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Table of Contents
Executivesummary…………………………………………………………….....2
Introduction…………………………………………………………………………..3
Investment Patterns…………………………………………………………….....3
Protectionmeasures ……………………………………………………………...4
Competitive advantages needed by BAB…………………………………..5
Exchange regime risks in Ethiopia…………………………………………....6
Politicalrisks/implications BAB might encounter……………………..6
Ways to reduce political risks…………………………………………………...8
Recommendations and conclusion…………………………………………….9
References………………………………………………………………………………..11
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Executive Summary
This report describes the plans for a United States based non-profitorganization, Books
Across Borders (BAB), to begin a literacy development project in Ethiopia. The
Organizations focusis on Primary age children, building libraries and donating booksto the
local schools. Beforeinvesting in the project, BAB must understand the many regulations
and risks associated with the non-profit industry in Ethiopia. Compared with neighboring
countries, Ethiopia has a low number of charities, whichmay in part be because of the high
risks and many barriers in place for charitable organizations. Recent years in Ethiopia have
seen increased accusations of human rights violations and corruption, which has led to
decreased trade and foreign aid between the U.S. and Ethiopia. However,the United States
is still the biggest foreign aid contributorto the country.The report willexplain the political
and exchange regime related risks with operating in Ethiopia, as well as a detailed account
of the actions BAB can take to minimize such risks. In the final section, the recommendation
of whether or not to operate in Ethiopia will be discussed, as well what couldhave or will be
used to overcomeany risks and succeed as an organization.
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Introduction
Books Across Borders (BAB) is a United States based non-profit organization that
focuses on literacy development in underdeveloped nations with extreme illiteracy
rates. BAB builds libraries in primary schools, trains teachers, and donates and
publishes books for the children in those schools. The organization is in its third
year and has been able to help over 1 million children with their literacy
development program. BAB is interested in establishing a program in Ethiopia,
which has one of the highest illiteracy rates across Africa with over 40% of youth
between 15-24 years old who aren’t able to read (Walker, 2015). The charitable
organization regulatory agency in Ethiopia updated its policies in 2009, tightening
regulations on foreign societies attempting to organize in Ethiopia (Icnl.org, 2015).
InvestmentPatterns
The United States is the largest donor country to Ethiopia, with foreign aid totals in
2009 of over $916 million (USAID, 2015). The amount of aid has decreased since
2009 however, to $513 million and $586 million over the following 2 years (USAID,
2015). The two countries are also strong trade partners, with the U.S. exports
totaling over $1.2 billion in 2015, and U.S. imports from Ethiopia reaching $259
million for 2015 (Ethiopia.usembassy.gov, 2015). Recent accusations have risen toward
the Ethiopian government for human rights violations. Ethiopia has long been
considered in the bottom of the world rankings for corruption, ranking 90th out of
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150 countries in 2014 (World Audit Corruption, 2015). The Ethiopian government
was accused of using foreign aid to belittle democracy in the country, which is a
reason for the decreased aid provided by the U.S. Despite the countries
developmental needs and economic troubles, Ethiopia has a surprisingly low level of
charitable organizations operating within the country. It only has 4000 charitable
organizations in the country, which when compared to neighboring country Kenya,
who has less than half the population but over 75,000 charities (Habte Gemeda, 2015),
puts into perspective the issues of operating as an NGO or charity in the country.
Protectionist measures
For organizations to perform trade in Ethiopia, there are a number of regulations.
The organization must be registered with the ministry of trade and industry, and
obtain an official trading license. For foreign companies to conduct business in
Ethiopia or with local firms, the foreign organization must have agents represent
their products in the country. There are also protective tariffs in place to sustain
local businesses, with stricter guidelines on items such as textile products, leather
goods, etc. (Icnl.org, 2015). The Ethiopian government has recently made changes to
lessen the strict customs duties and import policies, and to encourage more FDI
within the country. Reductions on sales taxes on imports to 12% and plans to
reduce tariff rates from the previous range (0 to 50%, average of 20%) to a
maximum 30% rate with an average of 17% by 2018 (Icnl.org, 2015). Though the
changes to promote FDI within Ethiopia are encouraging, the non-profit industry
however has a different set of problems that have yet to be addressed.
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Competitive advantages needed by BAB
For foreign non-profit organizations to succeed in Ethiopia, they must have certain
competitive advantages that are unique to the country. Most non-profits must have
most or all of the following advantages:
numbers of donors
sponsors
staff
volunteers
partnerships
experience (Randle et al. 2013)
In Ethiopia however, many of those ‘advantages’ can actually hurt or even be the demise of
an organization. As previously stated, the Ethiopian government has strict regulations on
foreign charities, limiting the freedom to pursue and promote certain activities. Foreign
charities as opposed to local charities, are those which have more than 10% of their
funding provided from any country outside of Ethiopia (Icnl.org, 2015). Competitive
advantages specifically needed to be successful in Ethiopia include local sources of
funding/sponsoring, alternative business operations for support, and local staff. The local
staff must be familiar with and able to function within the foreign charity regulations, if in
fact the charity is receiving more than 10% funding outside of the country. Finding local
donors or having an alternative for-profit business operating within the country,
depending on how successful, can be used to fund the charity and receive status as an
Ethiopian charity, which comes with many benefits, most of which are crucial for BAB to be
successful in Ethiopia.
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Exchange regime risks in Ethiopia
There are a number of risks associated with exchange regimes if BAB is to enter
Ethiopia. As stated previously, the Ethiopian government is seen as one of the most
corrupt governments in the world, and the US government has cut foreign aid
funding to the country by nearly half, and reduced its militant support to include
only anti-terror support, until the human rights issues improve, which is critical as
Ethiopia is considered a country with a high terror threat. (Gov.uk, 2015). Also, the
IMF and World Bank have proposed a devaluation of the Ethiopian currency to give
Ethiopian commodities, including coffee, maize, sesame seeds, and wheat, a
competitive advantage on the world trade markets (Gov.uk, 2015), which would
directly affect BAB’s sources of local funding if it is to operate as a local organization.
To reduce the risks associated with the devaluation of the currency, BAB would
need to find ways to cut operational costs and increase local funding to battle the
depreciation of the country’s currency. Launching a local for-profit business related
to the non-profits operations could cut costs while generating additional funding to
support BAB during the currency devaluation period.
Political risks/implications BAB may encounter
There are certain political risks and barriers that BAB may encounter which we
anticipate will have the biggest impact on operations in Ethiopia. The Ethiopian
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government requires all charitable organizations to register and if the organization
is foreign, they must show a letter of recommendation from the Ethiopian Ministry
of Foreign Affairs (ICNL.org, 2015). Such barriers can have certain effects on BAB
including a delay in operations, which can be detrimental to the time sensitive
nature of the services offered. Delays can cause loss of volunteers, funding, and
future project developments. Barriers related to operational activity create a new
type of political risk, which may be more apparent for the services BAB bases the
organization upon, educational equality and development. The CSP article 14-n has
restrictions on activities that advance ideas of human or democratic rights, equality
among nations, genders, religions, children’s rights, and conflict resolution. (Icnl.org,
2015) CSP article 14-n will be an issue as the nature of our services promotes
educational equality among genders, social classes, and the promotion of continued
learning. The CSP also allows the agency almost unlimited authority over foreign
charitable organizations, giving themselves the ability to (Icnl.org, 2015):
Require inquiries at any time without notice, on any issues they
decide upon
Require the charity to provide documents on ‘any information’ they
request for
The CSP can prohibit organizations receiving more than 10% foreign funding from
virtually all human rights activities including those noted above. They can make it
more difficult for organizations to receive resources, and make it more difficult to
have communication with any international contacts when they deem suitable. Only
Ethiopian charitable organizations are allowed to promote human and democratic
rights, which refers to those organizations receiving less than 10% of funding from
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foreign funding (Icnl.org, 2015), thus the status of local organization is key to the
success of BAB.
Ways to reduce political risks
With such stringent barriers related to charities and non-profit organizations
coming into Ethiopia, the task of working around the political risks to achieve our
aim will be a key focus as part of the overall strategy. As a foreign charitable
organization, we must be respectful to the regulations set by the CSP, and operate
without promoting any rights that are prohibited. To do so, our team of volunteers,
staff, and leaders should be locals, who understand the custom, and have experience
within the highly regulated system. We will work with local publishers or authors
who are willing to donate to the libraries, in the native language. This not only helps
students learn to read in their own language, but is a way to contribute to the local
economy and learn how the publishing industry works. To stay under 10% foreign
funding, the company can launch a local publishing company, which will not only
help fund the non-profit, but provide cost-efficient tools to help fill the libraries. This
also gives BAB the option of what gets published and by whom. As a primary age
focused project, the publishing company can work with local children’s books
authors to create books to help with the development of literary skills as well as
appealing to the children. Starting a local publish company can again support the
local economy, provide jobs, while also supporting the main mission of BAB, and
have further outreach abilities as an organization in creating opportunities to hit the
main goal, literacy development. The volunteers who construct the libraries will
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work alongside local members of the community, who may be motivated to provide
new opportunities for their children, help design it in a way to suit their customs,
and also have their own impact. We will incorporate the local community in the
projects to not only save cost, but engage them with the development, which
hopefully adds a sense of pride which transfers to sustainability. We believe
allowing the adults and older members of the community build the libraries, they
will be more willing to push children in and make sure it is taken care off. By taking
a hands-off approach to the construction, we can focus on growth and new ways to
make our operations more efficient.
Recommendations and conclusion
In conclusion, based on the clear need of our services in the country, and our pledge
to contribute to the elimination of educational inequality around the world, my
recommendation is for BAB to engage in operations in Ethiopia. Despite the many
barriers and regulations, which are especially stringent among the non-profit
industry, the strategy we’ve developed, including the for-profit business model and
local community involvement, could prove to be ultimately successful. It is crucial to
the success of the project for BAB to gain status as an Ethiopian organization
however. The limitations on foreign charitable organizations, such as not being able
to promote gender, religious, or basic equality is the part of the underlying agenda
of our operations, and without such rights there would be no way to successfully
operate in Ethiopia. To gain status as a local organization, BAB could follow the
above recommendation and launch a for-profit publishing company allowing BAB to
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save costs, donate more books faster, and be in control of where and how far the
organizations success can go. More importantly, the right to promote educational
and gender equality would be granted, and if this can be achieved, the organization
could move forward and have a huge impact on the country. Also, the amount of
experience gained from learning to operate in the heavily regulated industry of
NGO’s in Ethiopia, if successful, will only improve the organizations morale for the
future, and prepare BAB for new, more difficult projects that bring us closer to the
company’s mission, a literate world.
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References:
• Ethiopia.usembassy.gov, (2015). Officesand Departments -
Economic/CommercialOffice| Addis Ababa, Ethiopia - Embassy of the
United States. [online] Available at:
http://ethiopia.usembassy.gov/doing_business_in_ethiopia.html [Accessed 5
Dec. 2015].
• Gov.uk,(2015). Overseas Business Risk - Ethiopia - GOV.UK.[online]
Available at: https://www.gov.uk/government/publications/overseas-
business-risk-ethiopia/overseas-business-risk-ethiopia [Accessed 5 Dec.
2015].
• Habte Gemeda, S. (2015). Doing Business via Non-Profits:Lessons from the
US for Ethiopia. [online] Central European University.Available at:
http://www.etd.ceu.hu/2015/habte_sisay.pdf [Accessed 5 Dec.2015].
• Icnl.org, (2015). Ethiopia - NGO Law Monitor - Research Center - ICNL.
[online] Available at:
http://www.icnl.org/research/monitor/ethiopia.html#top [Accessed 5 Dec.
2015].
• Randle, M., Leisch, F. and Dolnicar, S. (2013). Competition or collaboration?
The effectof non-profitbrand image on volunteer recruitment strategy. J
Brand Manag, 20(8), pp.689-704.
• "U.S. Agency forInternational Development." U.S. Agency forInternational
Development. USAID, n.d. Web. 29 Nov.2015.
• Walker, A. (2015). Giving Literacy, Learning Literacy.Read Teach, 69(3),
pp.299-306.
• World Audit Corruption. 2015. World Audit Corruption. [ONLINE]Available
at: http://www.worldaudit.org/corruption.htm
