Ethiopia on Track to Become Africa’s Energy Superpower

Original story from : Abegaz at - http://seekingalpha.com/user/325016/instablog

This is a growth story. Within it are the flickers of hope and prosperity for what is ostensibly the poorest country on Earth. And so it is also a Christmas card to those investors who follow emerging markets and to those who keep their minds open to developing opportunities.

In the bustling streets, coffee shops and clubs of Addis Ababa, Ethiopia, a palpable change in sentiment is in the air. The country is experiencing a growth renaissance, employment is on the rise and there is an evolving sense of optimism. And it all centers on water, Ethiopian dam construction projects and future food security. The good news in Ethiopia can be summed up in just the following few words. Clean energy, industrial development, irrigation and plenty of cold hard cash. In other words, the Chinese have arrived.

And they want what Ethiopia can offer them. Power, and lots of it.

Now I will bet that the very last word that popped into your head when you first read the word Ethiopia at the start of this article was “power”. You would not be alone. This is the land of famine after all. The devastated country of 85 million people where failed crops have cost several million lives over the past decades, where an absence of irrigation, fertilizer and modern farm practices have been a curse that have stunted that countries development for as long as any of us have ever known.

But in an ironic twist, Ethiopia sits atop huge deposits of potash, has made discoveries of natural gas and is now in the early stages of building its own fertilizer facilities. Not only that, Ethiopia is amongst the wettest of countries in Africa.  Now, everyone knows that the Nile River is the longest in the world but did you know almost 85% of its flow originates in the Ethiopian highlands? One of the key steps in preventing future failed crops will be to start getting some of that surplus water to where it is needed most badly. But that will require pipe, steelmaking, cement production and plenty of money.

Oh, did I mention the Chinese, the dam projects and all that cash yet?

And so, this is what is electrifying Ethiopia and is a harbinger of the end to its dependence on charcoal and kerosene as cooking fuels, an end to its dependence on foreign food aid supports and the beginnings of a very surprising growth story. There is hope now that the deep red soils will not continue to be washed away each rainy season as agricultural practices are improved, electrification supplants deforestation for fuel and tree planting has a real hope of taking hold on lands where only the most meagre of crops were being planted in the past.

And with the advent of power comes fresh investment out of Asia leading to the development of new industries and thousands of new jobs. A better marriage could not have been made by the angels in heaven themselves. Voracious needs, particularly in China, have come face to face with Ethiopia’s tremendous hydroelectric potential, low wages and resource wealth.

These developments have also lead to some of the world’s highest inflation rates too though. This story is not all sunshine and roses people. Like many other poor countries the cost of living is incredibly low. Wages may be rising but there has been a concurrent rise in costs keeping many in the rural areas impoverished. For some, life has only become more of a struggle. The Ethiopian Central Bank, in a surprise announcement last month, devalued the currency by 16.7% in a single day. That was the fourth devaluation in less than two years.

That revaluation was brought in as a means for the country to retain a competitive export advantage and as a means to manage its currency which floats against the US dollar. The falling dollar in effect precipitated the action by the Ethiopian Central Bank. There is no stealth devaluation there at all. The authorities have acted decisively as the country has never been in a good position to compete with heavily subsidized agricultural products of Western nations.

Compounding worries there is the recent commodity boom and the sharp price increases in cotton, coffee, cocoa, wheat, canola and of course cooking fuel (kerosene) amongst others. The problem Ethiopians face is that commodities, while locally sourced, are not locally priced as they are subject to global competition and speculative forces and those prices as we know are set in the futures markets.

So despite being an agricultural country and net food exporter, Ethiopians are facing the same market dynamics and price hikes that we are about to experience in the West (this story is indirectly about us too, so pay attention). And because their country is primarily an agricultural exporter, the new prices hit the streets almost as fast as they change on the boards in New York and London. Ethiopia with its economy heavily biased to agricultural goods is perhaps being hit the hardest as much of the resource boom to date has impacted the so-called soft commodities, primarily food. It is no joke that Ethiopians are now unable to afford buying some of the produce of their own country. Following this last price spike, coffee is almost out of the question for many.

Since the summer, the cost of a kilo of Coffee has climbed from about 2.20 US to over four dollars, almost a 100% price spike.  Affording coffee on an income averaging a dollar daily is not just prohibitive; it is a sacrifice and a luxury. This irony is not lost on the people living right in the midst of the country where coffee was originally discovered and where it is still one of the primary exports abroad.

So Ethiopians have been pretty worried lately. They are stoic though and rarely complain despite the fact that the price of flour is also up over 70%, cooking oil by 50% and onions of all things have increased by an incredible 250% on the heels of a crop failure. And you thought we had inflation worries coming down the pike over here! Ethiopia’s Central Statistical Agency (CSA) meanwhile reports for 2010 that tobacco has risen 34%, clothing 25% and rent, fuel and power have collectively risen by over 16%. Yikes!

All of this of course is on outgrowth of shifting investment dynamics taking place worldwide at this time, where paper investments are seen as risky, bonds pay nothing and holding cash is a sure way to go broke over the long run as currency devaluations have become endemic. There has been a shift, particularly amongst hedge funds, away from certain equities and debt instruments and into hard assets, gold and resources.

Further compounding this growing trend is the widespread belief that Quantitative Easing is leading to dollar devaluation and therefore resource investments are very appealing as a long term hedge against potential losses. Stimulus leakage itself and the outcomes of investment changes that flow from this policy are now the impetus behind both a developing African growth story and some tremendous inflation pressures. These are the sources behind some of the stresses the people there are now facing.

An unfortunate outcome of this major trend change is therefore expressing itself in the form of some very serious price increases and negatively impacting those not just in Ethiopia but in all the poorest countries in the world. It must be kept in mind that in many countries across Africa and parts of Asia food and transportation are the largest components of their monthly expenses. The inflationary impacts of price increases in the double digits are therefore a serious hardship in a way that very few in North America can fully comprehend.   

Today, Ethiopia is one of the largest coffee exporters in the world and not so surprisingly government revenues have surged on the back of the commodity price increases there and also from a host of other export products. Increased incomes from both private and corporate sources including the VAT tax have shot up a staggering 150% in only the last three months according to Nazret.com sources, and the Government is now on track to fully exceed its wildest revenue estimates.

In the simplest terms possible you might imagine that the price increases for food are therefore coming out of the pockets of the average person on the street and then miraculously reappearing on Government ledgers. Of course it is not that simple though and the differences between export revenues and increased consumption costs could hardly balance equitably. But this is not a bad news story and while Ethiopians are paying the price at the till on the one hand the country is experiencing tremendous growth on the other.

Why? Resource’s of course, with water and hydroelectric potential as the cornerstone of the country’s growing regional influence. Ethiopia has them in spades and China, amongst others wants in on that action. So they have shown up with what the country badly needs. Cold hard cash, engineering expertise and generous assistance with infrastructure improvements. Heck, they even send in their own people and equipment to get the jobs done. No hurry of course. Pay the bill later.

In the midst of this boom though, trouble is brewing and it is naturally political. A recently published article by The Economist quotes Prime Minister Meles Zenawi saying the Chinese were “generous and dependable” while backhanding the West and calling them neoliberals. This is not likely leaving a very good taste in Washington’s mouth where the efforts of many, many years of support and contributions to Ethiopian development aid are suddenly not yielding the expected returns. Nor are there smiling faces as it becomes apparent that China is recycling its US dollar balance of trade bounty into efforts that are appearing to be undermining US influence in the Horn of Africa.

It is no secret that Ethiopia has long been considered a key strategic ally in the region. That relationship may be at risk. With China now stepping in with investment money versus aid dollars they are winning the hearts and minds of the population who want jobs, not handouts.

In any event, Mr Zenawi has his own concerns and they are a real worry for his government. Many millions of young people in his country are heading into the workforce over the next decade. He needs to get them busy and fast. A quick look at Ethiopia’s population pyramid and you will know in an instant why the government is shoulder-checking for signs of future trouble and looking for new regional friends with deeper pockets and plenty of needs of their own. So what has developed with Asia is a marriage more than a friendship but it is certain to test Washington’s patience and resolve in the coming years as regional influence is now at stake.

Now one of the surprise upsides to this current commodities boom is that it has actually been beneficial to Ethiopia in many ways despite the extra financial burden it has place on the people.

The country has a suspected treasure trove of resources that are only now being explored but existing discoveries of Gold, Potash, Natural gas and many others are already well know. Exploration for diamonds is now underway in Welega Province by a junior miner out of Australia, holes are being drilled for the first time in the broad search for mineral deposits elsewhere and BHP Billiton is on the scene assessing the local Potash reserves. “China Mining United Fund” is said to be taking a serious look at the Allana potash deposits in the Rift Valley and there is a strong likelihood a partnership will be inked there in due course.

There has been a significant infusion of foreign capital inflows across the country over the last few years and it is now accelerating as new partnerships with Asian investor’s ramp up and jobs are being created. Capital is flowing in from India, Malaysia, Singapore, China, Australia, Canada and many other sources. As I have mentioned already, it is not so surprising that there has also been inflation to match the rapid growth and this has made life difficult for anyone trying to earn a living there (which is pretty much everyone).

The most recent inflation numbers released show that the annual rate is running ahead of 11% even before the commodities craze is priced into the equation. This is on top of last year’s 9% and a 2008 inflation rate that clocked in at a blistering 45%. And in a crazy upside down world, people there hold US dollars as an inflation hedge! This actually makes perfect sense really. Everything is relative isn’t it? And when both Gold and Silver are well beyond the financial means of virtually everyone then a store of Greenbacks is as good as gold itself.

Especially if your own currency is shrinking by the day.

According to the CIA fact-book, Ethiopian GDP growth was ringing in at 8.7% for 2009 while industrial growth exceeded 10% placing Ethiopia 5^thamongst nations on the growth scale. Exports were a paltry 1.6 billion dollars versus 7 billion in imports which is small potatoes by any standard but don’t let that dissuade you from the growth potential that now exists. Much progress obviously still needs to be made. US contributions to programs and aid when added to remittances from the Ethiopian Diaspora overseas, IMF forgiveness of some indebtedness and Chinese direct investment have helped make up some of the difference on the national ledger.   

As mentioned, the Chinese amongst others are taking a very serious interest in the region. You may be surprised to hear that there is a construction boom going on there now. According to the Economist’s “The World in 2011” publication they have noted that Ethiopia and Eritrea of all places will be amongst the top three fastest growing economies of any country on earth this coming year. Growth there is anticipated to exceed 10% annually. Surprise! And you thought it would be China didn’t you?

Nazret.com, the Ethiopian news portal has reported this past week that Chinese investments in excess of 780 million dollars have been made in a wide variety of projects and activities including cement factories that have directly created 76,000 new jobs in the country. This is money in excess of development funds of nearly two billion already allocated by the Chinese Government for an ongoing infrastructure build-out. In the big picture, those millions might sound like spare-change to you but this is clearly very significant relative to Ethiopian export incomes and cannot be understated.

Just imagine for a moment that one single country invested in the US in an amount equal to half of all its export trade and you will then have some perspective on what is taking place over there. Now you get it.

In the background, there are 13 new universities being constructed or contemplated with the assistance of the German Government (GTZ) and related agencies that are designed to accommodate up to 148,000 new students. It’s a big initiative. According to Wiki, almost half the Ethiopian population is below the age of 14 while the median age is 16.8 and those over 65 account for just 2% of the population. That is one hell of a demographic picture. The US median age by comparison is 37 years while those over 65 account for closer to 12%.

Furthermore, health initiatives from a multitude of sources including the US Government, the Gates foundation, Canadian International Development Agency (CIDA) and a host of European NGO’s along with the efforts of hundreds of charitable agencies means the country is stronger and healthier than ever. Aids rates incidentally are amongst the lowest in Africa at 2% and dropping due to education and health initiatives.  

The very low wages have also provided an opportunity and an outlet for some of Asia’s over-heating economies and as a result those countries are now actively outsourcing production themselves. And that is a big surprise to most people who only think of Asia itself as one monstrous insular factory for the world that does not share.

Rarely is it considered that production costs, particularly in China, have spiked due to the current high costs of real estate and growing incomes there and that they themselves are now seeking lower cost jurisdictions from which to maintain low-cost production. Much of Africa beyond Ethiopia is also now benefitting from these recent developments.

So Ethiopia is going into textiles in a very big way and factories have been springing up across the country. The Government of Meles Zenawi has openly welcomed the new investments and resource rights are being sold to interested parties as exploration for minerals ramps up. The government is stable and has been for many years now and the country is for the most part at peace. It is hard to find a friendlier, warmer place to visit actually.

But there is so much more to this developing story. China’s growing demand for construction materials has seen them investing in no less than eight cement facilities recently, both to supply voracious demand in Asia’s booming cities but also to provide the inputs needed for Ethiopia’s new dams construction projects.

Oh yes, the dams again. And here we have a very contentious issue developing that could boil over in the future. There are significant concerns being expressed by Egypt, a country that sees virtually no rain of its own and whose entire civilization depends on the flow of the Nile for its very survival as a nation. Worries that Ethiopia may hold back too much of the Nile flow have brought old threats of war back into the light as Egyptians come to grips with the consequences of the dam projects and concerns that countries life blood may be on the verge of drying up. A flashpoint exists over the issue of equitable water sharing and past agreements will need to be revisited.

For the moment, the details following the release of the new water data have amounted to no more than a war of words but that is no comfort in some quarters. Compounding problems, the US currently supports both Egypt and Ethiopia politically and financially. Brokering a new water deal is seen as a high priority for the region. Momentum is on Ethiopia’s side for now, particularly in light of China’s new interest and it is likely the disputes will need to be settled with the direct cooperation of both Washington and Beijing.

To date, five large Dams have been built across Ethiopia and many more are proposed including a new one on the Blue Nile financed by Sino-Hydro, the same folks who built the Three Gorges project. The new Gibe III project on the Omo river meanwhile will be the highest dam in Africa at 245 meters and is projected to generate 1870 MW of new power. According to The Guardian, Ethiopia now has the potential to generate more than 45,000 Megawatts of power in aggregate. And that is a very big story in North Africa.  All the more so because there are 9 other countries downstream that all share in the water wealth that flows from Ethiopia’s highlands and upon which millions in the Nile Basin depend for irrigation, drinking water and transportation.

So the Chinese have brilliantly seized on the obvious hydroelectric potential of the region and it is true that barring conflicts it is well within Ethiopia’s destiny to become an African energy superpower within the next decade. Clean energy too. Plans are already being drawn up to export power to Sudan, Kenya and other neighbours on the basis of multi mega-watt capacity coming on-stream over the next few years.

But the real power is destined for domestic industrial needs and to meet Chinese demands for inputs to its own economy. Ethiopia as it turns out is strategically positioned for energy intensive factories and related facilities including cement production, bricks and steel. It should come as no surprise then that Chinese based steel-making enterprises have become one of the big partners recently in this evolving investment scene. And it certainly does not hurt that incomes in Ethiopia are the lowest in the world. Getting all the new facilities up and running is a cakewalk when it comes to cash.

Ethiopia is certainly not all a parched dry wasteland as many might have imagined. Although almost totally devoid of trees from end to end, much of it is wet and green, particularly in the highlands, and this is why hydroelectric is such an obvious solution to the growing power needs there and the industrialization that is currently underway.

The rains unfortunately are not always predictable and this has been at the root of some past disasters and famines as irrigation has not been sufficiently developed to date to ensure steady agricultural productivity. That is all about to change though.

You seriously cannot believe how fast this poor country is developing and much of it can be attributed nearly exclusively to growth dynamics out of Asia. The Chinese in particular as already mentioned have moved into the country in a very big way and are busy building roads, dams, irrigation systems and bridges across the country. Things are changing for the better. And fast.

So in a surprise twist, what is arguably the poorest country on earth is actually one of the world’s biggest investment and growth stories of the year. Don’t believe me? Go and see it for yourself. Ethiopian Airlines is well known as the best carrier on the continent sporting the newest fleet of Boeing 737’s and 777-200’s and one of the safest flight records anywhere.

This past two years alone Ethiopian Airlines have acquired or placed on order 35 new Aircraft including 10 state-of-the-art Dreamliner 787’s to add to their growing fleet.  An expansion of Addis Ababa’s Bole International airport which is considered Africa’s primary air hub and hosts almost 4 million passengers annually is ongoing to accommodate the growing traffic and congestion. (And you thought all those people were starving over there, right? So what’s up with all the Dreamliners then?)

The on-board food is terrific incidentally.

Back in Addis meanwhile folks are both optimistic and stressed. Their wages are on the rise but are not keeping up with the loss of buying power caused by the recent Birr devaluations nor keeping pace with the fast rising costs of virtually all their daily needs.

It  can only be hoped that the recent developments eventually lead to a higher standard of living for the country and that it can build its way out of the grips of poverty that have been its hallmark for most of the past century. Industrialization, resources and key partnerships are the ticket to a better future for Ethiopia and are the fuel behind its recent growth story.

And it is not too late to get involved for those with speculative capital and minds open to a wide variety of surprising opportunities. The country is open to investment and a small amount of money can go a very along way indeed and yield potentially explosive results. And that sounds like advertising doesn’t it? Well it is not. One fact alone is that fewer than 1.5 in 100 people in Ethiopia have a cell phone today according to a recent (ITU), International Telecommunications Union report. That is the lowest concentration in all Africa and amongst the lowest anywhere on earth. There is naturally a huge pent up demand for technology of all kinds, a youthful population and a growing belief that change has arrived. The advent of optimism combined with that youth, new consumer demands and rising incomes is of interest to every serious investor.

There are obvious difficulties for anyone trying to invest in this market of course. The country does not yet have its own stock exchange, credit and debit transactions are virtually unknown across the country, few individuals have bank accounts and the banking sector itself is still working through its developmental stage. Some might see opportunity in that though. The real potential is open for the most intrepid investors who simply go in person to get something started. And you could not be closer to the ground floor in any other country. Nobody said investing there would be easy. For most, for the foreseeable future, it just makes more sense to invest in Asian companies that are already active there or more directly in the juniors and small caps that are currently searching for minerals.

Like much of Africa, Ethiopia has energy to burn and a desire to break from the bonds of the past. Demographics tell us there is tremendous potential there and a lot of future customers. Asian direct investment tells us that development is being fast-tracked and this is a country you will want to follow if emerging markets are your cup of tea. And last, Ethiopians themselves are telling us they want to be an integral part of the global community. This is truly a growth story.

If you remain doubtful that Ethiopia has potential I just want you to watch this short video of a concert in Addis Ababa. It is a little rough and almost certainly made with a cell phone but if this does not convince you the country has energy, then nothing ever will. Beyonce is there up front and she leads a show backed by Teddy Afro, one of Ethiopia’s most famous musicians. Have a listen and look at Ethiopia 2010.

http://www.youtube.com/watch?v=BFheOwMW28Q&feature=related

This 5 minute clip should tell you everything I cannot say in words alone. Hopefully this will open your eyes to one of the very biggest developing stories in the world today. It is about the new Africa, the world’s last big frontier and a Wild West of investment opportunities. The potential is tremendous and those people sure look hungry all right. But in a way you probably never expected.

So forget the sad imagery of the past. These people are hungry for their piece of the action.

Merry Christmas!

Booming Ethiopia Is the New Face of Africa

BY RICK ACKERMAN ON DECEMBER 23, 2010 1:24 AM GMT ·

(Here’s a man-bites dog story from Cam Fitzgerald, a frequent contributor to  Rick’s Picks  who lived for a while in Ethiopia. Cam paints a picture of an African nation that will be unfamiliar to many readers; for in fact, even though Ethiopia has only begun to emerge from poverty, its economic prospects are as bright as you will find anywhere on the African continent. To understand why, read Cam’s first-hand report .  RA)  

This is a growth story. A few years ago, I spent some time living in Ethiopia. I was in the suburbs of Addis Ababa, getting to know one terrific family in particular: the mother, who was the real head of the household; the father, Abba, a shoemaker; and his four single daughters, all in their thirties. What could possibly go wrong? OK, I am already getting off track. This is supposed to be an article about Ethiopia’s boom and the inflation that has come in its wake. I call the daughters “my gals” when I talk about them with friends, and we keep in touch almost daily via e-mail.  One is a student, and the other three work: as a translator, a seamstress and a secretary. They all have good educations, speak English and are in every way typical of women you might meet anywhere in the world: the same hopes and dreams, the same troubles with men and the same daily worries about meeting the bills, making ends meet and trying to save.

Well almost the same. You see, these women earn a grand total of 2900 Ethiopian birr in monthly income between them. That’s roughly $175 dollars for six people to share — a fairly typical income in Ethiopia.  However, I never thought of the family as poor during the time I knew them. They own a home, are well educated, eat well, and the girls were always “dressed to kill,” so on the surface it all looked pretty normal to me. Expenses are regional and relative, and so daily costs there are generally incredibly low. But come on! A buck a day per person is just not enough money! Nevertheless.

 16.5% Devaluation Overnight

So the cost of living is low. At least it was. Until the Central Bank, in a surprise announcement last month, devalued the currency by 16.5% in a single day, making it the fourth devaluation in less than two years.  Monetary policy was being used as a means for the country to retain a competitive export advantage, and to manage its currency’s float against the U.S. dollar. A falling dollar in effect precipitated the action by the Ethiopian Central Bank. So, this was no stealth devaluation — it was all in-your-face.

Compounding worries for my girls is the recent commodity boom and an attendant, sharp price increase in cotton, coffee, cocoa, wheat, canola, and of course cooking fuel (kerosene). The problem they are facing is that commodities, while locally sourced, are not locally priced, as they are subject to global competition and speculative forces. Prices are set in the futures markets. So despite being an agricultural country and net food exporter, Ethiopia and its people face the same market dynamics and price hikes that we are about to experience in the West. (This story is indirectly about us, as you will see). And because Ethiopia is primarily an agricultural exporter, the new prices hit the streets almost as fast as they changed on the boards in New York and London. It is no joke that Ethiopians are now unable to afford buying some of the produce of their own country. Following this last price spike, coffee is almost out of the question.

 Coffee a Luxury

Since the summer, the cost of a kilo of coffee has climbed from about$ 2.20 U.S. to more than $4 –a price spike of almost 100%.  Buying coffee on a daily budget of a dollar is not just prohibitive, it is a sacrifice and a luxury. This irony is not lost on the people living right in the midst of the country where coffee was originally discovered, and where it is still a primary exports.

The gals have been pretty worried lately. They are stoic, though, and rarely complain, even though the price of flour is also up over 70%, cooking oil by 50%, and onions (of all things) by an incredible 250%. And you thought we had inflation worries in the U.S.! Ethiopia’s Central Statistical Agency (CSA), meanwhile, reports for 2010 that tobacco has risen 34%, clothing 25% and rent, fuel and power have collectively risen by over 16%. Yikes! All of this is an outgrowth of a shifting, global  investment dynamic that has made paper investments risky; where bonds pay nothing; and where holding cash is a surefire way to go broke over the long run. There has been a shift, particularly amongst hedge funds, from certain equities and debt instruments and into hard assets, gold and resources.

Exacerbating this trend is the widespread belief that quantitative easing is leading to dollar devaluation.  This makes resource investments very appealing as a long-term hedge against inflation. Stimulus leakage itself, as well as the outcomes of investment changes that flow from quantitative easing, are now driving the African growth story even as they exert tremendous inflationary pressures. These are the sources behind some of the stresses the people there are now facing.

 Inflation’s Hardships

An unfortunate outcome of the new dynamic is big price increases that negatively impact not only Ethiopians, but people who live in the poorest countries in the world. Keep in mind that in many countries across Africa and parts of Asia, food and transportation are the largest components of household budgets. Double-digit inflation therefore inflicts hardship in a way that very few North Americans can fully comprehend.  Today, Ethiopia is one of the largest coffee exporters in the world, and not so surprisingly, government revenues have surged on the back of commodity price increases and export growth. Increased incomes from both private and corporate sources including the VAT tax have reportedly shot up a staggering 150% in just the last three months, and the government is on track to fully exceed its wildest estimates.

To look at it one way, the price increases for food are coming out of the pockets of the average person on the street and then miraculously reappearing on government ledgers. While it is not quite simple, the differences between export revenues and increased consumption costs could hardly balance equitably. But this is not a bad-news story, and while Ethiopians are paying the price at the till, the country is experiencing powerful growth on the other. Why?  Because the country possesses abundant natural resources. Ethiopia is a veritable cornucopia, and China (amongst others) wants in on the action. So they have shown up with what the country badly needs: hard cash, engineering expertise and generous assistance with infrastructure improvements. They even send in their own people and equipment to get the jobs done. No hurry of course. Pay the bill later.

 A Happy Surprise

The happy surprise is that the commodities boom is beneficial to Ethiopia in many ways. The country’s natural resources are only now being explored, even as known quantities of gold, potash and natural gas are being exploited beneficially. Diamond exploration is under way in Welega Province by an Australia miner, Nyota (ASX:NYO). From what I know, they are almost certain to find some there. As a result, employment numbers are up across the country and there has been a significant infusion of foreign investment over the last few years. Capital is flowing from India, Malaysia, Singapore, China, Australia and many other sources. Not so surprisingly, there has also been inflation to match the rapid growth, and this has made life difficult for the working man or woman.

The most recent inflation data show that the annual rate is above 11% even without considering commodities. This is on top of last year’s 9%, and an astounding rate of 45% in 2008.  If you can believe this, people there hold U.S. dollars as an inflation hedge! This actually makes perfect sense, since inflation is relative.  And when both Gold and Silver lie beyond the financial means of virtually everyone, then a store of greenbacks seems as good as gold itself. Especially when the value of your own currency is shrinking by the day. According to the CIA fact-book, Ethiopian GDP growth was running at 8.7% for 2009 while industrial growth exceeded 10%, making Ethiopia the world’s fifth fastest-growing economy. Exports were worth a paltry $1.6 billion U.S. versus $7 billion in imports. Obviously, there is much progress needing to be  made. However, as U.S. contributions to programs and aid have added to remittances from the Ethiopian diaspora, IMF forgiveness of some indebtedness and Chinese direct investment have made up the difference, bringing the country’s budget nearly into balance.

 Chinese Investors

As noted above, the Chinese, among others, are taking a very serious interest in the region, which is enjoying a construction boom. According to The Economist, Ethiopia and Eritrea will be among the three fastest-growing economies in the world in 2011. Wow! Growth there is anticipated to exceed 10% annually. Surprise! And you thought it would be China, didn’t you? Nazret.com, the Ethiopian news portal, just reported Chinese investments exceeding $800 million in a wide variety of projects and activities, including cement factories that are creating thousands of new jobs. This might sound like chump change, but it is in fact very significant relative to Ethiopian export incomes.

Imagine for a moment that a single country invested in the U.S. a sum equal to half of America’s exports trade, and you can see what is happening to Ethiopia. In the background, up to 16 new universities are being constructed or are near completion, courtesy of the German government and related agencies. According to Wiki, nearly half of Ethiopia’s population is below the age of 14, and 60% of it is below 30. Quite a contrast to the burgeoning retiree population of Western nations. Furthermore, health initiatives from a multitude of sources including the U.S. Government, the Gates Foundation, Canadian International Development Agency (CIDA) and a host of others are making the country stronger and healthier than ever. At 2%, AIDS rates are among the lowest in Africa and dropping due to education and health initiatives. Relatively low wages have also enticed some of Asia’s overheated economies into outsourcing to Ethiopia. This might seem surprising, since many people think of Asia itself as one monstrous factory. Rarely do we consider that production costs, particularly in China, have spiked due to the ongoing real estate bubble, and that the Chinese themselves are eager to hold down production costs by outsourcing. Much of Africa beyond Ethiopia has been benefiting from this development.

 A Friendly Place

As a result, Ethiopia has been ramping up its textile business at a feverish pace, and factories have been springing up across the country. The government of Meles Zenawi has openly welcomed new investments, and resource rights are being sold to interested parties as exploration for minerals ramps up. The government is stable and has been for many years, and the country is more or less at peace. It would be hard to find a friendlier, warmer place to visit.

But there is so much more to this story. China’s growing demand for construction materials has seen them investing in no fewer than three cement facilities recently to supply voracious demand in Asia’s big cities, but also to build dams in Ethiopia. Dams? Yes.  Few of you reading this will know that the Nile River’s main source of water – as much as 85% of it, according to one recent estimate —  lies in the Ethiopian highlands. This has raised concerns that Egypt may someday receive less than what it currently believes is equitable. Ethiopia is by no means the parched wasteland that many imagine it to be. To the contrary, although almost devoid of trees, much of the country is wet and green, particularly in the highlands, and this is why hydroelectric  is such an obvious solution to the country’s growing power needs.

The rains unfortunately are not always predictable, and this has been at the root of some past disasters and famines, as irrigation has not been sufficiently developed to ensure steady agricultural productivity. But growth has been phenomenal, due in large part to the needs of a burgeoning Asia.  The Chinese in particular have moved into the country in a big way and are busy building roads, dams, irrigation systems and bridges across the country. Things are changing for the better, and quickly.  Thus, in a surprise twist, what is arguably the poorest country on Earth is actually one of the world’s biggest investment and growth stories of the year. Don’t believe me? Go and see it for yourself. Ethiopian Airlines is well known as the best carrier on the continent, sporting the newest fleet of Boeing 737’s and 777-200’s, as well as one of the safest flight records anywhere.

This year alone, Ethiopian Airlines have acquired or placed on order 38 new aircraft including ten state-of-the-art 787’s. An expansion of the Bole International Airport, which is considered Africa’s primary air hub and which hosts almost four million passengers annually, is ongoing to accommodate growing air traffic and congestion. The on-board food, incidentally, is terrific.

 Capitalists Welcome

Back in Addis, meanwhile, my gals are feeling very stressed. Their wages are on the rise but are not keeping pace with the loss of buying power caused by the recent birr devaluations, nor with the fast pace of rising costs for nearly all of the things they need.  I can send cash to help out, of course (and I do), but the girls represent only one small family in a country of more than 80 million people. What about everyone else? I worry, too, for my friends over there, and I can only hope that the recent developments eventually lead to a higher standard of living, and that Ethiopia can escape the grip of poverty that has been its hallmark for most of the past century. Industrialization and resources are clearly the keys to Ethiopia’s future, the fuel behind its recent growth story. It is still early in the game for capitalists to get involved. The country is open to investment, and even a relatively small sum can yield potentially explosive results.

If that sounds like advertising, consider that fewer than 1.5 people in 100 have cell phones, according to a recent report. That is the lowest concentration in all of Africa, and among the lowest in the world. There is huge pent-up demand for technology of all kinds, a youthful population and a growing (although still tiny) middle class. Like much of Africa, Ethiopia has energy to burn and a desire to break from the bonds of the past. Demographics tell us there is tremendous potential there and a lot of future customers. Asian direct investment tells us that development is being fast-tracked. This is a country you will want to follow if you are an investor who is interested in emerging markets. And last, Ethiopians themselves are telling us they want to be an integral part of the global community. This is truly a growth story.

If you remain doubtful that Ethiopia has potential, check out this short video of a concert in Addis Ababa. It is a little rough and almost certainly made with a cell phone, but if this does not convince you the country has energy, then nothing will. Beyonce is center stage, and she kicks off a show featuring Teddy Afro, one of Ethiopia’s most famous musicians.

This five-minute clip should tell you everything I cannot say in words alone. Hopefully, it will open your eyes to one of the very biggest development stories in the world today. It is about the New Africa, the world’s last big frontier, and a Wild West of investment opportunities. The potential is tremendous.  All of those people look hungry, all right — but in a way you probably never expected. So forget the sad, sad imagery of the past. These people are hungry to join the party!

Banking Sector Generates 88 Million US Dollars to Ethiopia

BY NEW BUSINESS ETHIOPIA REPORTER

Ethiopian government has collected a total of one billion and 458 million birr (88.2 million US dollars at the current exchange rates) in profit tax from both private and government banks operating in country in 2009/10 fiscal year (July 8, 2009-July 7, 2010).

Ethiopian Government revenue from banking sector as Illustrated by newbusinessethiopia.com

The income of the east African country from private banking sector has grown by 39 percent for the fiscal year 2009/10 compared to the preceding year.

Ethiopia’s income in profit tax from the ten private banks in the country, which have began making profit, has increased by 162 million birr in 2009/10 fiscal year from the previous fiscal year. It reached 580 million birr (around 35 million US dollars at the current exchange rates).

Ethiopian banking sector data collected by newbusinessethiopia.com shows that the giant state-owned bank in the country, Commercial Bank of Ethiopia, has paid 840 million birr (50.8 million US dollars at the current exchange rates) profit tax in 2009/10 fiscal year which is 46 million birr higher than the preceding fiscal year. 

Banking sector in Ethiopia has also created jobs for a total of around 24,000 citizens. Out of which 13,000 are employed by the ten private banks that already began declaring profit.

The number of employees in the sector and government earning is also expected to increase next year as the new banks such as Abay, Debub global, Hawassa, Enat and Noah banks will go fully operational.

As almost all banks in the country began start making profit during their second year of operation, Bunna International Bank is also expected to contribute for the 2010/11 fiscal year tax income increment of the country from banking sector. 

Ethiopia Gets $224.3 Million Funding for Power Lines

By William Davison

(Updates with comment from ADB in second paragraph.)

Dec. 21 (Bloomberg) -- Ethiopia secured $224.3 million from the African Development Bank to fund the construction of four electricity transmission lines to improve its own power supply and help development in neighboring countries, the lender said.

Additional transmission capacity is “critical and timely” for Ethiopia’s industrial development, said Lamin Barrow, the AFDB’s resident representative, by phone today from the capital, Addis Ababa. The lines will connect areas in the north, east and south-west of the country, and help expedite plans to export power to Sudan and Kenya, he said.

Under a five-year plan, Ethiopia, which suffers from intermittent blackouts, plans to quadruple power generation to at least 8,000 megawatts and expand electricity coverage to 75 percent of the population from 41 percent now. A lack of transmission lines is hindering attempts to export power, the state-owned Ethiopian Electric Power Corp. said on Dec. 8.

The Tunis-based African Development Bank will lend Ethiopia 61 percent of the funds and donate the rest, Barrow said.

The project, which will see 948 kilometers (589 miles) of 230-volt cables laid, is scheduled to finish in Aug. 2013, Barrow said. Eight new sub-stations will be built and another 11 upgraded under the plan, he said.

--Editors: Alastair Reed, Tony Barrett.

To contact the reporter on this story: William Davison in Addis Ababa via Johannesburg at pmrichardson@bloomberg.net

Power Engineering Names Renewable Project of the Year

By Lindsay Morris, Associate Editor, Power Engineering  

At a gala banquet at POWER-GEN International in Orlando, Fla., on December 14, Power Engineering magazine's editors recognized the 2010 Projects of the Year Award finalists and announced the winners.

 

Orlando, Florida, USA -- This year's Power Engineering Projects of the Year Award winners and honorable mentions represented facilities and/or technology that signified excellence in four categories: coal-fired, gas-fired, nuclear and renewable/sustainable.

Best Renewable/Sustainable Projects

Tekeze Hydropower Project

The Tekeze Hydropower project in Ethiopia, located on the Tekeze River, a tributary of the Nile, is the Project of the Year for renewable/sustainable projects. The $350 million project, funded by the government of Ethiopia and owned by Ethiopian Electric Power Corp., adds 40 percent more electric capacity to the country and was the largest public works project in Ethiopia’s history at the time of construction. Due to the lack of natural resources and the cost of imported fuels, power generation in Ethiopia comes primarily from hydroelectric sources.

The Tekeze Hydropower project is the tallest arch dam in Africa at 188 meters. The 300 MW facility includes a double curvature concrete arch dam, a method of design that minimizes the amount of concrete used. It created a reservoir 70 kilometers in length. An underground powerhouse containing four 75 MW Francis Turbines sits 500 meters downstream of the dam and is fed by a 75-meter-high intake structure connected by a 500-meter-long concrete-lined power tunnel. A 230 kV double-circuit transmission line 105 kilometers long was constructed through mountainous terrain to connect to the Ethiopian national grid.

The project’s beginnings date back to 1995 when the Ethiopian Ministry of Water Resources conducted a study identifying the site as one of two preferred dam sites for hydropower development. MWH joined the project in 1998 and made modifications to an existing design for the dam, powerhouse and tunnel system, resulting in cost savings.

A multi-stage impoundment approach was implemented during construction, which allowed the river diversion to be closed in May 2007, nearly two years prior to dam completion. This allowed for more than 3 billion m³ of water to be retained, advancing generation by more than one full year. The value of the water captured via early impoundment was worth approximately $40 million. In addition to power generation, the Tekeze dam enables regulation of river flow, allowing downstream communities year-round access to the water supply.

A 10-year 2000m³/sec flood on Aug. 9, 2006 was an unexpected test for the dam. The dam proved its ability as a gravity structure and no damage was incurred to any of the permanent structures.

Local community infrastructure was improved as a result of the project, including construction of more than 40 kilometers of roads and installation of the first communications links from the area to the outside world. Also as a result of the project, education was improved in the area as the wife of the MWH chief design engineer spearheaded efforts to build a new school near the village of Seboko. The school was financed by contributions from engineers, contractors and staff working on the project, local residents and a supportive local government.

On-the-job training was also provided to locally-hired employees. Ethiopian Electric Power Corp. implemented programs to provide education and training to local workers. Programs included education to combat AIDS, malaria and other safety, health and welfare issues affecting the local community.

Honorable Mentions

Canoe Creek Hydroelectric Project

Canoe Creek Hydro is a 5.5 MW run-of-river hydroelectric facility on Vancouver Island that provides power to a remote community on the island and helping the island become less reliant on mainland power. The facility is owned and operated by the Tla-o-qui-aht First Nation and located in the heart of the Nation’s Tribal Parkland. The Barkley Project Group Ltd., along with Amnis Engineering and Hazelwood Construction One, worked with Vitaulic, a manufacturer of mechanical pipe joining solutions, to develop Canoe Creek. Construction started in May 2009 and ended in May 2010. The plant went into service in June.

Canoe Creek Hydro operates by diverting stream flow into a penstock at a high elevation – up to 84 percent grade – intake. This made construction a challenge, as did the facility’s location in the Pacific Rim Rainforest, where annual precipitation is amongst the heaviest in the world, particularly in the winter months when construction took place.

Constructing the 4-km-long penstock line in these conditions using welding techniques would have proven difficult. Instead of using mechanical welding on the penstock, the companies used mechanical couplings. In the field, the couplings proved advantageous in many ways. For example, couplings could be installed in any weather condition with no special requirements. Couplings also reduced the amount of excavation, bell holing and dewatering that would be common with welding.

Couplings also improved site safety. As the pipe was already on site, Hazelwood grooved and re-coated the pipe prior to sending it up the single-lane logging road for assembly. In addition, the replacement of welding with mechanical joints allowed for a reduction in the number of laborers required on the job site. Canoe Creek also employed local laborers.

Environmental benefits were also gained by replacing welded joints with mechanical joints. Welding one kilometer of straight-run 36-inch pipe produces about 40,338 kg of CO₂ emissions using a diesel-powered machine and 9,463 kg of CO₂ emissions using an electric-powered machine. Grooving and coupling that same run of pipe produces 62 kg of CO₂ emissions. The use of couplings also reduced the amount of x-raying required on site, reducing radiation emission. PM, CO₂ and radiation were reduced, as well as electrical energy use.

Biogas facility owned by PurposeEnergy, Inc.

This biogas facility project at the Magic Hat Brewery in South Burlington, Vt. allows the owner, PurposeEnergy Inc., to use organic waste streams and generate biogas. The biogas is then used by the brewery’s steam boilers and/or PurposeEnergy’s cogeneration plant. In mid-2008, Pizzagalli Construction Co. was selected as the design/build partner for this $3.4 million project at New England’s largest craft brewery. This brewery waste recovery system was developed by CEO and founder of Purpose Energy, Eric Fitch.

Underground process piping, stone aggregate piling for the digester, structural excavation and backfill and all of the concrete work began in December 2009. A 1,600 square foot mechanical building was built and a digester tank was installed. The piping process was completed by May 2010 and the facility began operations in June 2010.

PurposeEnergy’s Biphase Orbicular Biodigester was designed for brewery by-products and enables the conversion of high solids content brewery waste into carbon neutral, renewable biogas. This system is also designed to utilize the waste heat from the generator’s exhaust, coolant and engine oil to heat the digester and preheat the water used in the brewing process.

The PurposeEnergy project has brought many benefits to the facility and environment. By diverting the waste stream created during the brewing process, the brewery’s operating costs have been reduced as Magic Hat Brewery no longer needs to pay for waste treatment surcharges, thereby reducing traffic, noise and air pollution that would result from the transportation of the waste. In addition, the use of this technology creates a clean, carbon neutral energy source that decreases the effects of greenhouse gases on the environment.

Ethiopia tops list of African nations improving quality of life

by Sean McLachlan (RSS feed) on Nov 4th 2010 at 2:00PM

Ethiopia suffers from a bad image thanks to the war and famine of the 1980s. As my series ontravel in Ethiopia showed, however, this is a land of friendly people, beautiful nature, and fascinating historic sites. Infrastructure is slowly improving and the Ethiopians are making serious efforts to boost education, access to clean drinking water, and other improvements to the quality of life.

These efforts have been recognized in the UN's 2010 Human Development Report. It ranked Ethiopia as number 11 in the world for improving human development since 1970, the highest ranking in Africa. The report was prepared by the United Nations Development Programme and measures progress in health, education, income, gender equality, and other areas. Researchers then formulate a "human development index" (HDI) for 135 countries.

Other high-ranking African nations include Botswana (14th), Benin (18th) and Burkina Faso (21st). All of these countries and some others have done especially well in the past ten years. Only looking at the past decade, Burkina Faso, Ethiopia, Mozambique, Rwanda, and Uganda all come out in the global top ten.

One of the biggest areas of improvement was in education. Literacy has almost tripled in Sub-Saharan Africa in the past 40 years to 65 percent. Also, life expectancy is up and infant mortality is down.

Sadly, not all the news is good. The Democratic Republic of the Congo, Zambia, and Zimbabwe were the only three countries in the world where quality of life actually went down.

Good news for Ethiopia is good news to travelers too. While the country is still an adventure travel destination, it's not as rugged as many people think. I spent two months there and my wife spent three weeks, and in all that time we never got sick. Chalk one up for good sanitation and clean water! Also, Ethiopia scores well of gender equality, which meant that, unlike some countries we've been to, my wife didn't get harassed by obnoxious guys. Good education meant we met lots of people who spoke English and wanted to improve it by chatting with us. Improved infrastructure meant there were more paved roads along our route than there were ten years ago.

When it comes to improvements in a country's Human Development Index everybody benefits, even people who don't live there!

BBC apology over Band Aid money reports

The BBC has apologised to Band Aid over reports claiming millions of pounds raised by the charity for famine relief in Ethiopia had been used to buy arms.Continue reading the main story

A report on World Service's Assignment in March claimed large sums of charity money had been diverted by rebels.

Although the report did not directly link Band Aid, other BBC outlets suggested its money had been involved.

The corporation said it apologised unreservedly for the "misleading and unfair impression" which was created.

The original investigation by the BBC's Africa editor, Martin Plaut, included claims that substantial amounts of aid from Western government and charities went into rebel-held areas of Tigray province in 1985 and was used to buy weapons.

In a complaint to the BBC, The Band Aid Trust said the programme and subsequent coverage by other outlets including Radio 4, BBC News and the BBC News website gave the impression most of the money raised by the charity had been diverted.

'Unusual lapse in standards'

After an investigation by the BBC's Editorial Complaints Unit, the corporation concluded there was no evidence relating to money raised by Band Aid or Live Aid, and statements alluding to the fact should not have been broadcast.

The BBC also apologised to Band Aid Trustee Bob Geldof for implying he declined to be interviewed "because he thought the subject too sensitive to be discussed openly".

In response, Mr Geldof said: "This was an unusual lapse in standards by the broadcaster and, most critically, the World Service.

Continue reading the main story

"It was Michael Buerk's frontline reports for the BBC from Ethiopia which prompted me to act and establish Band Aid in the first place and I recognise the important journalistic and humanitarian role the BBC has played in our story.

"We welcome the BBC's apologies and hope that the public corrections can begin to repair some of the appalling damage done, and move forward."

In a statement, the BBC said it regretted the error and "accepts we should have been more explicit in making it clear that the allegations did not relate specifically to Band Aid".

"Assignment did not make the allegation that relief aid provided by Band Aid was diverted. However the BBC acknowledges that this impression could have been taken from the programme," it said.

"We also acknowledge that some of our related reporting of the story reinforced this perception."

It added: "We note that the ruling validates the main thrust of the programme's journalism; that there was evidence from a number of sources that the Tigrayan People's Liberation Front had diverted money intended for famine relief and that some of this was spent on weapons."

On-air apologies will be made on all the BBC outlets that broadcast the claims.