Nestlé faces storm of criticism over Ethiopian claims

Related tags Nestlé Investment World bank

Demands for damages of around $6 million from the Ethiopian
government at a time when the country is facing famine have led to
a storm of protest against Swiss food giant Nestle. But the company
said it would invest the proceeds of the claim in Ethiopia itself
to help promote long-term growth.

Moves by Swiss food group Nestle to claim compensation in the region of $6 million (€5.86m) from the Ethiopian authorities at a time when the country is in the middle of the biggest famine for decades have been roundly criticised by humanitarian organisations. Nestle is determined to press ahead with the claims, and said that the issue had been misrepresented by the press.

Nestle's claim dates back to 1975, when the then government of Ethiopia expropriated all foreign owned corporations, among them ELIDCO, a company majority owned by Germany's Schweisfurth Group which was subsequently acquired by the Swiss coffee, confectionery and dairy products group in 1986.

Nestle took over the negotiations with the Ethiopian Compensation Commission, which Schweisfurth had started in 1978. In August 1998, ELIDCO was sold by the Ethiopian government to a local private company for $8.73 million.

In 2001, the Ethiopian authorities decided to settle the issue with the help of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank. Proposals for compensation of the expropriated companies were made and negotiations are on-going, Nestle said. These negotiations are presently concentrating on technical points, such as exchange rates.

While many would argue that Nestle has a right to be compensated for the arbitrary confiscation of the ELIDCO business, there are perhaps more who would claim that the world's largest food company has no right to demand such a large amount from one of the world's poorest countries, especially as it did not actually own ELIDCO at the time.

That is certainly the view held by Oxfam. "Ethiopia is currently facing a terrible drought which is already leaving over 11 million people facing hunger. This crisis has been made even worse by the collapse of world coffee prices - a quarter of the population is dependent on the coffee industry and Ethiopia relies on coffee for 60 per cent of its exports,"​ the relief organisation said in a statement.

"Yet Nestle is demanding that Ethiopia pay over $6 million in compensation for a business that was nationalised under a different government 27 years ago, a business that Nestle did not even own at the time. The same $6 million could provide clean water to more than 4 million people in Ethiopia or build 6,500 wells in this drought ravaged country."

But Nestle insists that the negotiations must be carried out according to international law "in the interest of the continued flow of foreign direct investment"​ in Ethiopia and other developing countries.

"A solution in this case will constitute an important step in re-establishing the confidence of potential foreign investors, which is clearly in the interest of the Ethiopian population and the country's economic development,"​ the company said in a statement. "Nestle will therefore continue to co-operate with the World Bank and with the Ethiopian authorities in order to come to a solution."

In a move clearly designed to placate the growing numbers of opponents to claim for damages - many of which of course come from consumers, the very people on which Nestle is dependent - the Swiss company has pledged to invest the proceeds of the compensation negotiation in a long-term, viable investment in Ethiopia which, it said, would contribute to the economic development of the country.

But in reality Nestle does not need the $6 million dollars it is seeking - or even the $1.5 billion which is all the Ethiopian authorities say they can afford - and certainly does not need that money to invest in Ethiopia or any other country.

Nestle, which has frequently been at the centre of controversy relating to its business practices in the developing world (such as promoting infant food in countries where the water supply is not safe, thus putting babies' lives at risk), said it would always respond to requests for help to alleviate the suffering of people threatened by the food shortage in Ethiopia - but clearly this help will be conditional, and entirely on the terms of the company itself.

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