New wheels for Ethiopia

Ethiopia has had a record of introducing the tools of modernity into Africa, only to see its pioneering work stagnate and even fade into obscurity. We were among the first Africans to fly aircraft, use telephones, lay a railroad and set up a postal system. With the exception of Ethiopian aviation, most other sectors have not developed with the same pace as their early introduction would suggest.

The inability of Ethiopian industry to produce vehicles is a prime example of the ‘start –and –stop' mode of economic planning that characterizes so much of modern Ethiopian history. The first truck assembly plant was established over 40 years ago. This is almost as long ago as the independence of such countries as Nigeria and Tunisia , which today have well established automotive industries.

It is with a sense of relief therefore that news of Ethiopia 's first car assembly plant was received. The average Ethiopian family, priced out of the imported car market, could now have a fighting chance to finally own a car. The first Ethiopian assembled car was unveiled at a ceremony at the Hilton Hotel, Wednesday October 18, 2006. Capital reporter Andualem Sisay has invited this pioneer, Engineer Tadesse Tessema, 50% shareholder of Holland Car Assembly, to be this week's interview guest.

Would you introduce yourself and describe the first Ethiopian car assembly plant to our readers?

My name is Engineer Tadesse Tessema, I lived in Holland for 27 years and graduated there in power electronics. After graduation I started working as Development Engineer for Power Electronics at A LSTOM, a Franco-Dutch company. At the same time I was also exporting cars to Ethiopia , mostly LADA s. But these LADA s were not available anymore because they were phased out. Since the company has already stopped manufacturing long ago, I came to the conclusion that I should assemble new cars in Ethiopia instead of sending these old cars to Ethiopia . I talked to the Dutch government and they told me that I was not able to do the project alone because I can't manage the technical side. So they told me to find a partner which will be responsible for the technical aspect. I found a Dutch company called Trento which specializes in car assembly. So, we went directly to the Dutch government and told them that we are going to start the project as a joint venture.

I think there was a grant that you won from the Dutch government to launch the project. Can you tell us more about that?

Yes, that is why we went there. The Dutch government gives grants for projects which are viable, that might create job opportunities and transfer knowledge to a country and also do not affect the environment.

According to the Dutch government's PSOM grant program, the maximum project cost must not exceed 850,000 euros. If you win the grant, the government gives 60% of the total project cost, which is equivalent to 510,000 euros. After that, they approved our project and awarded us the grant. We started the project in January 2005. Agreement was signed between Trento and Ethio-Holland (my company) and we formed Holland Car Assembly, an equal partners joint venture.

What is the significance of having a car assembly in Ethiopia ?

Auto companies in industrialized countries are the engines of the economy of a country. Because when you start an auto company, there will be a lot of small companies around it that can supply input. There is no one company that can produce everything. Take for instance Mercedes, BMW, and the like; they are all buying different parts from other companies that are specialized in producing components. Therefore, having one auto company is like calling for other companies that produce inputs for the company to invest in the sector, create job opportunities, transfer knowledge, and generate foreign currency for the country.

Would you tell us your expectations when you planned to assemble cars in Ethiopia and the challenges you faced along the way?

Well, my expectation is now like a dream. One was to assemble as many cars as possible in Ethiopia at a reasonable and affordable price. Of course, one of the major challenges was the bureaucracy. We had some difficulties of getting land around Addis. After we got land in Modjo in July, 2005, the rainy season did not allow us to begin construction at the time. After the machinery and tools I ordered arrived, some real problems with customs occurred. For us, it was not clear what it is allowed to invest on and not. This problem cost us three months to clear our goods from Djibouti . Then, after finishing the installation of the machinery, we faced another problem from the customs when the parts for the cars to be assembled arrived at Djibouti . The customs told us that there is no difference in taxation between a company that produces cars and those that import cars. We tried to discuss the problem with different offices like the Ministry of Finance and Development, Ministry of Revenue and Ministry of Trade and Industry. We are still talking with them but there is no solution yet. During the time it took to discuss with government officials, our company spent 50,000 USD in port charges at Djibouti and due to this and other reasons our attempt to inaugurate the first Ethiopian car assembly in April had failed.

But weren't you informed before that there is no difference in taxation?

We were informed that we were going to get a reduction on tax holiday and import tax. The problem is we didn't expect to pay excise tax. So, it was not clear that we should pay the excise tax which is 60%. This, as well as imported materials and production costs makes it difficult. As my intention is to replace the old taxis of Addis with new cars, these cars should not be taxed as luxury goods.

Don't you think 139,500 birr is expensive for a car assembled in Ethiopia ?

Regarding the price, I think we have set a reasonable price compared to the new cars which are on the market. Even some other branded cars don't have the specifications and technical features that our cars do.

Some expensive imported cars can only function on highways (asphalt) and are not fit to be used on Ethiopia 's rough roads. I think with all these features of the car, it is not expensive and if the negotiation with the government on the tax issues is resolved, the price can go down.

What was the previous price you had set before this excise tax problem arose?

We were planning to sell DOCC for 90,000 birr, excluding VAT and taxes.

Do you use any local materials for assembling DOCC?

The project is divided in two parts. One is setting up the project and starting production, which is our obligation to the Dutch government. The second part is finding cost reduction mechanism after getting into the business; especially while the costs are high, we have to look for alternatives to minimize these costs. In the production of the first car, we sourced about 85% from foreign inputs. We are using batteries, plastics and cables from local manufacturers so far. For the future, we are discussing with other people on ways that we can use more locally produced parts.

How many cars are you producing at the moment?

Well, we want to make cars based on the demand and choice of the customers, basically color. It makes it more logical for customers to choose their own preferences of car. After two weeks we will start assembling three cars per day.

Is your car available on credit?

Yes, we can provide sales on 50% credit bases to any private and government firm employees.

What do you want to say to the government at this opportunity?

What I would say is try to support not only us but also the companies who would like to come here; try to avoid bureaucracy. I would like to say that there is little corruption, but people are very rigid. That may irritate foreign companies who want to come and invest here. My partners say now that if they had known of these problems, they wouldn't have come. You can imagine when these people go back home and people ask them about the investment climate in Ethiopia , they would deliver the negative image they have observed. If we are out of the market for any reason, I think for the next 20 or 30 years, car companies will ne ver co me to invest in Ethiopia . Because every auto company will ask why we failed; but if we succeed, with in two or three years, all the big companies will definitely come here and invest in the sector. In Egypt , it is amazing to see that every big car company has asse mbly lines there.