Human Capital Deficit Story of the Ethiopian Cement Industry & Self Sufficiency Approach
Gemechu Waktola Olana, Ph.D. CEO, The i-Capital Africa Institute www.icapitalafrica.net Assistant Professor of Management College of Business & Economics Addis Ababa University
[email protected] [email protected]
The Context
In this presentation
HC Deficit Ways forward
I.
The Context
The Nokia Story •
Once was at the top of Smartphone market In September 2013, NOKIA announced that they had been acquired by Microsoft in a deal valued at $7.17 billion. At the time, Nokia’s CEO Stephen Elop ended his speech with the following words.
“We didn’t do anything wrong, but somehow, we lost.”
• Many wondered “how the once a King – Nokia ended up there?” • Some wrote articles on what other companies can learn from Nokia’s failure. • One of the interesting reflections says:
“Nokia failed because they did THE ONE THING THAT DRIVES MOST COMPANIES INTO THE GROUND”
What was that “THE ONE THING THAT DRIVES MOST COMPANIES INTO THE GROUND”
?
That one thing is … “DOING NOTHING while technically doing nothing wrong”
• While Nokia technically did nothing wrong, Ziad Jawabra wrote:
“They missed out on LEARNING, they missed out on CHANGING, and thus they lost the opportunity at hand to make it big. Not only did they miss the opportunity to earn big money, they lost their chance of survival.”
Yes, • Technology is important • Finance is critical
Learning & Changing
But this is a KNOWLEDGE/TALENT ECONOMY.
Unfortunately… not technology or finance based economy
It means …
Learning and changing is at the heart & center of SURVIVAL and SUCCESS for any company • Learning & changing mainly takes place through people
Hence, it’s about your HUMAN CAPITAL (HC)
What’s it anyway? According to Bontis et al (1999) : ‘HC represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization.’
Unfortunately
Looking at the Ethiopian cement industry from HC perspective, there are worrisome developments potentially causing the “Nokia Scenario” in the long term.
Indicators show that most of the cement companies in specific and the industry in general are missing on learning and changing enough . Which, in effect, caused significant deficit on cement HC.
Even though many executives in the cement industry and other sectors have the tendency to believe that their prime asset is either technology or finance, research findings show that …
… HC is your prime asset …
According to Armstrong (2008), “Human capital can be regarded as the prime asset of an organization, and businesses need to invest in that asset to ensure their SURVIVAL AND GROWTH.”
It can be argued that cement producers, individually & collectively, are the major ones to blame for the industry’s HC deficits. Nevertheless, they are not alone …
Stakeholders
Government ministry [mainly Education & Industry] Training & education institutions Employers/companies Individuals/employees
FOUR major stakeholders are involved for making an effective workforce development system in Ethiopia (Olana & Jacobs, 2017). Unfortunately too little is being done at all levels.
II. The Deficit 1600 1400 1200 No. of foreign experts
Deficit Indicator I. Dependence on imported skills
Estimated size of foreign cement experts in the cement industry
1000
800 600 400 200
0
2011/12
Total Clearance
2012/13
2013/14
2014/15
2015/16
1
237
535
443
Total New
627
1037
832
878
398
Total Renewal
44
122
484
541
577
Available
671
1159
1316
1419
975
(Data source: MoLSA)
Dependence on imported skills could be a short-term fix, but in the long-term it is strategically unwise & damaging for the industry’s sustainability
Average monthly pay per expert = 4,500USD =94,500 Ethiopian Birr
Average est. pay for foreign experts
2015/16
2014/15
Average annual pay = 59,832,000.00USD = 1.23 Billion Ethiopian Birr
2013/14 2012/13 2011/12 0
20000000
40000000
60000000
80000000
Annual Pay (USD)
2011/12 36,234,000
2012/13 62,586,000
2013/14 71,064,000
2014/15 76,626,000
2015/16 52,650,000
Monthly Pay (USD)
3,019,500
5,215,500
5,922,000
6,385,500
4,387,500
671
1159
1316
1419
975
Available
Est. total pay (2011-16) = 299,160,000.00USD = 6.3 Billion Ethiopian Birr
This annual cost means … (perspective) Foreign to local pay ratio
1:4 [94,500 ETB to 20,000 ETB]
10X of Cement Export earning in 2016 FOB Value
123,804,496.70 ETB 5,642,043.86 USD
The paradox is, the Ethiopian cement industry was once hopped to become employment creator, foreign currency saver and earner. …. but, is that really so?
How much sense does this make in a country where according to MoE, in 2015 alone:
395,598 TVET graduates 107,567 degree graduates N.B. Significant majority are in science & engineering field due to 70/30 policy
Graduate unemployment is a concern among many. Some sources indicate that unemployment rate in this country may go as far as 17% (CIA, 2012 est), 16.8% (Trading Economics, 2017 est)
Deficit Indicator II. Dependence on Competitors for local skill
Employee poaching/theft has almost become a norm within the industry Competitors are considered primary source of local skill. It’s common to find Ethiopian cement experts who have rotated in four or more companies in just few years.
Unless quickly addressed. this practice will have a destabilizing effect on the industry sooner or later
?
How did the once self-sufficient cement industry got to this level of dependence & deficit?
… there are of course multiple reasons aligned with growth of the cement industry …
2017
(Source: ECIDS, 2015)
Lack of adequate industry workforce planning Lack of organized labor market information system Failure to monitor contracts and companies for transfer of skill Policy gap tolerating employers reluctance to develop but rely on unsustainable sources of HC
Investors are allowed to employ expatriate employees in Ethiopia (mainly for three years) with the basic assumption that there is enough time for the investor to ensure knowledge and skills are transferred to locals so that the expatriate employees can leave.
• No cement specialized program for higher level cement professionals in any of the universities • TVET institutes didn’t take initiative to analyze industry demand and launch training programs at different levels
• Though need some improvements, there are cement occupational standards for Level I-IV. There is also competency assessment & certification framework at TVET level. Actual training has been missing There was initiative at Muger Cement but terminated. The main reason is turnover of senior experts who have also been trainers.
Lack of operational preparedness during project phase O&M with foreign contractors used as a preferred and reliable option Reliance on employee poaching or stealing from each other than developing own internally
No systematic HC planning and competent HC development strategy internally Reluctance to develop HC for fear of losing experts to competitors Many more … For nearly a decade, no evidence of meaningful transfer of knowledge and technology from almost all of O&M contracts with foreign firms .
The biggest
Q
s here are:
What if existing companies plan expansion expansion? What if new producers enter the market ?
What if per capita cement consumption grows to 500kg/yr from the current less than 70kg/yr What if production capacity doubles from existing nearly 17million tons/year
III. The Ways Forward Cement is such a very strategic sector to be left alone
As the problem of HC deficit in Ethiopian Cement Industry is caused due to layered problems, the solution also calls for a layered but integrated approach.
Proposed Approach for developing
High level professionals
Lower and middle level professionals
High Level Cement Professionals
Fresh applicants Recent graduates in related fields
Existing employees in companies
Generic B.Sc. Cement concentration Generic M.Sc. in cement concentration
Highly specialized professionals (BSc, MSc, etc)
Tailored M.Sc. in cement concentration [Part-time, block, blended, etc]
Strong university-industry partnership is critical
Middle and Lower Level Cement Professionals
Apply DACUM technique for occupational analysis
Incorporate S-OJT Delivery in cement companies [Competency based framework]
Outcome-based Organization of TVET System [TVET Strategy, 2008; page 25]
Some recommended actions Better mindset
Workforce planning and labor market information system for the industry
Improve existing OS based on systematic occupational analysis
Incentives/or withdrawals For HCD efforts (eg. training Levy)
Co-finance HC self sufficiency project (eg. 5years)
Competency based framework at industry & company levels
Imported skills only where strategically needed
HCD Strategy & systems in companies
Carefully examining work permits & renewals
Strong workplace learning (S-OJT)
Efficient use of local experts (Employed or self)
Enforce phase-in phaseout approach with existing O&M
Project Based Approach (attainable in five years)
•
Target a period
•
Create ownership & Commit stakeholders
•
Pool resource
•
Monitor and evaluate progresses and result
MoI, MoI, MoST
Cement Association
Education & Training Institutes
Cement Producers
Project Team
Cement Selfsufficiency project
Thank you!
