  This sequence of events of starting at one level of manufacturing and moving toward another has been played out in other countries before.  For examples, Brazil gain their first foothold in the manufacturing industry by  first entering into the footwear sector.  Unbeknownst to many, footwear manufacturing is a very labor-intensive industry (a standard shoe can have up to 35 separate components); thus, it can employ a huge number of people, which is a good thing for a struggling and impoverished country.–it is perhaps the perfect, first step for a fledging country to take wishing to enter manufacturing. Along with this ideas is the idea that the more people a country employs and begins trading, the more wealth a country creates.  Yet, similar to what China is now experiencing, Brazil, as time progressed and wealth improved, started turning their sights from the lower-based manufacturing to a higher, more technological-based manufacturing.  In essence, it is a normal and expected evolution of a country.   Although this progress is perhaps a good thing for a country, China’s movement out of the footwear industry presents a problem for US footwear companies.  Given the fact that 90% of all US footwear is manufactured in China, these US footwear companies are left  stretch their heads, and running scared, due to the fact that they have all their eggs in one proverbial basket.

My role in this endeavor came after the initial test samples were completed and annual exports totaled approximately $2 Million, representing a big turnaround since there were zero exports previously.  Mr. Siegel reached out to a local university to have someone assist him with a business plan to raise money from the IFC (International Finance Corporation) or the World Bank or USAID, whichever agency would provide the funds.  It appeared that despite his significant gains in exports, USAID had not agree to continue the funding of the footwear program in Ethiopia. As a newcomer, I was befuddled by the idea that USAID would stop funding the program and allow all the gains and money spent be left to fall by the wayside.  Surely, when we go to Washington DC and show representatives of the various agencies the results of the initiative, they will look for ways to pull the funding together to extend the program. Au contraire mon frere!  Instead of receiving additional support or interest in finding ways to move the program forward, we were met by a young woman, seemingly a recent graduate student, who proudly explained that the agency was refocusing their efforts on a newly design, agricultural-based program (really a retool of an old program ), called “Feed the Future.”  It sounded beautiful. You could almost see water coming from her eyes as she said it.  Yes, this was USAID new approach.  Forego the idea that we created trade, which created jobs, which,  in the end, helps to reduce poverty.  Let’s, instead, focus on an industry that has not proven reliable for the past 50, 100, or thousands of years to bring Ethiopia out of their poverty-stricken doldrums.  Good call, USAID…it is good to know our donor monies, and taxes, are going to good use.  Unfortunately, as I soon discovered, this mindset of focusing on feel-good programs with no matrix of success attached to them, rather than proven, trade-related programs (manufactured and matrix-based), is really the norm.  I am somewhat hesitant to say it but it is really a “peace corps” vs. business mentality (further discussed in next blog).   As I think through this scenario, I almost think that private industry should run some of these programs, so that results rather than emotions dictate the direction and focus of our funding.

So as we left Washington, DC, so did our hopes of achieving funding support to continue the successful footwear program.  Within two months, the program was shut down and the US footwear companies, without having the guidance of Mr. Siegel’s team, began leaving Ethiopia.  Yet, just when all seemed lost, something unexpected to most happened….To Be Continued

 

 

 

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