Up until now Ethiopia’s laggard (formal) private sector didn’t have much of an appreciation about the important concept of ‘cost of doing business.’
A decade and half ago when guest lecturers on modern business (foreigners to be sure) tried to expand on the idea, (cost of doing business) formal operators were hardly responsive. At the time many a representative of the formal private sector thought (dismissively) the whole exercise was just a waste of time, one of those things foreigners get unnecessarily worked up over. Consequently, the nouveau operators relegated such a paramount component of business to the back burner. Only those who had to (necessarily) earn their keeps were acutely aware of the significance of the concept!
Costs of material inputs are almost always on a gradual and at times not so gradual rise. Cost of labor, which is a critical factor in industrialized economies, is also in the ascendance here in Ethiopia, a sign of labor’s increased share of profit. To the apprentices of the East Asian development model, this is the path to equitable growth. The above two costs together are called ‘cost of sales’ or ‘cost of goods sold.’ These costs are direct costs, but there are also others, such as administrative costs. Due to our increasingly market oriented and firmly state led economy, Ethiopia’s formal private sector is now encountering costs whose existence it never imagined before.
It would be recalled the Ethiopian government has already enacted a universal pension scheme to benefit formal employees, be them in the private sector or outside of it. Pension scheme/provident fund were once the privilege of only state employees and international organizations/NGOs, etc. On top of this, there is also a universal health insurance plan in the offing. Again these are very important ingredients that further the equitable growth agenda. From the perspective of business, however, all these are costs operators must bear (one way or the other), amalgamating the other usual operating costs. In fact there are more!
Until recently Ethiopia’s tax system was an ensemble of ad hoc measures/policies that left a lot to be desired. It facilitated corruption, which affected, not only those kosher operators of the market, but also the state and the people at large. In those days, those who grossly benefitted from the corrupt system, not excluding the so-called policy makers/implementers, considered doing business by the book stupid and un-business like. These parasites reckoned, prudent and fair business operators should be discouraged or even decommissioned from their activities as they were trying to set exemplary standards that might indirectly interrogate the ongoing embezzlement!
Also up until now, the government didn’t have the right bureaucratic machinery/institutions and relatively competent bureaucrats, (not thoroughly honest yet) to properly regulate, license, etc., or in general administer/oversee the various operations of the private sector. As a result of these, the associated administrative costs of running a business has started to go up. This is what some business operators in the West call ‘red tape.’ Before the attempt to reform the overall governance of the state, (in particular those pertaining to the formal private sector) the unscrupulous ones were generously rewarded, while the honest were systemically victimized by the licensing and regulatory regime. Moreover, the chronically inefficient and blatantly corrupt state bureaucracy of the day also favored the crooks who were more than willing to bend the rules in favor of systemic and grand/political corruption, laying the foundation for dangerous structural inequity across the land. EPRDF has recently reaffirmed its vows to remain one of the foremost ‘developmentalists’ of Africa. We whole-heartedly welcome and support the reinvigorated initiative. Certainly this is a positive move towards the curtailing of degenerate oligarchic tendencies that were amply and disgustingly displayed during the past decade and half.
Like everywhere else the ‘cost of doing business’ will become an important element in business operations. See the articles on page 50. Besides, the above, increased competition also adds to the cost of doing business, this comes with the territory. As is well known, Ethiopia’s ascending formal private sector, (like in those centrally planned economies of yesteryears) by and large, is created directly/indirectly by the concerted effort of the state, rhetoric notwithstanding. So ‘lifting oneself with one’s boot strap’ is a foreign concept in the realm of Ethiopia’s nouveau riches. In our case, it has been more like lifting oneself by clinging to a heavyweight ‘god father’ so that all sorts of business operations can be facilitated without the hurdles of the competitive market. When such arrangements become increasingly untenable, high fliers of the above mold will be confronted with a cruel reality that goes by the name; ‘cost of doing business.’
Fancy cars, lavish houses, unlimited entertainment expenses, foreign travels and loudly trumpeting the whole nonsense over the various media, etc, also add to the cost of doing business. Swanky offices and spruced up ladies might seduce clients to loosen up their grips on their purse string, but this certainly is a costly affair. For certain enterprises hype and paraphernalia serve as major tools of accumulation, examples abound. Bordellos, investment banking or their look alike, such as share companies that are running on the dry, (common in Ethiopia) etc. all belong to this category. From the look of it, our formal private sector is in for a rude awakening of not-so-insignificant proportion. If it is any consolation, here is an observation from a more robust market: in the United States of America a full 95% of small (new) businesses will go under before their fifth birthday. For a less gloomy reflection here is the sage of Omaha.
“Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.” Warren Buffett. Good Day!