How Ethiopia's cooking-oil industry got burned by US aid

When a brash Wall Street whiz kid named Ermyas Amelga returned to his native Ethiopia a decade ago, he figured he'd help his impoverished homeland by bringing in some entrepreneurial know-how - and make a few bucks doing it.

It turned out to be far tougher than he expected, thanks, in part, to a surprising obstacle: America's foreign-aid programs.

His is a tale of how American food aid - the tons of corn, wheat, and cooking oil from states like Kansas and Iowa - can actually hurt a poor country. It's a story of how too much aid at the wrong time can sap a nation's self-sufficiency and create a dependence on hand-outs.

But it doesn't end too gloomily. For one thing, US aid groups acknowledge past mistakes and have morphed into a model of market savvy.

It all started back in 1996, when Mr. Amelga arrived in Ethiopia's capital and bought what he thought was a sure-fire business: a state-owned cooking-oil factory making $150,000 a year in profits.

"If it was making that much in government hands," he says, "I thought I could make more." Soon his business was thriving. His 180 employees were churning out 55-gallon drums full of a vegetable oil that Ethiopians use every day.

But six months later, he was blindsided. Foreign-aid groups, perhaps mistakenly, declared a cooking-oil shortage in Ethiopia. They nearly tripled annual imports, according to Agridev, a firm that tracks markets here. The move flooded the cooking-oil market. Retail prices dropped by about 40 percent. The factory began losing $30,000 a month. Amelga halted production and, a year later, laid off all his workers. So 180 people lost their jobs, and Ethiopia lost a rare chance to feed its own people.

"These aren't the normal market risks you learn about in business school," says Amelga, who attended Amherst College in Massachusetts and got his MBA at Boston University, then spent a decade in New York and Los Angeles doing investment banking.

US aid groups have since become sensitive to how aid imports can affect local businessmen like Amelga. They're using private consulting firms to do extensive market analysis before food is sent in.

The new sensitivity to boosting local self-sufficiency - including a $3-billion initiative that began last month - comes as the US has dramatically increased its worldwide foreign-aid budget and tilted toward a market-oriented approach.

Now Ethiopia has become a test case of whether American aid strategies can help wean a poor nation from foreign-aid dependence - and support, not bury, enterprises like Amelga's factory.

No matter how well-intentioned the aid is, "If we're competing with local producers, that's no good," says a US official here.

One new program, for instance, is helping Ethiopia's coffee cooperatives get access to credit, thereby boosting buying power and encouraging farmers to expand their businesses. Also, the $3-billion strategy, launched by aid groups and Ethiopia's government - called the New Partnership for Food Security - aims to decrease the yearly need for food aid by building up residents' self-sufficiency.

"Everybody here is saying, 'We don't want to bring in so much food aid every year,' " says Marcy Vigoda of the aid group CARE Ethiopia.

The efforts parallel the broader US aid strategy, which is emphasizing trade over aid, including programs like the 2000 African Growth and Opportunity Act, which gives African nations better access to US markets. In Ethiopia it's helping boost exports of coffee and cooking oil.

But change in foreign aid comes slowly. The US gave a record 1 million tons of free food, worth $550 million, to Ethiopia last year. It gave only $5 million in so-called agricultural development assistance - teaching new crop techniques and giving small loans to farmers, for instance.

And any effort to tilt that balance bumps against a food-aid fact of life: Foreign aid helps subsidize American farmers, who have come to expect - and fiercely lobby - the US government to buy their surplus food.

Despite farmers' clout, however, US aid officials are increasingly pushing a strategy of using cash to buy local food. This encourages domestic producers to expand. Andrew Natsios, administrator of the United States Agency for International Development, has said he'd like to spend 10 percent of his budget on buying local food.

For sure, an all-cash aid program wouldn't solve Ethiopia's problems overnight. More than half of the nation's 70 million people, for instance, live more than a day's walk from any road - paved or dirt. That makes efficient commerce extremely tough. And even if the US expanded local buying, Amelga has no plans to reopen his factory. He's still smarting from the whole experience. "I don't even like oil on my food," he exclaims.

And the happy ending?

After his factory closed down, Amelga discovered high-quality mineral water on the land. He now bottles it at a healthy profit. Still looking every bit the Wall Street financier - with his shaved head and ever-present cellphone earpiece - he drives a Mercedes SUV around Addis Ababa's streets, which teem with donkeys and rattletrap Soviet-era taxis.

One of the best things about his water business, he says, is that it's "aid-proof and import-proof."