multinationals

0307 Multinationals

[this was a report I prepared for the Ethiopian government on commercial possibilities]

In line with the programme I suggested in my last note to you, I have now completed my initial investigations, mainly through my personal contacts (including, though, the Corporate Planning Group at Shell) as well as the key departments in the Government's Department of Trade and Industry (DTI) and Foreign and Commonwealth Office (FCO). The outcome of these discussions has revealed a number of problems, as we anticipated, but is generally rather more optimistic than I had expected:

This seems to be well received by all I talked to in the UK. Indeed, there was a great deal of enthusiasm for Ethiopia - most of which revolved around the virtues of your government (the first time I have ever heard civil-servants, for instance, enthusing about a government!). The policy of stimulating expatriates to return and set up businesses has worked well in Southern China. On the other hand, the problems caused by the destructive PR campaigns successfully run in Western capitals (especially London and new York) by your political opponents may persuade some of these that Ethiopia is still unstable (though, as you know, the Western governments no longer believe this). I talked this over with some of your colleagues (including Tsadkhan) on my last visit - and the conclusion we came to was that this was a necessary price to pay for distancing yourselves from the corruption of Addis Abeba - and there was little you could do about it (in terms of President Johnson's 'tent' story about J Edgar Hoover) but, even so, you should be aware of the impact of their campaigns.

The DTI suggested that you might profitably consider extending your 'recruitment' to Hong Kong. There are a number of entrepreneurs there, typically specialising in labour intensive industries, who do not rate highly enough to warrant a British passport. An offer of a potential home in a stable, non-racial society (which Ethiopia undoubtedly is) might be attractive to at least some of these.

Shell would probably be interested in talking about rights, and they too are impressed with your government, though they are currently focusing on their core businesses; and new prospecting is not high on their priority list (and the problems of the most direct pipeline access - through Somalia - do not help; though the run to the existing refineries at Aseb is not impossible)). I will meet with the managing director of their Exploration and Production Division (Mark Moody-Stuart) who is the one most likely to be interested.

There are, in any case, others (such as British Gas) who may be hungrier for overseas developments.

It was recognised by all I talked to that you have a power producer's dream, in terms of potential in the longer term; in essence you have the possibility of electrical power which will be so much cheaper than anywhere else that it will be effectively free! Unfortunately, at least in the short and medium term, there is no market (or at least not one which can afford to pay commercial prices for power)!

The main suggestion, here, is that should set up an 'economic development zone' to attract (in particular) heavy users of power - to create the market. The problem is that the best location is (once more) on the coast (at Aseb, say). These heavy users of power are likely to want deep sea access. If they have to truck their raw materials etc. across country much of the cost advantage may be lost. Would a joint venture with the Eritreans be a possibility? Their location (on the main sea route) with your free power might be a very saleable proposition! I leave you, however, to consider the political implications of this!

I will, however, start some talks with my contact, Michael Kelland (who heads up the overseas expansion programme), at (UK) National Power; who are not just one of the largest power utilities in the world, but are very keen to expand outside the UK.

Everyone agrees that the best chance lies with the mineral producers. Ethiopia should be very attractive indeed to them. The problem is, as you know, that as a group they have a terrible reputation for corruption and worse; Lonhro is possibly one of the better ones! To be fair, this is largely a reflection of their need to trade in Third World countries where corruption of one form or another is an essential aspect of doing business. But, whatever the excuses, this clearly poses problems for a government, like your own, which has taken a commendable stand on ethics (and it is precisely this which makes you so attractive to Western governments and corporations).

I have tried to get the UK government involved, to provide some information back-up at least, but - since Thatcher - British industry must now stand on its own feet! Even so, I think I did receive some very discrete support (possibly from the intelligence services) for the organisation I was planning to approach. I also tried the idea (both with Shell and the UK government) of a consortium to underwrite the 'ethics;' of the deal - but it was impossible to see what the other partners might get out of such a deal.

At the end of the day, then, it clearly comes down to a matter of choosing the best of the pack and trying to build a deal (at Presidential level - so that the opportunity for corruption is minimised) which delivers the ethical values as much as the economic ones. I don't think the mining companies (at least the largest ones) really want to indulge in corruption; and even where their subsidiaries do so I think that a few of the head offices might hold out against it being an overall company culture (Shell head office certainly manages to successfully distance itself from the business methods it surely must use in Nigeria).

Everyone (even the discrete support mentioned earlier) seems to think that RTZ is probably the least corrupt. Indeed, I have found no evidence that they have been involved in any such corruptign (and definitely on any systematic scale) - where such evidence seems to be easy to find for almost every other corporation. They themselves are very keen to describe their position as 'squeaky clean' - something which other mining corporations might not rush to claim - and they do actually have in place formal policies on ethics. RTZ is certainly big enough to handle any deal, and is very much involved in the minerals Ethiopia is likely to have.

I am seeing the managing director of their exploration division (Neil McClure) on 17 August, and my impression is that they are very keen to get into Ethiopia - and may have been exploring the idea before I contacted them (they are certainly quite knowledgeable about the prospects there).

I will, of course, keep you informed of any developments - as and when they occur. In summary, though, the picture looks more optimistic than I had expected - the potential is recognised and the organisations in question would be delighted to do business with such an ethical government. This is a good starting point at least.

If you want to contact me please fax me on the above number or phone me at home (as above - 0044 908 679759)