News Column

Southwest Holdings Expands Its Investments

June 23, 2014

Kaleyesus Bekele

SouthWest Holdings is an Ethiopian investment group comprising SouthWest Development, SouthWest Energy, and SouthWest Technologies, among others. It is also in the process of establishing SouthWest Foundation.

Kaleyesus Bekele of The Reporter sat down with Tewodros Ashenafi, chairman and CEO of SouthWest Holdings, in his Addis Ababa office and discussed the operations of the subsidiary companies of SouthWest Holdings and its future plans. Excerpts:

The Reporter: Tell us about your background.

Tewodros Ashenafi: I was born in Addis Ababa and I attended the Sanford English Community School. And, of course, that was not a good time in Ethiopia. At the age of 12 I went to the US, where I graduated from a boarding school called Northfield Mt. Hermon School, one of the leading New England prep schools. I then attended Columbia University in New York City. I majored in Economics and I was very lucky that my Economics Guidance Counselor was Prof. Edmond Phelps, who won the Nobel Prize for economics and is considered to be the father of the euro. He guided me while I was doing my degree. After graduating I joined an investment bank called Merrill Lynch & Co. It was one of the leading investment banks on Wall Street. Working at Merrill was a great experience for me. Later on I attended Harvard Business School.

When the military regime in Ethiopia was deposed I started looking at business opportunities in Ethiopia, and then I moved back home and started doing business here.

You recently established SouthWest Technologies. Can you tell us something about that?

SouthWest Technologies is a new business that we launched recently. I think it is the first of its kind in Ethiopia. It is the first third party data center and cloud-based center in Ethiopia. We are trying to help Ethiopia build its ICT status globally. We will essentially be hosting or co-locating servers for companies such as banks, for data recovery, where we intend to have top of the line, third party certified technology and security enhanced data center. We will provide top of the line ICT services to various sectors. We believe that this will help Ethiopian and foreign entrepreneurs to move into e-commerce, e-agriculture, e-learning and other such services in Ethiopia and beyond.

How was the idea conceived?

The idea was conceived by our partner Bhumishq Group based in Mauritius, which planted the idea that this kind of business could work in Ethiopia. It was at the World Economic Forum a few years ago where I met the Chairman of Bhumishq, who proposed that we partner to do this business in Ethiopia. We agreed and started working on it. That is how we launched the business. We announced the launch of the business two weeks ago. The company should be fully operational in the first quarter of next year. Who are your target customers?

Our initial target customers will certainly be the banks. Banks themselves are interested in potentially using our data center for data recovery, complying with a directive of the National Bank of Ethiopia, which requires all banks to have a data recovery center a certain kilometer away from their main operation. One thing we should note is that although banks co-locate their servers in our center, the data is completely still controlled by the banks. We do not have access to the data. We just co-locate their servers in our center with 99 percent uptime. So if there is any problem (disaster) with any of banks then they will have their data safely stored in their servers at our center.

Can you tell us about your first investment in Ethiopia, SouthWest Development?

SouthWest Development is the mother of all our businesses here in Ethiopia. We started it in 2001 as the first oil and gas services provider company in Ethiopia. Our first client was PETRONAS. We have now been doing this for a long time. Most of the oil companies working in Ethiopia are our customers. For instance, currently, we supply life support services to Tullow Oil and New Age. Can you elaborate on what oil and gas services mean?

Basically, oil and gas service means supporting companies engaged in oil and gas exploration projects. Oil and gas service companies handle logistics, catering, customs clearance, civil work etc. Oil companies come to drill and find oil. All the other support services are being delivered by oil and gas service companies. So that is what SouthWest Development mainly does.

But there are other businesses that SWD does.

SWD's main focus is providing oil and gas services but of course we can talk about other investments. SWD in partnership with SABMiller bought the Ambo Mineral Water Factory from the Privatization and Public Enterprises Supervising Agency.

How have the business and the partnership been so far and what is your role?

I am the chairman of the Board, and I think the partnership has done a great job. SABMiller in my opinion is probably the best beverage company in the world. Starting from SABMiller Board of Directors level, to Group CEO and CEO of Africa, all the way down to country GMs, they are some of the smartest people I ever came across.

We brought many changes to Ambo. When we took it over the company was on its last legs. We transformed the company. We launched new products like Ambo flavor, Jiva Cola, orange lemon and a new energy drink.

How much did you invest in the expansion project?

We have invested more than 25 million dollars in new equipment, machineries, civil work and etc. We increased the factory's output and introduced new products. We substantially increased our market share. We increased our export as well. Is the Gambella Ethiopia Hotel also under SWD? Correct. We call it the Baro Gambella Hotel. We also bought the hotel (at that time it was called the Gambella Ethiopia Hotel) from the privatization agency. We turned it into one of the best hotels in Western Ethiopia. We undertook a major expansion project. We built new rooms and equipped them with furniture imported from Bali, Indonesia. We were pleased to recently host the Gambella City centenary at our hotel. The celebration took place in our hotel. Prime Minister Hailemariam Desalegn and other senior government officials stayed in our hotel. We all were pleased to serve them in the Baro Gambella Hotel. We planned to invest 50 million birr on expansion. We completed the first phase of the expansion. We will embark on more expansion projects that include the construction of new rooms, restaurants, bars and a swimming pool. We will also build a gymnasium and a conference center.

You had an aircraft accident in 2007. Can you tell us about that?

As I stated earlier, SouthWest Development started in the oil and gas service business because of PETRONAS. While flying back from looking at drilling operations in Gambella, unfortunately at 11,000 feet the engines failed. In the subsequent crash, a good friend and PETRONAS' Country Manager, Mohammed Aris, died. Were you injured?

I was blessed to survive the plane crash without a single broken bone, and I did not spend a night at a hospital. I think my guardian Saint, St. Gabriel, protected me. Two days after the crash I was at my desk in my office.

How do you feel when you fly now?

Two weeks after the crash I got back on a plane again. My first trip was to Malaysia for three reasons. First, I wanted to pay my respects to Mohammed's family and burial place. Second, I wanted to get a follow-up check-up, my wife was concerned and wanted to make sure that there weren't any missed injuries, such as blood clots etc. Third, I didn't want to acquire the fear of flying. All the objectives were successful.

You have been working on a number of investment projects. Can you tell us how much FDI you helped bring into Ethiopia? In the last 12 years we have been responsible for direct and indirect investments of over 350 million dollars into Ethiopia. It includes all the investment we made on SouthWest Development, SouthWest Energy and through our various partners.

You were selected as Young Global Leader by the World Economic Forum. Tell us about that.

The World Economic Forum plays an important role in spurring economic development all over the world. I was fortunate enough to be selected as the Young Global Leader, the first Ethiopian to join the group. That gave me the opportunity to work closely with the Forum. As you know we worked very hard to get Ethiopia to host the World Economic Forum on Africa. I think it was a big success. Global companies' interest in Ethiopia has skyrocketed after Ethiopia hosted the conference. Before the Forum I told one of the senior leaders of the Forum that there would be a big change in Ethiopia after the conference, and that prediction came true. And we are very proud of the role we played in that. Tell about SouthWest Energy's operation in Ethiopia.

Let us talk about the exploration project that SWE has been doing in Gambella. We recently completed a 19,000 km FTG (Full Tenser Gradiometer). FTG is a US military technology that is now being used in oil exploration. A plane flies over the concession area and essentially takes a 3D picture of what lies underneath. Along with 2D seismic it is a powerful exploration tool. We are planning a seismic survey to be followed by drilling. SouthWest Energy was the first to fly FTG in Ethiopia.

In our blocks in the Jijiga basin we have conducted gravity and seismic surveys. We were supposed to start drilling the first exploration well but there was a slight delay due to a drilling contractor pulling out at the last minute. However, now I am pleased to inform you that we have identified another drilling rig. We, together with experts of the Ministry of Mines, will inspect the rig at the end of this month. The drilling location has been identified and presented to the Ministry. We are doing some groundwork and will expedite the drilling process.

Some people complain about delayed oil exploration projects and why Ethiopia is unable to find and extract oil?

I think there is a misunderstanding about the oil exploration industry. Understandably people have a wrong perception of the industry. Some ask why companies do not find and extract oil immediately. Why drilling takes a long time. Well, oil exploration by its very nature takes a long time and is very capital intensive.

First, Ethiopia is under-explored. Let us take the basin in the Somali Region, which is 350,000 It is the same size as the North Sea basin. A basin is an area where oil and gas would have been generated. In the Somali region there have been only 50 wells drilled in the last 40 years. In the North Sea there have been 6,650 wells drilled in the last 40 years. In the Ogaden out of 50 only 11 were exploration wells, the remaining being development wells. Out of the 11 exploration wells, three wells have hydrocarbon discovered in them. So proven gas reserves and oil shows were discovered. So this tells you how much Ethiopia is under-explored. In the US every year 20,000 wells are drilled. If we drill three or four wells in Ethiopia in a year it is a big deal. It is easier to build an Empire State Building than to drill three kilometers below ground. It is a very complicated business. That is what people do not understand. You spend a lot of money on exploration projects and after you drill you may not find anything. That means you lost millions of dollars down a black hole. In our case we will spend 30 million dollars for each well we drill. It is equivalent to 600 million birr per well. So if we drill and do not find anything think of throwing away 600 million birr on the ground. Of course we feel that we will find something, otherwise we wouldn't be making the investment. However, it needs a thorough study, planning, de-risking before starting drilling. We are planning to drill three or four wells and that will cost us about 2.4 billion birr. So we have to be very careful. We must do more to educate the public on this issue.

What else are you planning to do in Ethiopia?

We have a number of other businesses that we are going to set up in Ethiopia. I do not want to talk about them at this point. We are also in the process of setting up a foundation in Ethiopia. We call it the SouthWest Foundation. One of the aims of the foundation will be to foster entrepreneurship. Our goal in Ethiopia is to really push entrepreneurship forward in in order to create jobs.

How do you plan to achieve that?

We will do this by helping guide young entrepreneurs establish or expand their own businesses. We will advise and mentor young entrepreneurs. We shall help them write business plans and acquire seed/angel investors. We want to help young dynamic Ethiopians establish their own businesses and become successful investors themselves. I believe these 100 successful entrepreneurs will create thousands of jobs, and help create another 100 Ethiopian birr millionaires. And our aim is that 50 percent of these entrepreneurs be female.

The foundation will have its own organized, institutional way of accepting and processing applications. We will have a selection committee to pick projects to be supported.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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