African Business Via Acquire Media NewsEdge
Woldeloul Kassa is a highly trained hi-tech engineer who has worked for some of the biggest names in Silicon Valley. When he returned to Ethiopia to contribute to the development of his native country, he realised that no one was producing a mobile phone supporting the Amharic language and therefore accessible to the majority of Ethiopians, particularly in rural areas. So he got together four other techno-savvy individuals and they set out to do it themselves. They had the technical knowledge to develop the software, all they needed was a factory to manufacture the handset. Given their determination they crossed this barrier as well and today, they own part of TANA Communications, the company they set up to make the first mobile phone in Amharic.
The assembly plant, also the first of its kind in Ethiopia, started production in the last quarter of 2011. It is based in Bahar Dar, the regional capital of Amhara, the area around Lake Tana in the North. “We have already made 50,000 handsets and have won a tender to supply another 450,000,” said Woldeloul Kassa (commonly known as Wolde), who now sits on the Board of TANA Communications. TANA was awarded the tender by national telecommunication operator, the Ethiopian Telecommunications Corporation (ETC), which sells the handset to the retail market as a package together with airtime and a SIM card.
With the new phone, farmers in rural areas will be able to text each other, opening the way for trade and business to be done through SMS.
“At first we developed the software because there was no phone providing Amharic language services, but then we realised that there was also a need for a cheap handset to be produced,” said Wolde. “That’s how we took the decision to assemble in Ethiopia.” To finance the venture, TANA Communications received a 70% loan from the Ethiopian Development Bank which specialises in projects that help regional development and job creation. The rest of the funds were provided by TIRET, a development organisation affiliated with the Amhara National Democratic Movement, one of the national political parties. TANA is a joint venture between TIRET and Janora, the holding company formed by the five founding members.
Their project was helped by the fact that about 80% of the mobile handsets on the Ethiopian market are currently smuggled illegally into the country, partly because of high import taxes. “We negotiated a rebate on import duties for the components to be able to be competitive on the market,” said Wolde. “In return, we create jobs, we pay corporation and payroll tax and we have a product made in Ethiopia.” That’s only a first step. It is estimated that in the next three years, the number of mobile phone users will increase by 30m, after the Ethiopian Telecommunications Corporation extends the mobile network. “When I looked at the projection, I realised that there was a huge potential market for cheap handsets. That convinced us not to waste time setting up the business,” said Wolde. “We estimate that 20% of the increased demand, about 6m will come from the lower end of the market,precisely our segment.” Because of low labour costs compared to other production centres, TANA is able to manufacture a handset affordable to the vast majority of people in Ethiopia. The phone is currently sold at 370 birr ($20) including airtime, and is one of the cheapest on the market. “Comparatively, our phone is cheaper: it has radio FM, a torch, a longer life battery which we developed ourselves, and the Amharic language software,” said Wolde.
The components are supplied by Chinese company ZTE, which provides everything from the microchip to the sticky tape for packaging. “We approached other companies such as Nokia and Ericsson but they were not interested,” said Wolde. “ZTE was already established in Africa, but they didn’t want to take the risk of manufacturing locally, so it worked for both of us.” The design of the handset is similar to the one ZTE produces in Venezuela and Vietnam.
Rigorous testing Despite the encouraging start, TANA Communications is not without growing pains. The company has to manage inevitable cash f low problems. It is waiting to be paid by its main client, ETC, for the handsets just delivered, and has to pay its supplier for the next set of components. “To overcome the problem, we have negotiated a 120-days credit line with our bank,” explained Wolde. “It gives us enough time to produce and sell the phone, before we have to pay our supplier.” The plant in Bahar Dar employs about 200 people, of which 80% are women. “They tend to be faster on the assembly line,” said Wolde. The average age of staff is 21. “We employ a lot of young graduates from Bahar Dar Technology College, but not exclusively. We did open the employment opportunities to competent candidates from all over Ethiopia, and some of them got the job,” said Mulugeta Maru, TANA’s chief executive officer, based in Bahar Dar.
The factory he runs currently has three lines with a capacity of 1,500 handsets per shift per line. At the moment, the factory only works one shift because of delays in the supply of components, but they will shortly start a second shift. “Potentially, we could produce 9,000 handsets per day, with three lines and two shifts, that’s our target to meet the ETC contract,” he said. For now, he has no intention of introducing a third one, as people do not work night shifts in Ethiopia. “It may be difficult to accept culturally, so for now we won’t do it,” he added.
The manufactured handsets also undergo a rigorous testing process. “We give a lot of attention to the quality of the phone. Our target is to reach a 99.9% success rate in the factory. At the moment, about 120 handsets out of 1,000 have a minor defect, representing an 88% success rate. We need to improve on this figure.” The phone is guaranteed for six months to the retail consumer.
TANA Communications has also introduced incentives for staff members. If they produce more than the target number of phones per day, the additional profit is redistributed. “We don’t want to lower our labour cost per unit, we prefer to share the gains,” said Maru.
In addition to the low-cost mobile handset, TANA communications also manufactures a fixed wireless phone, which looks like a fixed-line cordless phone, but uses the mobile network instead. “This phone is very popular in rural areas not connected to the fixed-line network.
We sell it directly to retailers,” said Wolde.
As far as the five founding partners are concerned, this is only the beginning of a bigger story, which would transform Bahar Dar and the Amhara region into the technology centre of Ethiopia. Like Wolde, they have all worked in Silicon Valley as engineers and have the ambition of creating a new Silicon Valley in Ethiopia. “Right now we are looking into developing an LED light business, which could work well in rural Ethiopia, but we have many other projects. We are also considering manufacturing some of the components ourselves,” said Wolde. “Our ultimate aim is to contribute to the development of our country, that’s the reason why we came back.”
(c) 2012 IC Publications Provided by Syndigate.info an Albawaba.com company