Ethiopia’s infrastructure binge shows no signs of slowing down, with plans being made to build a $4 billion second international airport in the Addis Ababa area, one that could serve as many as 120 million passengers per year when it opens in about a decade’s time.
But a new report by risk analysts PGI Intelligence warns that the airport mega-project is at risk of delays due to challenges securing finance, while the huge costs entailed threaten to worsen foreign exchange shortages in the coming years.
The planned airport would make it Africa’s biggest airport by far, and even larger than London’s Heathrow, which handled 73.4 million passengers last year, with a capacity of 90 million.
Africa’s busiest airport is O.R. Tambo International Airport near Johannesburg, South Africa; about 18 million passengers passed through its terminals last year and ongoing expansion work will raise capacity to 28 million.
The planned giant airport in Ethiopia is set to be one of the country’s most ambitious projects, surpassed only by the $4.8 billion Grand Ethiopian Renaissance Dam and demonstrates the government’s ongoing commitment to state-led development through investment in huge infrastructure projects.
Already, Ethiopian Airlines is the only major African carrier that is reporting healthy profits, in the region of $175 million in 2014/15, while the other big three – South African Airways, Kenya Airways and Royal Air Maroc – are facing financial headwinds, bleeding cash badly and/ or reporting virtually no growth as reported earlier by Mail & Guardian Africa.
The project reflects the scale of Ethiopia’s economic ambitions and will form an important component in developing the country’s tourism and light manufacturing sectors, as well as putting Ethiopian Airlines in pole position to consolidate its market share and comprehensively overtake Nairobi as East Africa’s aviation hub.
Separate from Bole
The new project is separate from the ongoing $350 million expansion of the current Bole International Airport in Addis Ababa, illustrating the importance the government has attributed to planned aviation sector growth. The current airport expansion is set to increase capacity from 6 million passengers annually to 22 million by 2018.
The two developments combined aim to transform Addis Ababa into one of the largest aviation hubs in Africa, with the new airport consisting of four runways, several passenger terminals and an airport city on the outskirts of the capital.
But it also raises the question whether Ethiopia can command those kind of passenger numbers to make the investment worthwhile.
A decade ago, Bole handled fewer than a million passengers a year, by last year that had risen to 7 million. Passenger numbers are expected to continue increasing by about 10% a year – which means it could take more than two decades for the airport to reach full capacity.
But Ethiopia’s state-driven capitalist model aims to line up all the ducks in a neat row, looking to deliver passenger numbers not just through bolstering Ethiopian Airlines’ position as an aviation leader in Africa, but also through growth in tourism and light manufacturing sectors, as part of the country’s second Growth and Transformation Plan (GTP-II).
The GTP-II will cover the period 2015-2020, and is set to be launched officially in the next few weeks with the airport as its flagship project. It is also expected to include the $1.8 billion Gilgel Gibe 3 dam, a raft of geothermal, solar and wind projects, and a vast house building programme.
Tourism currently generates $2.9 billion for the economy and several international hotel chains have set up operations in the country in recent years; in August the culture and tourism ministry announced it planned to triple Ethiopia’s annual foreign visitors to 2.5 million by 2020.
Increases to freight capacity will likewise support the light manufacturing sector, for which the government has already attracted several global brands and Unilever, General Electric and GlaxoSmithKline are all planning investments that will supply international markets.
Ethiopia is targeting $1 billion of annual investment in industrial parks over the next decade to boost exports and make it Africa’s top manufacturer. The government may invest half of the $10 billion needed for zones across the country that will house textile, leather, agro-processing and other labour-intensive factories, a special advisor to Prime Minister Hailemariam Desalegn said in May.
But analysts are warning that Ethiopia’s mega-infrastructure binge will put enormous pressure on Ethiopia’s public finances, which are already strained following the first growth and infrastructure plan that expires this year (GTP I 2010-2015).
In September, the IMF reported Ethiopia’s public debt-to-GDP ratio was already at 50%, and GTP II would see this increase further.
Concerns around the sustainability of these debts could create challenges in securing finance for the new airport; without an immediate demand for its services, Ethiopian officials could struggle to secure finance from foreign lenders at concessional rates, the PGI Intelligence report states.
As with GTP I, both the new airport and GTP II are likely to depend heavily on domestic funds to finance projects. The absorption of funds by large infrastructure projects has created huge liquidity problems in Ethiopia over the past five years, resulting in delays to imports and difficulties for the private sector to access finance.
These restraints have been compounded by banking regulations that require banks to pay an additional 27% of each loan to private companies into state bonds that fund the government’s growth plans, a requirement that “frequently deters banks from lending to the private sector,” PGI Intelligence says.
With little sign the government is willing to ease restrictions on the banking sector, access to finance and liquidity will remain among the major barriers to success as the government presses ahead with its growth plans over the next five years, the analysts warn.
Not to be deterred, however, regional banks are all lurking on the streets of Addis Ababa, looking to set themselves up for even the crumbs of Ethiopia’s still very tightly regulated banking sector.
Foreign lenders are not allowed to own banks in Ethiopia, and the financial sector is dominated by the state-owned Commercial Bank of Ethiopia.
But last month, South Africa’s Standard Bank opened an office in Ethiopia, “to gain a foothold in one of Africa’s fastest growing economies”, it said in a statement, and this week, Kenya Commercial Bank (KCB) announced it had received a licence to open a representative office in Ethiopia.
Other banking institutions with representative offices in Addis Ababa include the European Investment Bank, Germany’s Commerzbank, pan-African lender Ecobank, Export-Import Bank of India, National Bank of Egypt and Bank of Africa.
As governments and customers start asking more specific questions about a company’s sustainability and emissions performance, those that can answer them are likely to have a distinct advantage.
When hearing about the science of, or human response to, global climate change, there is sometimes a temptation to just ‘switch off’.
The issue is no longer novel and the days when Al Gore was presenting ‘An Inconvenient Truth’ and receiving the Nobel Prize were almost ten years ago. In 2015, as much as awareness of the problem remains high, there is a sense that the political, policy and economic responses continue to lag.
This is a dangerous mindset; climate change, much like the Internet, is here to stay, and with each day, it only gets worse, not only because of the growing scientific evidence and lived experience of its effects, but also because changes in policy by government and others have the potential to either save or cost a business money.
This December, at ‘COP 21’ in Paris, nations have been tasked with negotiating an international climate agreement. The agreement has the potential to generate a cascading effect through the global economy, with all significant businesses being asked by government and civil society the extent to which they are helping or hindering emissions reduction.
It is potentially the most significant international meeting on global climate change since the first Earth Summit in 1992.
Ten years ago, I was working at 10 Downing Street as the senior advisor to the British Prime Minister on climate change and sustainability. It was critical then, and it is critical now that people understand that climate change is far more than an environmental problem. With the dynamics that lead to emissions growth, global warming and a heightened risk of severe climate events being intrinsic to economic activity, it is vital that economic actors understand how they can reduce emissions and improve wider sustainability performance.
Each year, there is a growing body of evidence that the global climate problem is far more than a future environmental challenge. Whether it is
- the costs associated with severe weather events such as Hurricane Sandy which devastated New York in 2012;
- the destruction wrought by Typhoon Haiyan killing more than 6,000 people in the Philippines in 2013;
- the emerging policy environment as China and the United States agree on bilateral approaches to reducing the risks of climate change, or
- President Obama establishing powerful domestic policies to promote clean energy,
climate change is far more than an issue of concern to environmentalists. We are now at a stage where any major business seeking to grow in new markets must consider whether, and how much, they might contribute to emissions.
And as the evidence of climate change being a clear and present risk becomes more evident, consumers and environmental groups are increasingly concerned about the environmental performance of global businesses.
Look at major agribusinesses operating in Southeast Asia such as Syngenta, which is implementing their ‘good growth plan’ or Unilever, which is seeking to address human development goals and reducing the risks of climate change at the same time.
Tackling climate change is no longer a niche concern among just a few firms, for corporations, measuring, understanding and reporting on emissions performance is part of building and maintaining their corporate reputation and positioning as ambitious players in the global economy.
I am much looking forward to being in Singapore in November to be part of the Responsible Business Forum. It is a conference taking place at the right time – just before December’s climate change conference in Paris – with the right people involved, and in the right place, Singapore. The city is at the heart of Sutheast Asia, the region predicted by the Organisation for Economic Co-operation and Development to enjoy strong average growth of 6.5 per cent a year between 2015 and 2019.
Whether this growth will worsen the global climate problem or be a chance for Southeast Asian firms to demonstrate that development can be achieved sustainably, is a matter of choice, for many businesses operating in southeast Asia responding to the risk of climate change could be a powerful opportunity. As governments and customers in distant markets start asking more specific questions about a company’s sustainability and emissions performance, those that can answer them are likely to have a distinct advantage.
A new research report released today from the Global Canopy Programme highlights the urgent need to create sustainable agricultural commodity markets as a practical solution to halting the destruction of the world’s tropical rainforests.
The report entitled “Achieving Zero (Net) Deforestation Commitments: What it means and how to get there” charts how to realise corporate ‘ Zero Deforestation Pledges ’ and widen global support for them. It examines the deforestation commitments that have been made by hundreds of corporates, the challenges that exist in delivering on these commitments and offers practical recommendations as to how the transition to ‘deforestation free’ global supply chains can be accelerated.
The report finds that, whilst many companies have some kind of policy on deforestation, just 7% have signed up to zero or zero-net deforestation pledges across their supply chains and relatively few investors have any deforestation policies at all.
Jeff Seabright, Chief Sustainability Officer, Unilever says “Businesses globally have a huge opportunity to help avert climate catastrophe by partnering with governments and civil society to drive transformational change. Working together to end unsustainable deforestation from supply chains has the potential to be a game changer, and makes good business sense by building more resilient and equitable supply chains.”
Andrew Mitchell, CEO, Global Canopy Programme says “While companies must act, they cannot do so in isolation. Other influential stakeholders including financial institutions and Governments should play a role in creating the right market conditions that will enable a transition to a world where the production of forest risk commodities in a sustainable way, becomes the norm and not the exception.”
In order to accelerate the implementation of Zero (Net) Deforestation commitments and the creation of sustainable agricultural commodity markets, the main report findings are as follows:
To download a copy of the full report visit http://www.globalcanopy.org/materials/achieving-zero-net-deforestation-commitments
“Today’s price signal is wrong and the fundamental rules of the game need to be changed to get it right.” Andrew Mitchell said, “Bank credit, taxation, subsidies, tariffs and regulation need to favour commodities traded that are not destroying irreplaceable natural capital like rainforests, and penalise those that are. That way business case for change will become an irresistible force to which the market will respond globally. This remains the great opportunity over the next decade. Until then, conservation can do little better than King Canute holding back the tide. ”
In order to grow massive amounts of corn and soybeans, two crops at the center of the U.S. food system, farmers in the Midwest typically apply hundreds of pounds of fertilizer on every acre they farm. This practice allows food companies to produce, and consumers to consume, a lot of relatively cheap food.
But that fertilizer can leach through soil and wash off land, polluting our drinking water, destroying our fishing rivers, and turning a Connecticut-sized chunk of the Gulf of Mexico into an oxygen-depleted hypoxic zone, suffocating aquatic life.
Despite environmental groups, non-profit organizations, and the government pressuring farmers in the Midwest to clean up their act, this multi-billion dollar problem has continued to fester for decades. Now some of the world’s wealthiest food companies are concerned about how it could hurt their bottom lines, and they are beginning to join the effort.
“No parent wants to give their kid a glass of milk in the morning that may be linked to these issues,” said Brooke Barton, senior program director for the water program at Ceres. “The biggest risk for these companies is their reputational risk of being associated with toxic algae and hypoxia.”
Ceres helps some of the biggest investment groups understand the environmental risks associated with the companies in which they invest, and has recently turned its attention to the threat of water scarcity caused, in part, by pollution from the agriculture industry.
Fearing a potential backlash from customers, companies like Coke, Nestle, General Mills, and Unilever, maker of Hellmann’s mayonnaise, are beginning to pressure farmers to reduce their contribution to water pollution.
Unilever, which needs a lot of soybean oil to produce its Hellmann’s mayo, launched Sustainable Soy in partnership with the Iowa Department of Agriculture, Archer Daniels Midland, and the non-profit organization, Practical Farmers of Iowa. The campaign for Sustainable Soy comes complete with an advertising campaign featuring the wholesomeness of Unilever’s soybean farmers. The company hopes to enroll 250 farmers and 285,000 acres of Iowa cropland by the end of the year.
While the U.S. Department of Agriculture has guidelines and a certification process for “organic,” no such program is in place to clarify what it means for a farm or a food product to be “sustainable.” Unilever, which has a sustainable agriculture code (pdf) that outlines practices it expects its farmers to adhere to, said for them, it boils down to “continuous improvement.”
“How can they get better yields? How can they use less fertilizer? How can they just better overall improve their practices?” said Stefani Millie, a senior manager for sustainability at Unilever’s U.S. division.
On the path towards improvement, there’s always a first step. For farmers in the Sustainable Soy program, it’s the very basic step of figuring out what they’re doing that could be contributing to the problem.
To convince farmers to share their farming practices, which they protect like a trade secret, Unilever is offering them an extra ten cents for each bushel of soybeans they grow. In exchange, farmers report things like how much fertilizer they spray, what kind, and when. Unilever lays this private information on top of public information about the land’s soil type, proximity to streams and rivers, and the slope of their hills. The result is an environmental footprint of each one of the farmers’ fields.
Though the farmers and their land remain anonymous, Unilever shares this information with the entire group, which allows farmers to see how the fields on their farm compare and how their farm as a whole stacks up against their neighbors’. The result is a little friendly competition that, Millie said, could lead farmers to invest in improvements.
“They can look and see that maybe they’ve got one field that’s using more Nitrogen. And they can go back and say, “Why is this different from my neighbors?” Millie said. “Hopefully it will trigger some of those thoughts and have them investigate to continue to improve their practices.”
Craig Pfantz, who farms more than 2,000 acres of corn and soybeans in State Center, Iowa, signed up when Unilever launched Sustainable Soy three years ago.
“I like it,” Pfantz said. “What got me into it? To be honest? The ten cent premium.”
Now, he says the knowledge he’s gained is more valuable. For instance, Unilever’s environmental footprints of his fields have given him a clearer picture of his farm’s “problem spots.”
Rounding a corner covered in seven-foot tall stalks, Pfantz’s pickup dips into a valley and then climbs a slope. At the top, he idles his truck in the middle of the road, leans against his steering wheel and points through the rain-spattered windshield towards a steep hill covered in forest green soybeans.
“You get a combine on that kind of slope and you’ll wonder, “what am I even doing here?” Pfantz said. “It probably shouldn’t even be farmed.”
Hills like this are prone to erosion. During heavy rains, they wash away fertile topsoil along with the phosphorus Pfantz sprays on the ground to fertilize the crop. Despite utilizing a number of conservation practices—no-till, side-dressing his nutrients, terracing, and grass waterways to slow down the rain—his rolling ground is still vulnerable to washing away.
That’s a financial loss for Pfantz, who spent money on the fertilizer that runs downstream. There’s also the long term cost of the quality of his soil deteriorating, jeopardizing the value of the land which he’ll eventually pass down to future Pfantz generations.
He thinks out loud for a moment, considering what it would take to convert these patches of ground back into small grains, maybe even pasture. But it doesn’t make economic sense.
“It boils down to profit,” Pfantz shrugs. “The whole agricultural system has been developed around corn and soybeans, so we have to make what we have work.”
Pfantz, committed to reducing his environmental footprint, is signing up for the second step offered to farmers in the Sustainable Soy program. This year, he’ll plant a cover crop of cereal rye on his most vulnerable ground. The crop, which he’ll plant after harvesting his corn and soybeans this fall, will spend the winter soaking up extra nitrogen and holding down his phosphorus and soil.
For the next three years, Sustainable Soy will help Pfantz pay for this conservation practice. After that, he’ll have to foot the bill himself. But, Pfantz believes it’ll be worth it.
“You have to look at cover crops as a long term investment—like putting money in the bank,” he said. “You’ll maintain the sustainability of the land which will make it productive for future generations.”
While Pfantz is making some tangible improvements on his farm, there’s a difference between real progress and good PR for the food company pushing him in this direction.
“Ultimately for this to be credible with consumers,” said Brooke Barton from Ceres, “The companies need to show that there are real changes over time in production impacts. Water quality improvements, soil health improvements, this is the end game.”
To really have an impact on water pollution in the Midwest, companies will need to push more farmers from information gathering to action. And just as farmers react to a little coaxing from companies to do a better a job—companies react to pressure from consumers.