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Month: December 2019
“IT’S ETHIOPIA’S SEASON”
It looks like Prime Minister Abiy Ahmed (PhD) has begun an undeclared campaign on the behest of his newly merged and yet-to-be registered Prosperity Party (PP), which he chairs. Addressing a conference on peace held at Millennium Hall in Addis Abeba on Friday, December 20, 2019, he declared that this is “Ethiopia’s Season.”
In confident mood and enumerating some of the achievements of his administration and recent international recognition President Sahlework Zewdie and members of his cabinet have received from various entities, he said Ethiopia’s prosperity is inevitable. It sounded more like a campaign speech, intended to inspire his base, increasingly those in the urban middle and upper-middle class.
The conference, organised by members of the business community, was also attended by Deputy Prime Minister Demeke Mekonnen, Muferiat Kamil, minister of Peace, and Benalef Andualem, in charge of PP’s secretariate.
The peace conference was a conclusion of a series of public dialogue sessions held at different venues in the last couple of weeks involving youth, business leaders, social media influencers and religious and community leaders from the Amhara and Oromia regional states. The series of dialogues with various communities aimed at reducing the tensions and disturbances that have been happening in some areas of the regions, resulting in loss of lives and property damage.
Members of the business community would like to see this change in order to ensure there is “an Ethiopia, safe and convenient for all its citizens,” according to Frealem Shibabaw, chairwoman of the committee which organised the conference.
Ethiopia Signs Up for IMF Deal: What’s in Store?
It is not unprecedented for the International Monetary Fund (IMF) to lend an amount much more substantial than what is prescribed in its members’ quota. But it is rare for it to extend a generous loan 700pc larger than Ethiopia’s quota under its Special Drawing Right (SDR). At 1,000pc more than its quota, it was Argentina that had received a larger loan than Ethiopia.
The IMF and other multilateral creditors are indeed showing their vote of confidence in Prime Minister Abiy Ahmed’s (PhD) administration for its political opening up and economic policy liberalisation. The flow of cash in foreign exchange is a tap at the back for pursuing the economic reform agenda, designed to correct internal and external imbalances. Abiy’s international supporters seem to realise that the stakes in Ethiopia have never been higher.
There is hardly any debate on the poor state of Ethiopia’s economy. It has been in a coma, in desperate need of life-saving IV Fluid. The economy suffers from limits in productivity and lack of competitiveness both in the domestic and global markets. These are structural constraints requiring long term fixes.
Inflation and growing unemployment are the ills of the economy on the domestic front with pressure on policymakers for a quick fix. The external imbalances do mainly come from the poor performance of the export sector, causing low foreign currency reserves, a wide gap in the official exchange rate with the parallel market, and thus the highly overvalued Birr against a basket of major currencies.
These are outcomes of policies pursued by what was an activist state under the EPRDF regime. Despite remarkable gains over a decade, the growth resulted due to public financed investments, which have not only been inflationary. They put the country in paralysis.
The deal made with the IMF is thus not a structural response that is attempting to solve the underlying chronic problems of Ethiopia’s economy. It may provide policymakers with some respite, while they plot for the long-term recovery.
The IMF will provide a billion dollars a year for three years to the central bank’s coffers, in six tranches of about half a billion dollars each. With an almost zero interest rate, a five-and-a half-year grace period, and a 10-year payback time, it is a package the Prime Minister characterised as borrowing from a mother.
It is not without some concessions by Abiy’s administration on the monetary and fiscal policy fronts though.
The IMF targets a series of cuts on the central bank’s broad money supply from over 20pc down to perhaps 17pc of GDP. There will be a limit to what the public sector will borrow from the banks, while the administration will find itself under pressure to reduce its domestic and external debts. Ensuring a threshold of forex – perhaps a minimum of five billion dollars – could as well come as a requirement.
One of the major bones of contention between the multilateral creditors and Ethiopia’s government was the substantial public debt incurred in the massive public investments in infrastructure projects. Though desirable, it was deemed to be unsustainable at the scale it was undertaken. Making the public sector the central player, it had the effect of crowding out the private sector. The latter had received credit amounting to 11pc of GDP, half the African average.
By restructuring the management of and reigning in the insatiable borrowing habits of state-owned enterprises, the twin aims of decreasing public debt and making room for the private sector can be achieved. That the economy will be more private sector friendly than it has ever been can be a safe bet. Little surprising then that the macroeconomic goals are to keep the economy on the growth trajectory, reduce the debt-ratio, abate inflation and raise the forex reserve.
The question remains what impact will these have and what are the safeguards in place to protect the most vulnerable in the course of implementing these reform measures?
The days of businesspeople sniffing for giant government bids in the closing days of the fiscal year may have gone. Not to say that there will be none, but it will not be anywhere near the scale many in the private sector are accustomed to. The state’s reduced role in its activism in the economy may have a cooling effect in the short-term while making more room for the private sector at the same time. Businesspeople who have made their money with the relatively predictable pattern of past government patronage will undoubtedly be going through severe withdrawal pains.
As the central bank tries to bring inflation down to a single-digit, it will not be surprising to see its officials compelled to raise interest rates on deposits.
Even though they have recently lifted the 27pc mandatory government bond purchase requirement on private banks, they will not want to see all of that cash flood the market and push inflation up further. They will have to keep the cost of borrowing relatively high and encourage domestic savings. The impact of the central bank cutting down on the growth of broad money will no doubt stop the spending spree seen over the past years.
With the central bank having a robust reserve in foreign exchange, and the most likely move being to let the values of the Birr determined in a competitive market, businesses will likely find it easy to access foreign currency. It will lead to the depreciation of the value of the Birr against other currencies, making the cost of imports more expensive.
The days ahead will be times of increases in the cost of borrowing and foreign currency, without a corresponding rise in the purchasing power of consumers. Businesses may find it challenging to sell imported merchandise as much as they used to. If done well, this may mean good news for local manufacturers, which may at long last have their day in the sun.
But all of these forecasts will go out the window without law and order, while the country is going through the highly-anticipated national elections. Ironically, the most crucial economic fundamental remains political stability. If that can be ensured, the potential for economic recovery is in a much better place than it has been for awhile.
The foot soldiers of the Prosperity Party (PP)…
The foot soldiers of the Prosperity Party (PP) were busy last week addressing business leaders gathered at the various hotels in the city, including the Sheraton and Hilton, gossip observed. They were galvanising the business community to raise the 3.2 billion Br the party leaders set out to generate to finance the yet-to-be registered party, which is poised to challenge its political foes in the electoral battleground, claims gossip.
Those in charge of PP do swear in having the desire to do their politics different from their predecessor, the EPRDF, gossip observed. The emphasis they give to the unity of the country – as opposed to amplifying its diversity – is the most noticeable, claims gossip. The temptation to embrace political and economic liberalism and the urge to change the leftist political culture that has dominated public life for over the past half-century are the traits those at the gossip corridors see in the Prosperity Party’s way of conducting business.
Nonetheless, old habits die hard. They seem far removed from untangling themselves from the old ways of co-opting the business community to doll out money whether or not the donors are convinced of the cause, claims gossip. Many in the private sector see it as a way of buying an insurance policy against perceived retaliation coming their way should they show defiance in the face of power, gossip observed.
It is unfair to blame only the politicians though, says gossip. The initiative often comes from some of the leaders in the business community who may see opportunities to brush shoulders with the emerging political elite, claims gossip. The tradition is that some over-enthusiastic businesspeople form a committee to go around lobbying others in the various industries to donate funds in the service of an incumbent political force as the case is now, disclosed gossip.
A new committee has been formed by Abinet Woldemeskel and Tadesse Tilahun, shareholders of National Oil Company, where Mohammed Ali Al-Amoudi (sheihk)holds a majority stake, reveals gossip. Other businesspeople such as Alemayehu Ketema and Belayneh Kindie, heavy heaters in the construction and export sectors, respectively, are part of the committee tasking itself with raising money for the PP, gossip disclosed.
Up until last week, the committee has managed to secure pledges amounting to 600 million Br, including 100 million Br from companies under MIDROC Ethiopia who have promised to donate to PP, gossip disclosed. It is not clear though if this amount includes the 20 million Br apportioned to Dashen Bank, where several business interests under MIDROC and individuals in Al-Amoudi’s orbit hold shares, says gossip.
Dashen Bank was not alone in finding itself on the receiving end of this apportioning, according to gossip. Earlier last week, there was a meeting organised by those at the central bank and chaired by Abebe Abebayehu, commissioner of the Ethiopian Investment Commission, with CEOs of the banks and insurance firms, gossip disclosed.
Abebe tried to sell the PP as a political force that stands in the interest of the private sector; hence, their support in its bid for the electoral win, claims gossip. Many were not in the mood to engage in political dialogue, perhaps unsure of what to do in the absence of a nod from their respective board of directors, says gossip. Except for Kiros Jirane, the CEO of Africa Insurance, who objected to donating to a partisan political party, but said he would seek the consent of his directors, gossip disclosed.
While up to five million Birr and three million Birr was expected from the banks and insurance firms, respectively, Abraham Alero, the CEO from Berhan Bank, produced a cheque amounting to 10 million Br on the spot, gossip disclosed. Awash and Oromia Cooperative banks have reportedly pledged to donate up to 20 million Br each, while many of the other banks will give between 10 million to 15 million Br, depending on what their directors say, according to gossip.
Those in the beverage industry, many of them disgruntled due to the recently introduced bill on the excise tax, and the cement industry will likely be subjected to donations reaching tens of millions of Birr, claims gossip.
Awaking to New Excise Tax, Brewers Hold Back Investment
Ahead of the legislation of the new excise tax bill, international breweries and soft drink bottlers have started withdrawing from expansion projects.
Beverage companies are also gearing up to downsize their workforces at existing plants in light of the new excise tax bill that was tabled to the parliament last week. The draft proclamation proposes an average weighted percentage increase of 160.5pc across 378 goods and services – including vehicles, locally manufactured goods, sugar and telecomunication services – under 19 categories.
Heineken Brewery Ethiopia, a Dutch brewing giant that operates in 85 countries, has already withdrawn its investment plan in Meshnti Wereda, close to Bahir Dar in Amhara Regional State.
East African Bottling, bottler of Coca-Cola, as well as BGI Ethiopia, Dashen Brewery S.C. and Diageo Plc, brewers of St. George, Dashen and Meta beers, respectively, are also waiting for the legislation of the bill before making decisions on pending expansion projects.
Aimed at increasing revenues from excise tax, the bill has been in a drafting process for the past year. For this fiscal year, the government expects 58pc of the 387 billion Br federal budget to be covered by revenues from tax. To achieve this target, the Ministry of Finance has been working on revising the tax regime, including amending the value-added and excise tax laws.
“The current excise tax collection system is subject to poor administration,” said Mulay Weldu, tax policy director of the Ministry of Finance, explaining the reason for the amendment.
Yohannes Woldegaberial, a tax law expert who previously worked for the current Ministry of Revenues, agrees with Mulay, saying the tax law would regulate the taxation system.
However, Yohannes argues that the Ministry overestimated demand while drafting the bill.
For this fiscal year, the government targets to collect 18.8 billion Br from the excise tax, of which a little over a quarter of the value is expected from breweries.
With the new bill tabled to the lawmakers, the Ministry proposes a minimum of five percent on telecom services and a maximum 500pc excise tax on used vehicles. The bill also introduces an excise tax on telecommunication services, plastic bags, rubber tyres and human hair extensions.
Beverages with up to five percent of alcoholic content are supposed to pay 40pc excise tax. It also imposed 25pc and 15pc tax rates on soft drinks and bottled water, respectively. This technically means that a bottle of a beer will be sold at a minimum of 22.4 Br, higher by 6.4 Br from the existing selling price. A soft drink and a litre of water will also be sold at a minimum of 12.50 Br and 11.50 Br, respectively.
Among the total of 19 beer brands, two of them, Bedele Special of Heineken and Guinness of Diageo, have a 5.5pc alcoholic content, which are subjected to an 80pc excise tax.
This amendment triggered the executives of international companies operating in Ethiopia to reconsider their investment plans. They say the new tax law will raise the price of their products, which will finally lead to a decline in demand, according to the companies.
Heineken, the largest brewer in Ethiopia with a production capacity of 5.6 million hectolitres a year, was in the midst of a soil and water testing process for a 250-million-dollar expansion plan that would have hired 3,000 workers. However, the executives of the company withdrew from the process when the bill was approved by the Council of Ministers at the end of last month.
Currently, the company is also restructuring its sales team by laying off 170 employees. This follows the legislation of another law that banned the advertisement of alcoholic beverages on broadcast media. Heineken operates with three factories, Qilinto, Harar and Bedele, offering eight brands of alcoholic and non-alcoholic beverages.
Officials from Heineken, however, declined to comment on the issue, stating that the process has not been finalised.
The Ethiopian Brewers Association, which is comprised of six members that brew 25 brands, is evaluating the industry to project future prices and to get prepared ahead of the expected industry shock.
“The industry has already been suffering from an advertisement ban and the depreciation of the Birr,” said a person familiar with the issue. “Now the new excise tax bill is entering the scene.”
East African Bottling is also reconsidering its 300-million-dollar investments in Sebeta and Hawassa. The company, which has a little over 2,000 employees, is also in the process of laying off employees and has decreased the number of its working shifts from three to two, according to the a person familiar with the case.
“This overestimated view on the demand elasticity of the goods will highly affect the industry,” Yohannes said. “Before the bill is legislated, the government should balance the ambitious plan with the current situation of the economy.”
MetEC Loses One More Wing
Metals & Engineering Corporation (MetEC), the state-owned military-industrial conglomerate, lost one more department that has been working on quality assurance and certification.
Last month, Prime Minister Abiy Ahmed (PhD) approved a request that moved the Quality Engineering Centre of MetEC to the Technology & Innovation Institute. Established under MetEC in 2009 and started service three years later, the Centre has been calibrating the quality of the product made by the Corporation.
The letter from the Office of the Prime Minister has incorporated the Centre into the newly established Institute, which operates under the Ministry of Innovation & Technology.
TheCentre has laboratory facilities with pressure, electric, metal and liquid machines that are used to measure quality.
Operating with 72 employees, the Centre has been involved in confirming the quality of telescopes and military radios. It also got involved in quality inspection for the Grand Ethiopian Renaissance Dam (GERD) over the past several years.
The Centre has four institutes operating under it, namely the Calibration & Testing Laboratory Institute, the Project Quality Standard & Certification Institute, the Precision Equipment Maintenance & Manufacturing Institute and an institute that provides training and technical support.
It was only providing service to the products of the Corporation, not industry operators, a shortfall that the new restructuring hopes to ameliorate.
Moving the Centre to the Institute was recommended by a committee that was formed from MetEC and the Institute eight months ago. The 10-member committee had conducted an assessment and forwarded the recommendation to the Office of the Prime Minister.
The Centre was not performing as effective as it was expected, according to Ahmed Hamza (Brig. Gen), director-general of MetEC.
Sandokan Debebe, director-general at the Technology Innovation Institute that was established last year, also says that the Centre did not go with MetEC’s mission.
“[MetEC] was in charge of producing industrial products,” said Sandokan, “while giving standards is normally a mandate of a third party.”
The duties of the Centre overlap with the department at the Institute, and that is why it was moved there, according to Sandokan.
The Corporation, which was established with the initiative of the late Prime Minister Meles Zenawi, was designed to serve as a major tool for industrialisation and transformation of the country to middle-income status. However, it has been criticised for mismanaging public money and property.
Last year, four of the nine industries operating under MetEC were moved to the Ministry of Defence by a decision of the Prime Minister. Homicho Ammunition Engineering Complex, Gafat Armament Engineering Complex, Dejen Aviation Engineering Industry and Special Armament Industries were the four that were transferred.
After taking over the Centre, the Institute will give training to its employees in collaboration with the Addis Abeba Institute of Technology on how to use and operate the machines and laboratory equipment, according to Sandokan.
“Even after it is transferred to the Institute, MetEC will continue using the Centre,” he said. “It is a good thing to get quality certification from a third party.”
The recently restructured Centre will be operational soon after taking over the property from MetEC, according to Sandokan.
Currently, MetEC is working to finalise the process.
The Technology & Innovation Institute was founded last year and has the function of providing information to support scientific and technological activities in the country.
Eshete Berhanu (PhD), associate professor at Addis Abeba University’s School of Mechanical & Industrial Engineering, seconds the decision of moving the Centre to the Institute.
The move will increase the Centre’s independence, autonomy and visibility, according to Eshete, who says that there could be a possible overlapping mandate with the Ethiopian Standard Agency unless they closely work together.
‘‘Despite the delay, if they come to work together sooner, it will benefit the industrial sector in the country,’’ said Eshete.
Eshete also recommends the Centre focus on new technological tasks that have not been done before.
Oldest City Bus Service Digitises Operations
With financing from the World Bank, Anbessa City Bus Service Enterprise is starting the process of adopting an application for better transport management.
The 77-year-old public transport operator secured 12.5 million dollars from the World Bank for the project. Out of the total budget, 10 million dollars of it is allocated for the Intelligent Transport System, while the remaining is allotted for consultancy service.
Using computers and communications equipment, the system aims at making the city’s transportation system faster, safer and more efficient. The System includes e-ticketing cards, a global positioning system (GPS) and passenger counting application.
The System will also have automatic vehicle identifiers and GPS-based automatic vehicle locators with cameras. The hardware mainly records data, including traffic count, travel speed, travel time, location, vehicle weight and delays. The hardware devices are connected to servers located at data collection centres, which store information for further analysis.
The system targets to achieve traffic efficiency by minimising traffic problems, according to Habtu Reda, an information tech main process owner of the Enterprise, which transports more than half a million citizens a day across 125 routes and generates more than 1.2 million Br a day.
“It provides users with prior information about traffic conditions and seat availability,” said Habtu. “It will also increase road safety and efficient infrastructure usage.”
The Enterprise has been conducting a feasibility study on the project for a year and a half with the assistance of the Addis Abeba Transport Authority’s Transport Management Office (TPMO).
Delhi Integrated Multi-Modal Transit System Ltd, an Indian firm, was hired for the consultancy service, including the preparation of user functionality, design and specification including preparation of the bid document. The company was hired in 2016 to work on the first phase of the project, which is the feasibility study part.
The Indian firm, which was formed after a joint venture merger between the National Capital Territory of Delhi and the IDFC Foundation, specialises in urban transportation, commissioning, consultancy, intelligent transport system solutions and urban transport asset management services.
The Enterprise will float an international tender in a month to hire a company that will supply the programme, according to Habtu.
To supervise and follow up on the project, a steering committee was formed from Sheger City Bus, TPMO and the Enterprise. The project, which is expected to be fully implemented in the next Ethiopian year, has two lots: infrastructure development and application.
Once fully implemented, the system will help the Enterprise control aggressive driving, fuel waste and the mechanical breakdown of buses, according to Habtu.
The Enterprise dispatches 600 buses a day, and it has 811 buses in total, out of which 543 are the latest models.
The programme is also comprised of finance and human resource systems along with passenger information, bus allocation and a ticketing system, according to Behailu Gebreyesus, head of the Project Implementation Unit at the TPMO.
Considering this, the Enterprise, which operates with 4,200 employees, is giving basic training to 400 employees and advanced training on ITS for 26 employees.
The IT department of the Enterprise has also designed three sample software programmes for e-ticketing, key performance indicators and preventive maintenance management for the training, according to Habtu.
The city’s Transport Management Office has a plan to implement the e-ticketing system at Sheger City Bus, another public transporter.
Amha Wondimu, the founder and chief technical officer of ZalaTech Website, a design, software development and hardware network installation company, fears that the programme would be affected by the internet outages since the application is internet-based.
Amha also recommends the Enterprise consider implementing an electronic payment system for users.
The electronic payment system should be integrated with the core banking system of banks, he suggested.
Royal Trains Leave La Gare for Palace
The four historical royal wagon trains, which were used to transport the royal family and their cabinet, were relocated to the Jubilee Palace from La Gare.
The trains that were kept out of operation for decades were moved to the Palace in the middle of last week to make space for the construction of 1,680 condominium housing units that are planned by the City Administration.
Two of the trains are presents from Queen Elizabeth II of the United Kingdom to Emperor Haileselassie, while the remaining are gifts from France after the Second World War. The seven-decade-old trains are equipped with facilities including beds, kitchens, toilets and a resting compartment for royal guards.
The trains are placed on rails constructed at a designated area within the compound of the Palace, which will be administering them afterwards. The length of the four train cars range between 15m to 17m. The trains were transported to the Palace by heavy-duty transport trucks.
A month and a half ago, Ethio-Djibouti Railway Organisation, which has been administrating the trains, wrote a letter to the Authority for Research & Conservation of Cultural Heritage and the National Palace Administration. In the letter, the Enterprise requested the two parties move the trains from the construction area.
The Organisation requested the relocation to protect the trains from being damaged during the construction, according to Solomon Eshetu, general manager of Ethio-Djbouti Railway Organization.
The houses are part of the city’s plan of building 20,504 condominium housing units for 56 billion Br, which are expected to be completed in two years time. The projects will include 174 blocks of condominiums.
“The contractors began soil testing on December 19, 2019,” said Solomon.
The two trains provided by the French government will be returned to their original place at La Gare upon the completion of the projects. The others from the British government will be kept at the Palace for an indefinite period.
La Gare, located at the geographic centre of the capital, serves as a historic memorial for the residents of the capital. The oldest and the first-ever train station in the country with railway lines that extend from Addis Abeba to Djibouti had its headquarters located in this area.
The construction of the railway was completed in 1917 during the reign of Emperor Minilik II. Since then, the train station had been used as a central junction linking the southern and eastern parts of the country with the central highlands.
Kassaye Begashaw (PhD), a lecturer at the archaeology and heritage management department at Addis Abeba University, believes that the relocation of the trains will protect them from potential damage during construction.
“They have to be protected to maintain the original colours and conditions of the trains,” Kassaye said.
Kassaye also recommends the Ministry of Culture & Tourism promote the trains as national heritages to increase the flow of tourists into the country, since it helps generate more revenue.
One of the major problems in the sector is that the historical and cultural institutions are kept in poor conditions, since they are managed by the unqualified human resources in the field, according to Kassaye.
“To get more benefit from such cultural heritages, the government should have a clear strategy and policy,” he recommended.
Oromia Insurance Kicks off HQs Building
The Financial District in the capital welcomes the construction of one more headquarters building – this time for Oromia Insurance Company.
To rest on 3,004Sqm of land, the 35-storey building will cost the company 1.5 billion Br and is expected to be completed in four years.
Having four basements, the building will be located between the premises of the Ethiopian Coffee, Tea Marketing & Development Authority and the Federal Small & Medium Manufacturing Industry Development Agency across from Wabi Shebelle Hotel.
Anchor Foundation Specialist Plc, a local firm specialised in foundation construction and known for building the United and Nib bank HQs, Marriot International and the Addis Abeba Light Railway Transit Qality Terminal, is working on the foundation work.
The company started the digging and shoring process on November 16, 2019, according to Legesse Dabesa, project manager at Oromia Insurance.
Zeleke Belay Architect Plc, another local firm in the business for over two decades that has undertaken projects including universities, hospitals and corporate office buildings in the past, won the bid two years ago to design the building and supervise the contractors.
For the construction of the structural works, Oromia Insurance has already floated a tender, which will close at the end of this month.
Planned as a multi-purpose building, it will join the already built and under construction headquarters of the banks as well as Nib Insurance, Ethiopian Insurance Corporation and United Insurance.
The construction of the building was initiated in partnership between the insurance firm and Oromia Coffee Farmers’ Cooperative Union, which is a member of the board of directors of Oromia Insurance and Oromia International Bank.
The Union, which was established in 1999 by 34 cooperatives with 22,000 members but has now grown to 405 cooperatives with a paid capital of 20 million dollars, initially planned to contribute 750 million Br to the construction of the building. However, the Union withdrew its plan.
“It wasn’t due to a conflict,’’ said Oumer Wabe, general manager of the Union. ‘‘We’ve decided to part ways due to the vitality of the business.’’
The new management of the Union, which has been at the helm since 2015, came to a consensus that the investment was not reasonable for the Union in terms of profitability, according to him.
Rather than investing in a building, the Union has decided to increase the number of processing plants to generate earnings, according to Oumer.
Thus, the Union asked the City Administration for land to build a coffee complex that will be used to showcase products and promote their coffee through coffee shops inside the complex, according to him.
Before withdrawing the planned investment, the management of the Union, which had been under the auspices of Tadesse Meskela, already put 15 million Br into the building.
Currently, the two parties are in the process of finalising the divorce, according to Oumer. However, officials at Oromia Insurance declined to comment on the issue.
“We have completely agreed with the insurance company, and we are ready to go through any legal procedures needed,” said Oumer.
Currently, the insurance firm shares a headquarters with Oromia International Bank. The two reside in a 13-storey building that is located near Getu Commercial Centre. Located on Africa Avenue, the Bank acquired the building at a cost of 210 million Br in 2013. It originally belonged to SA, a sister company of Garad Plc.
Annually, the insurance company pays seven million Birr to Oromia International Bank as rent for the seventh and eighth floors it occupies. The two also share the second and ground floors.
Established in 2009 with 540 founding shareholders and a paid-up capital of 26 million Br , the insurance company’s assets have grown to 1.1 billion Br and gross written premium of 452.4 million Br. The insurer now has 879 shareholders with a paid-up capital of 280 million Br.
Zewdie Shebere (PhD), a lecturer at Addis Abeba University in the areas of business management and economic development, says that the construction of the building will relieve the company from rental expenses.
During the last fiscal year, the company spent 19.1 million Br on rent, which is almost a quarter of its net profit.
“The company can also use the building as a source of income,” Zewdie said.
The design for Oromia Insurance Company’s future headquarters, which is being built in the Financial District at a cost of 1.5 billion Br, is quite futuristic.
Dashen Acquires Fire Safety Certificate
The recently inaugurated headquarters building of Dashen Bank turns out to be the first bank in the capital to receive a fire safety standards certificate.
Located in front of the National Bank of Ethiopia on Sudan Avenue, the building received the certification from the Addis Abeba Fire & Disaster Risk Management Commission on November 19, 2019. The certification is valid for a year, and it should be renewed annually.
The Commission has previously granted the same certificate for the hotels in the capital that earn star ratings. However, other buildings in the city including banks do not have this certificate.
The building is equipped with a complete fire extinguishing system with fire exits, reserve water, and a smoke, heat and gas emissions system, according to Habtamu Eba (Com.), security manager at Dashen, which was established 24 years ago.
Dashen headquarters has a central security station managed by staff that are mainly trained for the operations, according to Habtamu.
“The staff of the Bank also received training on basic fire safety measures,” Habtamu told Fortune.
Inaugurated last year, the headquarters has 21 storeys, was constructed for a little over a billion Birr, and sprawls over 3,495Sqm of land. MIDROC Construction constructed the building.
Most of the buildings in the city do not consider safety standards in the building code, according to Edomiya Tiruneh, institutional safety inspection and certification team leader at the Commission.
Building Code Standards, which were prepared by the Ministry of Construction & Housing Development in 2014, stipulated precautionary fire measures to be duly considered in building design, construction and use.
Office buildings, hotels and manufacturing companies, including textile factories and chemical industries, have different criteria and standards of safety requirements depending on the level of heat they generate in their operations.
Accordingly, the standards require the availability of automatic sprinklers and FM200 gas, a fire suppression substance used to extinguish the fire by removing oxygen and heat elements from buildings during an emergency. It also requires the availability of 115 to 150 cubic metres of reserve water stored within the building structures. The standards mandate buildings have a fire pump if they are above two floors.
Institutions are required to keep fire safety equipment such as fire hoses, dry chemical extinguishers and foam near meeting halls, parking areas and close to gas and chemical storage facilities. They are also expected to prepare and put an emergency response and evacuation plans in place.
“The presence of trained human resources is also mandatory to effectively use safety systems whenever the need may arise,” says Edomiya.
Usually, building owners themselves apply to the Commission for safety standard inspection and certification. A team of professionals will be dispatched to inspect the buildings based on the specific criteria outlined in the directives.
However, Abraham Assefa (PhD), an assistant professor at Addis Abeba Institute of Technology and a resident engineer for the Commercial Bank of Ethiopia’s new headquarters construction project, observed a lack of coordination between government institutions in enforcing the implementation of the code.
“The existing institutional setup and capacity may not be adequate to enforce the implementation of the safety code effectively,” said Abraham.
Edomiyas said that the Commission also advises and provides technical support to under-construction buildings, though it could not yet enforce compliance as a mandatory requirement as part of the licensing process for the construction of new buildings.
“This is a crucial gap that needs to be addressed in the revised regulatory framework for fire safety,” Edomiyas stressed.
The Commission has already drafted a fire code and tabled it to City Council for approval, however, it was not approved yet, disabling the Commission from forcing building owners to acquire fire safety standards.
Council Puts New Product, Service Standards in Place
The National Standardisation Council approved 98 more voluntary standards for locally produced and imported products and services in three categories.
The latest additions that were approved on December 14, 2019, pushed the total number of voluntary standards to 10,780. Chaired by Fetlework G. Egziabher, minister of Trade & Industry, the Council is composed of ministers and state ministers who are appointed by the Prime Minister.
Tabled by the Ethiopian Standard Agency, the standards fall under three categories: management system, driving licence training, and graphical symbol and technical drawing. Out of the total standards, 38 of them are new, while 17 and 43 are revised or reaffirmed, respectively.
Initially, the standards were proposed by 201 technical committees that are composed of 15 to 25 members, which operate under the Ministry of Trade & Industry. The committee members are comprised of government officials, private businesspeople, academicians and professionals.
Under the management system category, the Council approved 12 new, eight revised and 13 reaffirmed standards. Graphical symbol and technical drawing received 22, nine and 30 new, revised and reaffirmed standards, respectively.
The driving licence training category, which is included in the standard system for the first time, got four new standards.
Tamiru Tulu, drivers competence assurance director at the Federal Transport Authority, believes that the new standards will play a significant role in reducing traffic accidents.
“But only if they’re enforced well,” he said.
New and revised standards for the construction, leather, textiles, chemicals, electronics, food and agriculture industries were also tabled to the Council. They are waiting for approval, according to Yesima Geru, communications director at the Agency, which was established in 1972 and reports to the Ministry of Innovation & Technology.
Generally, once the standards are set, they will remain active for five years before any revision, reaffirmation or withdrawal. But, nowadays, the standards are revised frequently due to technological advancements, according to Yesima.
Between March 30, 2019, and April 8, 2019, the Council approved 95 new, 27 revised and 46 reaffirmed standards.
Before the approval of the new standards, there were 253 mandatory and 10,682 voluntary standards approved by the Council.
Even though the businesses that operate in the three categories are not forced to comply with the standards, they can benefit from them to build their image, according to Tadele Kumie, a management systems consultant at Integrated Quality Solutions Plc.
Tadele also believes that the existing mandatory standards are too high and need to be reduced.
“When the number of mandatory standards are high,” said Tadele, “the Agency will face challenges in enforcing and regulating them.”
Enat’s Profit Soars, Yet Net Forex Gain Falls to Zero
Enat Bank, a late entrant private bank, had an interesting last fiscal year, recording an impressive profit increase. However, the bank’s net gain from the foreign currency exchange fell to nil.
In the reporting period, the Bank amassed 208.2 million Br in net profit, a 33pc increase much higher than the industry average. The private commercial banking industry that has a little over a quarter of a century of existence has an average growth rate of 20pc.
Despite recording a strong performance in terms of profit increase, the Bank’s earnings per share (EPS) remained about the same. The return to shareholders remained largely flat at 185 Br as a result of a 23pc increase in paid-up capital to 1.2 billion Br.
The Bank, which reported that it was challenged with the foreign currency mobilisation owing to the slower economic growth and decline of export revenue, earned nothing from net foreign currency dealings. During the previous year, Enat netted 10.2 million Br from the sector.
“The problem [challenges in foreign currency mobilisation] was further exacerbated by an inadmissible, illicit and controlled act of certain market agents,” remarked Hanna Tilahun, the chairperson of the board of directors at Enat.
The paid-up capital increase is made with the main aim of reaching two billion Birr, where the entire banking industry is heading toward, according to Wondwossen Teshome, president of Enat, which has over 18,000 shareholders.
“We’ve been working to balance the need to increase the Bank’s capital while at the same time maintaining the dividends for shareholders,” Wondwossen said.
Based on individual consent, shareholders also seeded three to five percent of their returns as a contribution toward a women’s special fund dedicated to promoting female entrepreneurship. The fund is allocated to support women entrepreneurs who cannot provide collateral to receive bank loans.
“This also contributed to the decline in EPS,” Hanna told Fortune.
However, Abdulmenan Mohammed, a financial statement analyst with close to two decades of experience, cautioned the Bank’s management to seriously think about its capitalisation policy.
“The Bank should balance between EPS and paid-up capital,” he said. “Increasing the capital should not undermine the EPS.”
In income-generating activities, the Bank registered mixed results. It recorded a sound financial intermediation operation that resulted in a 52pc increase in interest on loans, investment in NBE bonds and time deposits, reaching 742.8 million Br.
On the contrary, service charges and commissions showed a notable drop of 31pc to 169.6 million Br, while income from new foreign exchange dealings plunged from 10.2 million Br to zero in the last fiscal year.
It is concerning, according to Abdulmenan.
“The Bank should come up with a strategy to improve this,” Abdulmenan remarked.
Even though Enat allocated foreign exchange for clients, the Bank has not been able to secure the required foreign currency exchange from the NBE, according to Wondwossen.
“We are strictly following the orders of registration to serve our customers coming to our bank for foreign exchange services for imports. And that apparently put off many of our potential customers,” Wondwossen lamented.
The decline in foreign currency dealing earnings also concerns Aster Solomon, a shareholder of Enat Bank and founder and director of Mosaic Hotel.
Aster says that she is pleased about the overall performance of the Bank in the last fiscal year. She added that the strict regulatory framework issued by the NBE should not put banks like Enat at a disadvantageous position in terms of foreign exchange earnings.
The Bank’s massive expansion in expenses was reflected in the 55pc increase in interest on savings that reached close to 483.4 million Br. The salaries and benefits also rose by 24pc to 146.3 million Br, while other operating expenses went up by 16pc to over 114.7 million.
Enat also increased provisions for impairment of loans and other assets, which climbed by 32pc to reach 6.8 million Br.
“As Enat is a growing bank, further expansion in expenses is expected in the years to come,” Abdulmenan observed.
Enat, which operates with 15 branches, increased its total assets by 42pc to reach 9.2 billion Br. The 1.9 billion Br of investments Enat has made in the NBE bond showed a 39pc increase that altogether accounted for its 21pc of total assets and 27pc of total deposits. Both remained the same as in the preceding year.
The total amount of disbursed loans and advances of 5.1 billion Br showed a 54pc surge. It was also accompanied by a 43pc increase in deposits, which reached 7.1 billion Br.
Over a three percentage point increase in the ratio of loans to deposits pushed the rate up to 71.5pc.
The liquidity level of Enat increased in value, however, it declined in relative terms. Its cash and bank balances showed a 30pc increase to 1.7 billion Br, whereas the ratio of cash and bank balances to total assets decreased to 18pc from 20.2pc. Cash and bank balances to total deposits also declined by two percentage points to 24pc.
“Despite the reductions, the liquidity level of Enat is reasonable,” the expert noted.
The Bank’s paid-up capital has increased by 23pc to 1.2 billion Br. The capital adequacy ratio (CAR), which measures risk, declined to 27pc from 34pc. Despite the marked drop in CAR, Enat still maintained a ratio quite above the industry average of 23pc in 2018.
Hanna attributes the overall business climate in the country as a cause for the decline of CAR.
“The climate wasn’t encouraging for local investors to start a new business or for expansion projects,” Hanna said. “So many people weren’t coming to us for a loan.”
However, Abdulmenan believes that the capital of Enat is far more than required for its operation.
“The Bank should use its existing capital efficiently,” he recommended.
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