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Month: October 2020

PAN-AFRICANIST TANA

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President Sahle-worq Zewde (right) walks the halls of Sheraton Addis last Tuesday with Yonas Adaye (PhD) (centre), director of the Institute for Peace & Security Studies, and Lettie Tembo Longwe, interim director at the Africa Peace & Security Programme, for the Tana High-level Security Forum in Africa. It was the first day of what would be a week-long event.

The President and officials of African countries who attended the event had to make do with an unfamiliar environment for the Forum, which was held in Addis Abeba instead of where it used to be, in Bahir Dar on the shores of the Lake from which the Forum gets its name. The Novel Coronavirus (COVID-19) outbreak also inspired a virtual dialogue that took place in September on the major theme of Tana Forum’s ninth year – the African Continental Free Trade Area (AfCFTA).

The first day was dedicated to the prevailing issue of the year, COVID-19, and on rebuilding following the expected losses to the economy it has wrought, which could be as high as 237 billion dollars, according to the African Economic Outlook for 2020. Also on the agenda was honouring two late Africans in the Meles Zenawi Lecture Series: Tanzanian President Benjamin Mkapa and Thandika Mkandawire (Prof.), a Malawian economist recognised for his influence on African developmental scholarship.

But the main theme of this round of the Forum was the AfCFTA, an initiative by African Union member nations to form a trading bloc that is expected to improve trade within the continent by 52pc after becoming operational. It was discussed at the Forum as a tool for realising the idea of Pan-Africanism on a continent that has some of the most restive regions in the world, including the Horn of Africa. The ideal was described to have hit a snag as a result of artificial borders and the constraints to the movement of goods and services that have been created.

“This pandemic, and the multifaceted disruptions it has caused, have shown us the importance and value of inter-Africa trade more than ever before,” said President Sahle-worq.

FDI Flow Grapples with Political Instability, COVID-19

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Chips are an essential part of Dawit Zemene’s downtime. The 26-year-old, who drives for taxi-hailing service Ride to make money on the side, eats chips almost every day.

When SUN Chips, a locally-made brand, debuted in the market, it was great news for chip lovers like Dawit, who used to buy more expensive imported brands from the supermarket.

Dawit, who is studying Computer Science at Admas University, has stopped browsing the aisles for chips ever since. There is only one brand he is interested in. His favourite is the latest flavour variety — Habesha Spice — which uses Ethiopian spices like berbere to add a spicy kick to the popular snack food.

The smiling sun logo on the package can be seen propped on the shelves of many kiosks and supermarkets across the country.

“The other chip brands they package here are hit or miss,” he said. “You could get a bad batch. There’s no guarantee.”

But it is safe to say that Dawit is not the only fan. Senselet Food Processing Plc, the company behind SUN Chips, has enjoyed significant growth since it first started producing the chips in January 2018. Until recently, Senselet was wholly-owned by Netherlands-based investment company Veris Investments, but its burgeoning success made it attractive to larger firms.

So much so that in December 2019, international food and beverage giant PepsiCo acquired a majority share in the company. The producer of Pepsi-Cola registered a whopping 67 billion dollars in worldwide net revenues over the past year.

Founded by Veris in 2015, Senselet has steadily sold a million bags of chips a month since it commenced production in 2018. This number is expected to triple by the end of this year, according to Chris Wijnterp, general manager of Senselet Food.

The company has also grown alongside the demand for its chips. The number of employees has grown from 60 to 230, and its initial small agriculture team is also expanding.

“We started out with just one production shift,” said Chris.

The company works with smallholder potato farmers in the country and provides them with support to increase the quality of the locally-sourced potatoes. The company has seen success despite the common challenges that investors face in the country.

One problem was getting the necessary materials and machinery into the country, according to Chris.

The lack of foreign exchange in the country was another – a common issue that many investors in Ethiopia struggle with as forex availability dwindles over time. Last year the nation’s forex reserve covered 2.4 months worth of imports. Currently, it covers a little over a month and a half’s worth.

“Following regulations are important,” said Chris, “and patience is necessary.”

On a positive note, the company has also been fully supported by the Ethiopian Investment Commission (EIC), according to Chris.

Two years after Senselet entered the market in 2015 the country recorded its biggest ever level of foreign direct investment (FDI) at 4.1 billion dollars. Since then the flow has been on a steady decline, scoring its lowest in five years at 2.5 billion dollars in 2019.

Many factors are attributed to the substantial flow of FDI into the country in the years preceding 2017. Over a decade ago, the construction of the first private industrial park in the country, the Eastern Industrial Zone (EIZ) built by China’s Yonggang Group, brought attention to the development of industrial parks elsewhere in the nation.

The industrial park phenomenon that followed in subsequent years and the government’s shift to an industrial-led economy were major factors for high FDI inflow, according to Temesgen Tilahun, deputy commissioner at the EIC.

The opening of the nation’s first government-owned industrial park, Bole-Lemi Industrial Park, followed soon after in 2014, and the number of parks in the country has grown to 20 since then. The latest addition is Bahir Dar Industrial Park, which joined the swelling ranks earlier this month.

“There was a shift in focus to manufacturing as well,” said the deputy commissioner. Currently, an average of 60pc of the country’s investments come in that sector.

Investment from Turkey, China and India also began flowing in during the industrial park boom, according to the Commission’s report. Investing in the parks comes with a series of perqs and benefits including customs duty and income tax exemptions among other things. The country also draws investors in with its huge labour force. This is seen as an advantage for the investor and a plus for the local communities bolstered by the creation of jobs.

Over 90,000 permanent and temporary employees have been hired across the parks in the country as of July 2019. In the first quarter of this year alone, an additional 10,864 people joined the workforce, according to a report by the Commission.

Contrary to what seems to be a pool of opportunity, however, is the high turnover rates at the parks.

One reason could be the high cost of living and the wages in the parks, according to Fekadu Negussie, a labour specialist at the Commission.

“Companies provide meals in the Parks, but housing and other living costs may be a reason for the high turnover,” he said. “Since there isn’t a lot of skilled labour, the pay is dependent on productivity and may not fully cover employees’ living costs.”

In a country where there is no set minimum wage, this may have created a gap in what operating companies also consider liveable wages, according to the labour specialist.

“Limited skills and gaps in human resource management could also be factors,” said Fekadu, adding that the Commission is conducting a study to better pinpoint these factors.

“While managers at the companies have extensive experience in other places, Ethiopia is a different country,” he said. “This may be compounded with a lack of soft and hard skills of employees.”

Cultural divides and communication barriers between employees at the parks, who hail from all parts of the country, and the management are being moderated using various methods to ease relations and promote the industry.

An example is a grievance redressing mechanism involving regional labour bureaus, a park peace directorate, and the One-Stop-Service programmes at parks. The One-Stop-Service, a practice implemented to ease the investment process, also has a labour representative that oversees human resource issues like this. Beyond that, the Service has representatives from  banking, electricity, telecom, water and customs offices whose job is to bring these services to the  investors.

Over the past three years, instability in the country has led to many investors rescinding plans and returning sheds in industrial parks. Others have had their investment processes delayed or interrupted at various stages for the same reason.

“When there’s no peace,” said the Deputy Commissioner, “there can be no investment.”

Last year, the Commission stated that the security situation in the country had cost it 300 million dollars in FDI. The ever-increasing issue of forex has also forced businesses to operate below capacity, according to the deputy commissioner. Companies were reportedly operating at an average 30pc capacity through the past year when the crunch got especially bad.

Another issue is the provision of electricity – a shortage of power substations in areas where the main industrial hubs are located. Transportation, too, is cause for concern. The level of support and efficiency at regional levels is also not commensurate with the efforts that the Commission is putting forth to attract investors.

China’s investment, which accounted for more than 60pc of investment in the country, has also stabilised, according to the World Investment Report by the United Nations Conference on Trade & Development (UNCTAD).

The lack of investment flow is expected to be further exasperated by the effects of the Novel Coronavirus (COVID-19), according to the same report, which estimates a 25pc to 40pc drop for the continent at large. In 2019 alone, there was a decrease of 45 billion dollars in FDI on the continent.

In line with this, the Commission has had to revise its initial five-billion-dollar target for 2020 to 4.1 billion dollars, a figure that is still pending approval. In the first quarter of the country’s fiscal year, only half of the targeted one billion dollars was realised. Despite this, the Commission still finds reasons to be hopeful.

“There have been a lot of changes in the legal framework,” said Temesgen. “The revised investment law has opened more sectors to foreign investment. We’re now welcoming investors instead of sending back interested parties due to strict laws.”

A new directive is underway by the Ministry of Innovation & Technology to fully digitise all government offices on an online platform. This digitisation is expected to smooth out rough patches in the investment process.

The privatisation of Ethio telecom, the country’s sole telecom operator, is a major event anticipated to bring in a substantial amount of FDI in the near future. In addition to this, the four agro-industrial parks located at Bure, Yirgalem, Bulbula and Meqelle will become operational this year.

“Most investments take place in the third quarter,” said Temesgen. “We expect to see a rise in the coming months.”

The report by UNCTAD also forecasts some auspicious circumstances. Trading facilitated by the African Continental Free Trade Area Agreement, effective as of 2019, is also expected to cushion the blow.

Additionally, despite global trends, Ethiopia remained the largest FDI benefactor in East Africa even when flows to the region decreased by nine percent in 2019.

The commitment of the government in attracting foreign investors and opening sectors is very important in this regard, according to Tsegaye Gebrekidan (PhD), an economist at the Policy Studies Institute. Successful privatisation efforts would also provide momentary relief for the current forex crunch in the country, explained the economist.

But privatisation needs to be followed by policy reform and revision of the allocation of foreign currency for it to have a longer-lasting impact on forex reserves, he warned.

“If the forex allocation remains the same,” he said, “then we go back to the same problem.”

Liberalisation and privatisation of sectors like telecommunications are also likely to invite investment in other sectors, according to Tsegaye.

“This signals an opening up of the country,” he said. “If the privatised sectors are also efficient, then this will have spillover effects in other industries.”

The country’s stability is another major factor.

“This is what had brought in investors, along with a young labour force and a strong commitment by the government,” he said. “So it’s importance is very clear.”

In countries where there are huge amounts of resources like minerals, investors enter markets even in the midst of war but not so where investment is focused on manufacturing, according to Tsegaye.

The expert stressed the importance of government commitment when it comes to the implementation of planned reform as another critical factor.

Demonetisation In Restive Society Hardly Incentivises Borrowers

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Officials at the National Bank of Ethiopia (NBE) often like to remain on the fence when responding to inquiries and slow in their release of reports on the state of the economy. It may be the legacy of Teklewold Atnafu, the longest-serving former governor who is now advising Prime Minister Abiy Ahmed (PhD) on macroeconomic affairs. His predecessor, Yinager Dessie (PhD), and his lieutenants at the central bank have recently become more forthcoming. The Governor, in particular, has been more visible than usual as he brings forth the good news.

It could be because they seem to think they have a positive spin on the fruits of a measure taken over a month ago — issuing new notes. The technocrats call it “demonetisation”. What could be acknowledged as part of the positive impacts of the demonetisation of the Birr in September this year is redirecting money in circulation, in the hands of households and businesses, into the banking system. The central bank hoped that this would tighten the reins on not just black money but the cash outside of the banking system that has contributed to the liquidity crunch in the financial system. By the time demonetisation was announced, central bank officials believed there was over 130 billion Br outside the direct control of banks.

Over 30 billion Br has to this point found its way back into banks, and around a million bank accounts have since opened. Although this represents only one-fourth of what was initially thought to sit outside banks, it seems sufficient for Governor Yinager to inform the market that 55 billion Br in loans were advanced during the first quarter of this fiscal year, an amount one-third higher compared to the same period last year.

Cash outside banks is not necessarily illegitimately acquired money. It is also the case that the amount of money still unaccounted for by banks remains around a third of what has been reported to be in private safe boxes and under mats. The threat of losing one’s legal tender in a few months has encouraged people to take their cash to banks. Considering that the deadline for exchanging over 100,000 Br into new notes has already elapsed and less than two months remain before the old notes become no longer tendered, however, this should be something that concerns officials at the central bank.

It may not be a misplaced concern. Demonetisation has forced savings to the advantage of the economy. It is in the end money that can be directed as credit, which is a considerable advantage in an economy that needs economic activities to be stimulated following the adverse impacts of the Novel Coronavirus (COVID-19) pandemic.

But the question remains, what could incentivise depositors to keep the money with the banks?

At the moment, there is very little. A direct correlation between consumption and savings is a concept well-established by pundits. Whichever pays better is likely to have influence. Banks are paying an average of eight percent in annual interest rates for savings. In the face of a monthly moving average of 20pc inflation over the past fiscal year, saving at banks sounds like a losing prospect. Even the lending rate adjusted for inflation is in the negative. It has been the case that savers in the Ethiopian market are subsidising borrowers; the latter take loans with negative real interest rates.

Under normal circumstances, such inflationary pressure would have made a case for central bankers to push policymakers to tighten their belts. But 2020 is not a normal year, and the impacts of the COVID-19 pandemic has created such economic disruptions that even the International Monetary Fund (IMF) is encouraging members countries to run fiscal deficits. Evidently, the average budget deficit against GDP hovers a little over three percent across the world, although few economies pushed this as high as 10pc.

The recommendation that an expansionary policy is better in the face of a slowing economy that leads to massive job losses and food insecurity was made some time ago. Monetary policy is also not likely to be of much help here either, as an expansionary policy entails lower interest rates and the printing of more of the notes. Even if it were the case that increasing the savings rate would lower inflation, it would lead to higher lending rates that would go on to disincentivise borrowing. It is a policy a government that desperately needs to stimulate business activities does not look forward to.

When it is the case that the government cannot stray away from the demand-side policies that have been the mainstay of economic policymaking for at least the last decade and a half, and inflation may be unavoidable, the policy tools remaining at the disposal are few. This is why it is important to innovate to find overlooked adjustments that could be made to ensure that savings created as a result of demonetisation can be redirected through the banking system.

This may have little to do with monetary and fiscal policies. But these are policies that could be encouraged by the central bank and implemented through the banks to focus on improving the saving culture in Ethiopia.

Amenable to developing countries with low savings rates are policies that have not been tried in Ethiopia such as commitment savings accounts, labeling and reminders. The former is a form of time-saving deposit but has greater flexibility to recover the money while disincentivising consumption. This intervention increased savings among a sample group in the Philippines by 82pc in a single year, according to a study conducted in the early 2000s by Innovations for Poverty Action, an American nonprofit.

Labeling is another design feature for bank accounts that allows earmarking savings for specific purposes, such as on health or education. At the same time, reminders are simply text-messages to clients to remind them of customised saving goals. The former was found to improve pocket spending on health by 65pc to 75pc in Kenya among farmers that opened labeled accounts. Reminders for specific saving goals improved saving by 16pc in sampled developing countries such as Bolivia and Peru.

Such interventions should not be taken lightly considering the increased awareness of behavioural economics and how factors such as mental accounting impact saving and consumption behaviour. They are simple but innovative interventions at the fingertips of policymakers and bank executives to improve the saving culture in Ethiopia. They are meaningful means of addressing economic headaches at a time when the government is forced to spend to stimulate the economy and thereby risk high inflation.

The challenge to saving does not end here though. There remains work to be done on what happens with the saved money. While the central bank reports credit by banks increased in the first quarter of the fiscal year, the appetite for investment has been going down even before COVID-19 existed.

A testament to this is foreign direct investment (FDI). Two years ago, the country was celebrating attracting four billion dollars in capital from non-Ethiopian investors. Just last year, the amount was a tiny fraction of that at half a billion dollars worth of capital investments. It is a precipitous decline in two years that will not be surprising considering the state of politics over the same period.

Uncertainty poses a challenge far more formidable than weak infrastructure, bureaucratic red tape or burdensome taxes. It is not even an economic policymaking issue. Neither the central bank nor the ministries of Finance, Revenues or Trade & Industry can do much about it.

To peace and stability as well as the economy, a fundamental challenge lies with a lack of political leadership. As long as parts of the country remain restive, it will continue to be a problem that puts at risk the lives of citizens, let alone securing the viability of businesses.

IMF Projects Ethiopia’s Growth to Flatten Next Year

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Ethiopia’s growth prospects will flatten next year for the first time since 2003 when the country’s economic expansion dove below zero as a result of drought. The latest estimate was made by the International Monetary Fund (IMF), which released its regional economic outlook for Africa on Thursday, October 22, 2020.

IMF’s grim projection came at a time when Ethiopian authorities are upbeat on the economy, claiming that growth in the last fiscal year was as high as 6.1pc, way above the average for oil-importing economies in Africa at 2.5pc below zero. Presented by Abebe Aemrosellasie, Africa Department director, the IMF estimates economic growth for Ethiopia this year to drop down to 1.9pc, a level last recorded in 2002.

Yinager Dessie (PhD), governor of the National Bank of Ethiopia (NBE), differed on this point in his media briefing last week.

“The economy is moving forward despite the challenges including COVID-19,” he told journalists.

However, the IMF attributed the decline in economic growth for the continent and Ethiopia to the severe impacts of the Novel Coronavirus (COVID-19) that spread since early this year. At a press briefing on Thursday on the sidelines of the IMF biannual meeting of central bank governors and finance ministers, held virtually, Abebe described the impact on Africa as “an unprecedented health and economic crisis.”

This has brought the worst outcome on record for economies in the continent where only 11 countries in Sub-Saharan Africa, including Ethiopia, are expected to register positive growth, however small the margins will be. The hardest hit will be Seychelles and Mauritius, two of the most attractive destinations for tourists travelling to Africa.

“Within months, the spread of the virus has jeopardised years of development and decades-long gains against poverty in the region while threatening the lives and livelihoods of millions of people,” reads a statement the IMF issued.

It is evident that after the pandemic, developing and underdeveloped countries dependent on financial assistance, remittance and FDI are going to be heavily impacted, according to Wasyhun Belay, an independent economist with a decade of experience.

“The same is reflected in Ethiopia as well,” he said. “The economy has shut down [with everything] from tourism to exports to investments and FDI inflows dwindling.”

Policymakers in countries in Africa reacted in a range of ways, from comprehensive to partial lockdowns, hoping to protect their citizens from the public health risks of the spread of the virus. However, this has brought unintended consequences to their respective economies such as sluggish economic activities and fiscal responses. Authorities in Ethiopia have chosen to avoid a total shutdown of the country but had imposed a state of emergency and limited movement while mandating the use of masks.

Such measures will have the effect of pulling the economy down to almost flat next year, a time the IMF forecasts many of the economies in Sub-Saharan Africa will rebound. The average growth in gross domestic product (GDP) for non-importing countries in Africa will surge to 3.6pc, according to the IMF.

Even though avoiding a lockdown was a health measure, unavailability of a stimulus package, especially for consumers, had serious effects on the economy, according to Getachew Asfaw, an economist specialising in national economic planning.

Ethiopia’s economy will experience its acid test in 2021, where an economy that will not grow will also experience an annual inflation rate of 11.5pc and a negative fiscal balance of 3.1pc. The country’s current account deficit will remain at negative 4.6pc, increasing marginally from the current year, and public debt will surge back to 58.5pc, increasing by 2.5pc points.

However, Wasyhun says that the IMF’s projection is too pessimistic, saying that there is no way Ethiopia would lose a chance of growth as compared to Botswana and Eritrea.

“The situation in the country isn’t as grim as the IMF pictures it,” he said.

Getachew, who views the nation’s economic situation as bleak, disagrees with Wasyhun.

“There is no reason that will hold us back from agreeing with the IMF’s projection,” said Getachew. “The figures coming from the government don’t reflect what is on the ground in the economy. They’re very exaggerated.”

The National Income Accounting Department under the National Planning & Development Commission, which is in charge of conducting macroeconomics analysis, is not independent, he countered.

“It’s issuing a projection that is highly influenced by politics,” said Getachew.

The declining trends of public debt, including what Ethiopia owes to foreign creditors, has been a source of pride to the administration of Prime Minister Abiy Ahmed (PhD) lately. The ratio of Ethiopia’s debt to external lenders to overall debt will see a rise by 3.5pc from the 29.2pc recorded this year. If there is any solace to the administration, it will come from the foreign exchange reserves that will be sufficient to cover the value of imports for 2.7 months, up from 2.1 months this year.

The IMF foresees policymakers in countries such as Ethiopia facing the tough choice between “saving lives and protecting livelihoods through health spending” and providing “income and liquidity support for households and businesses” on the one hand and sustaining growing macroeconomic imbalances in the budget deficit and inflation.

“Countries will have fewer resources and more difficult choices to make,” said Abebe. “No country should have to choose between paying its debt and providing food and medicine to its people.”

It seems inevitable for policymakers in these countries to make such painful choices when the resource gap remains a staggering 290 billion dollars, despite private investments, loans, grants and debt relief that it is hoped will cover some of the 890 billion dollars Sub-Saharan Africa is thought to require in additional financing through 2023.

“As the region looks toward the future, uncertainty over the path of the pandemic continues to loom over an enduring recovery,” the IMF says in a statement.

The IMF urges countries in Africa to push for more grants, concessional credit and additional debt reliefs as measures to overcome trying times ahead.

Wasyhun also says that there are issues the government should focus on to achieve its optimistic growth rate. He mentions revenue mobilisation and political instability as major areas that need a close focus from the government.

The government needs to be transparent with its output, including allowing these kinds of growth projections to be assessed by independent economists on the institutional and independent level, according to Wasyhun.

“It’s definitely going to be a hard time for the government and needs a more stringent measure, but it’s still survivable,” he said.

Institutionalising Diplomacy: Possible Solution for GERD Impasse

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Creating an institution for the ongoing negotiations between Ethiopia and Egypt has been posited as one solution going forward with the issues surrounding the Grand Ethiopian Renaissance Dam (GERD). This suggestion comes following the inflammatory comments made during a phone conversation between the President of the United States and Sudanese Prime Minister Abdalla Hamdok.

In the video making the rounds on social media since the evening of October 23, 2020, US President Donald Trump is heard stating that Egypt may blow up the Dam. The President is also heard urging Prime Minister Hamdok to intervene on behalf of Ethiopia, citing the recent aid cuts from the United States as a consequence of Ethiopia commencing with Dam filling.

Despite this, continued negotiations between Ethiopia and Egypt indicate the low likelihood of the situation escalating into war, according to Aaron Salzberg, Wilson Centre Global Fellow and director of the Water Institute at the University of North Carolina (UNC).

In a recent event at the UNC Centre for Middle East & Islamic Studies, the Director stated that the chances for the militarisation of the Nile are less likely than presumed by outside observers, as long as diplomatic discussions persist between the countries involved.

The institutionalisation of diplomacy between the two countries as a way forward was highlighted by the Director, who cited the example of the International Boundary & Water Commission, the formal body between the United States and Mexico on water diplomacy, as a means of dealing with evolving issues between two countries. This could also serve to improve regional coordination efforts so long as it maintains flexibility in rules and design to accommodate changing interests.

Institutionalising the process could additionally help resolve tensions between the two countries brought about by the hegemony of Egypt in the Nile basin, according to the Director. He also suggested that the two countries, with the role of an invisible mediator in the background, could resolve their issues amicably.

Ethiopia looks forward to commencing the negotiations, which have currently been paused, according to Dina Mufti, spokesperson for the Ministry of Foreign Affairs.

“We want the Nile River to be a source of cooperation and regional integration,” said the spokesperson, who added that the country is open to any forums in the future. “But the equitable and rational use of the resource are two basic elements that require agreement before any other decisions.”

The British-orchestrated 1959 Nile Waters Agreement, which Egypt still insists on referencing, allots the Nile water resources between Egypt, 55.5 billion cubic metres annually, and Sudan, 18.5 billion cubic metres, while completely disregarding Ethiopia. This treaty is regarded as colonial and exclusionary by Ethiopia.

“We aren’t a signatory to that agreement,” said Dina. “And Ethiopia is entitled to the use of resources considering that Abbay is the largest contributor to the Nile.”

The spokesperson also indicated his support of the statement released by Prime Minister Abiy Ahmed (PhD) on the day following the release of the video.

“Occasional statements of belligerent threats to have Ethiopia succumb to unfair terms still abound,” reads the statement by the Prime Minister.

It went on to say that the GERD has been an answer to a generation’s quest for an equitable and reasonable utilisation of the Abbay and other rivers contributing to the Nile from Ethiopia.

“The Dam is equated with the sovereignty of the country,” continues Dina. “It is being built by Ethiopian people with their energy, money and technology.”

Negotiations between the two countries have thus far been unfruitful. The last attempt at an amicable solution was initiated through South African President Cyril Ramaphosa, who is also the current chairperson of the African Union.

“Africans can solve their own problems,” said the spokesperson, “and we believe that the African Union is doing so in a humble and honest method from which we require only the role of a facilitator.”

Dejen Yemane, a lecturer at Wollo University School of Law specialising in international law, believes that the three riparian countries have taken the wrong path over the negotiations of the Dam.

“There has never been any kind of bilateral or trilateral negotiations in the history of a unilateral project on a transboundary water,” he said. “A basin-wide legal framework agreement might be looked at for a sustainable and equitable use of the water.”

He referred to the 2010 Cooperative Framework Agreement (CFA), signed by five upstream countries, save Sudan and Egypt, as an ideal framework between the three countries.

“The terms of negotiation forwarded from the Egyptians are intolerable for Ethiopia, and it breaches the country’s sovereignty and future rights on the water,” he said. “GERD is currently being used as the hostage.”

A firm stance by Ethiopia will give Egypt no options but to sign the CFA, according to Dejen. He also added that establishing a permanent institution is important in addressing the wants and needs of the riparian countries in the future.

Nib Accelerates Transition to Digital Banking

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Nib International Bank (NIB) has initiated a massive expansion of its digital banking system and infrastructure with an estimated investment of 350 million Br. With the latest expansion, the Bank will upgrade its core banking solution and kickoff new digital banking products.

The two-decade-old Bank began the expansion following the recommendations forwarded by KPMG East Africa Limited, a firm that was hired to design and formulate the management strategy. The Bank hired the company two years ago for an estimated 20 million Br to design a five-year strategic plan, a 10-year strategic road map, and to study the organisational restructuring of Nib.

One of the pillars of the strategy is aggressively working on digital banking, according to Assefa Yeshanew, vice president of Nib in charge of information systems. The strategy has two documents, namely a diagnosis report and a way forward that recommends a digital transformation, according to him.

Outlined by five major components, the Bank plans to complete the digital transformation in two years. The board of directors of the Bank, chaired by Woldetensai W. Giorgis, approved the budget for the projects.

“We’re heading to virtual and self serve banking services,” said Assefa. “We’re getting closer to our customers.”

The major part of the expansion is upgrading the core banking solution, which networks the Bank’s services and branches. Expected to be operational in four months, the core banking solution dubbed “T24 Version 2020” was supplied by Temenos Group, a Geneva-based software provider that specialises in enterprise software for banks and financial service firms.

United System Integrators (USI), a local firm, implemented T24, making Nib the fifth bank to have the latest version. So far, Bank of Abyssinia, the Commercial Bank of Ethiopia, Cooperative Bank of Oromia and the Development Bank of Ethiopia have upgraded their core banking to the latest version.

“We used a latecomer advantage in employing the latest version,” said Assefa.

The core banking solution, which integrated the 320 branches of the Bank, replaces the eight-year-old digital system that was supplied by Temenos itself. The old system, dubbed Star Bank, was supplied by Eta-Info Tech, a Dubai-based software company in 2006.

Started four months ago, the process of integrating the new solution is being undertaken by the project office of the Bank, whose 38 team members currently reside in a building of the Bank located in Arat Kilo. Nib procured the building three years ago for 680 million Br.  The entire integration and testing process is expected to take eight months.

Nib’s upgraded core banking solution covers financial intelligence, mobile and internet banking, the customer relationship management system and interest-free banking. It went through the initiation stage, system analysis, building stage and cloud installation.

“It’ll enable us to transact with third-party payment aggregators seemlessly,” Assefa told Fortune.

The second component of the digital transformation of Nib consists of upgrading and integrating the infrastructure of the Bank, including its servers, computers, storage and computing switch. To hire a company that will provide the service, the Bank has already started the procurement process and reached a financial evaluation stage. Nib is replacing the existing system, which is outdated.

Under the third component, the Bank plans to work on a holistic and integrated e-banking solution. Driven by an omnichannel, a cross-channel content strategy used to improve user experience and drive better relationships, the system will enable Nib to launch wallet and agency banking services. The system will enable the Bank to collect utility payments, school fees and traffic fine payments among others. The Bank has released a request for proposal (RFP) inviting companies to supply the solution.

With the fourth component, Nib plans to build a Tier III data centre at its new building that is under construction. The 32-storey building with four basements is located in the Financial District and currently has reached its finishing stage.

The data centre will have a security operations centre, access control system and file operating system, as well as coming equipped with storage, redundant and dual-powered servers, network links and other IT components.

It is expected to commence operations in the next quarter, according to Assefa.

The last component of the investment is enhancing the network and infrastructure security of the Bank.

It seems there is an internal change in the Bank in which executives are becoming conscious of digital banking and rushing to keep up with the industry trend, according to Ibrahim Dawud, a digital and card banking expert with over two decades of experience in the industry.

“Whether we like it or not, there is a digital disruption in the banking industry,” Ibrahim said. “And there is stiff competition in the industry since over 10 banks are lining up to join the business.”

Ibrahim also says that the industry might not stay closed forever to foreign banks, and it could be opened if the existing severe foreign currency crunch lasts long.

“Getting ready for such kinds of developments is very essential,” he said.

If the Bank has properly conducted a cost-benefit analysis of these investments, it’s a wise decision, according to him.

Capital Approves Construction Contracts for 75pc of School Feeding Facilities

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Nine contractors have won a bid to build 118 kitchens and dining halls in public schools included under the School Feeding Programme across nine districts for 765 million Br. The bid for 33 other schools has failed to materialise.

Initiated by former Deputy Mayor Takele Uma, the School Feeding Programme was launched across all 289 public nursery and primary schools in the city. The construction of these facilities will be undertaken jointly by the City’s Construction Bureau, Education Bureau and the School Feeding Agency, which is overseeing and facilitating the entire programme.

Funded through a loan from the World Bank, the project is aimed at building places where meals are cooked and served for the 381,000 public students across these schools. The City Administration will finance 138 more facilities itself. The bid was floated in early July and classified through 12 lots. It drew the attention of 534 companies; however, only 45 of them have submitted their bidding documents.

Amare Moges Construction secured the highest value bid, amounting to 129 million Br, to build 20 schools in Bole District. Meanwhile, Tabu Construction will be working at 10 schools in Gulele District after winning a bid valued at 58.5 million Birr. The City Administration could not find qualified bidders for schools in three districts, namely Yeka, Lideta and Kolfe Keraniyo. With only 24 million Br in funds remaining, 10 schools in Lideta will go up for a rebid, leaving a total of 23 schools without funding to be funded by the City Administration.

The rebid process is being allowed for Lideta since both lots under the District have failed, according to Tamrat Estifanos, deputy director of the Urban Job Creation & Food Security Agency, adding that the Agency can decide to rebid Lideta without the approval of the World Bank.

“Yeka and Kolfe Keraniyo each had winners for one lot, making the process to rebid for the districts cumbersome,” said Tamrat, “as it would require the involvement of the Bank.”

Companies that did not pass the technical and financial evaluation have filed grievances, and those are under review, according to Tamrat.

The qualification of companies and the documents they provide during a bidding process are very sensitive, according to Mathios Ensermu (PhD), an expert in supply chains and logistics.

“A bid-offer could be rejected based on a lack of certain documents that qualify eligibility,” he said. “But after grievances have been stated, it depends on the mandate of the committee that oversees the case to make exceptions.”

In cases where there is a lack of sufficient qualified bidders, there may be a need to change bid specifications as well, according to him.

Last week City Administration representatives, the Agency and the construction companies held a meeting on the expedition of project delivery.

“We’ve almost reached an understanding on the time frame,” said Tamrat, “which we expect to be two months.”

During the discussion, the issue of cement and metal shortages was raised by contractors. These shortages would make it difficult for them to meet the new project deadline, down from the initial agreement of four months.

“We’ve discussed the option of having cement provided to us with a direct purchase, so that we don’t have this obstacle,” said Beyene Girma, founder and CEO of BGM Construction, winner of a lot that incorporates 13 schools for 89 million Br under Kolfe Keraniyo District.

The new schedule will also require the companies to work overtime and through nights to finalise the project in time, he explained.

“We’ll aim to finalise internal work first, which will allow the dining halls and kitchens to be operational while we finish the exterior,” he said, “in the case that we don’t complete everything in time.”

Though this may have cost repercussions, the contractors have accepted this as part of a social obligation since the project will benefit students from the community, according to Beyene.

The construction of the school dining halls and kitchens is being expedited owing to the recent federal decision to reopen schools after a seven-month hiatus due to COVID-19, according to Anchinesh Tesfaye, head of the School Feeding Agency.

“The construction will continue as schools reopen,” she said, “in a way that won’t disrupt the learning process.”

Looming Grid Code to Regulate Power Transmission

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A Committee under the Ethiopian Energy Authority (EEA) is set to table the National Transmission Grid Code, a framework which defines the rules, standards, and technical requirements for transmission operators, to the executive board of the Authority. Upon approval, the Code will regulate planning, connection, operation and use of national grid systems.

Crafted by Nexant, an American-based energy consultancy group, the Code is also a set of technical guidelines to serve power producers when they either export power or integrate produced power into the national grid. The Authority will now be able to govern the planning, connection, operation and metering of the operators as well.

Ethiopia lacks a code to formally communicate with different actors in the energy sector, according to Getahun Moges, director-general of the Authority, which drafted the Code with support from the East African Power Pool.

“It sets the framework for all of the players in the energy sector to have a standard to follow,” Getahun told Fortune.

The experiences of South Africa, Namibia, India, Zambia and Rwanda were taken into account during the drafting process. It also considered the code of East African Community Interconnection, a package of standards and rules for technical planning of the intergovernmental agreement of 10 East African countries including Ethiopia, to foster power system interconnectivity.

Through its 11 chapters, the Code obliges transmission system operators to submit a forecast called a Power Balance Statement, which states their expected demand and generation capacity over the planning period for the national grid system. It is to be filed annually every September 30 showing estimates for the 10 succeeding years.

The Statement has to include the projection of the seasonal maximum and minimum demand for electricity in the national system, the amount and nature of power generation capacity available to meet the demand, and details of plans for building additional generating units and upgrades of capacity. Transmission system operators and users, who are either connected to the national grid or are seeking to connect, are required to meet minimum technical standards.

The Code also defines the technical requirements of wind and solar power plants when connected to the national grid. It also has details highlighting response actions when there is a sudden drop in voltage due to lack of wind or sunlight and maintaining the active power supply to the grid.

Following the submission of the first draft of the Code from the consultants in February 2018, the Authority, the custodian of the Code, established the National Transmission Grid Code Review Committee. Constituted of nine members drawn from the Authority, the Ethiopian Electric Utility and Ethiopian Electric Power, the Committee is responsible for the review and revision of the Code.

Members have three-year terms, and the Committee is chaired by Hailu Assefa, the Authority’s research & development director. The members are appointed by the Authority, which is responsible for the monitoring compliance of the Code and assessing dispute resolutions.

Having no decision-making power, the Committee has made revisions and held consultative meetings with stakeholders for the last two years. Even after the approval of the Code, the Committee is mandated to reflect changes in technology in the revision of the Code and submit proposals to the Authority for the amendment of provisions.

Following the revision, the draft was supposed to be tabled to the Board in the last fiscal year, according to Bahru Oljira, competency certification & technical regulation director.

“Due to COVID-19, the Committee couldn’t have meetings with stakeholders,” said Bahru. “But we’re now completing taking in comments from stakeholders, and it’ll be tabled before this year ends.”

Currently, the generation and transmission line is monopolised by Ethiopian Electric Power; however, this guideline will help the company to solve its operational problems and also sets the framework for operators to join in the future, according to Bahru.

The energy sector is currently undergoing major reforms including splitting Ethiopian Electric Power into two separate companies: one overseeing generation and the other handling transmission. Reforms also include the planned partial privatisation of the energy sector within the next few years. Four options have been tabled for the privatisation of the power sector: selling shares of the institutions, selling majority shares of the individual companies, selling minority shares of the individual companies, or the concession of individual existing institutions.

The new Code will enable energy sector actors to work in harmony under an established standard, according to Frehiwot Woldehana (PhD), state minister for Water, Irrigation & Energy in charge of the energy sector.

Tigabu Atalo, an independent power consultant who worked at the previous Ethiopian Electric Power Corporation (EPCO), shares Frehiwot’s view.

“The Code will serve as a guide to anyone in the private sector that is interested in investing in the energy sector,” Tigabu said. “It can guide investors, existing and new, by setting a standard, which will smooth out situations.”

Couriers Back in Business Following Gov’t Ban

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The ban on 16 courier service providers was lifted as of this month following the operationalisation of the new company, Safe Zone Warehousing Plc. The Ethiopian Customs Commission banned the courier service providers in August after citing their lack of warehouse operator licenses.

Established by four courier companies in response to an edict from the Commission concerning the cessation of unlicensed courier services, Safe Zone started providing a warehouse service for the firms. The new warehousing company has rented close to 300Sqm of space from Ethiopian Airlines and has resumed carrying out regular services.

The ban affected UPS, FedEx, Aramex, Marathon Express and ICCS Express along with others. Before the ban, the companies had been operating within the space they rented from International Cargo & Aviation Services (ICAS) at Bole International Airport. However, a year ago when the Airport underwent renovation work, the companies were temporarily moved to an area at the cargo division of Ethiopian Airlines, paying a fee based on the type of cargo they were handling amounting to 10 Br with value-added tax (VAT) a kilogram.

A few days before barring their services, the Commission sent a letter to courier service providers stating that their procedures were against customs laws and that they needed to resolve the issue of warehousing for their items. The Commission stated that this had caused difficulty in the storage and handling of shipments to and from the country.

The letter mentioned that the lack of a designated warehouse operator and a registration and division process has also led to the loss of items and left the industry vulnerable to theft. The letter also disclosed that the courier services would either have to operate using Ethiopian Airline’s warehouses or those of another licensed operator and that their current model of service would no longer be allowed to continue.

“We’ve been requesting that these companies should have one representative legal body that can be held accountable for what is happening in the warehouse,” said Teferi Mekonnen, manager at the Addis Abeba Customs Branch Office.

Over the past two months, only German courier DHL and EMS, the designated universal postal service provider and part of the Ethiopian Postal Service, have been operating in their own warehouses.

After the ban, the four companies that established Safe Zone held discussions with Fitsum Abady, managing director of Ethiopian Cargo & Logistics Services, to obtain a letter from the airline that allocates warehousing space to them.

“I’m happy for resuming services,” said Mohammed Yusuf, Manager of ICCS Express. “The problem is solved, and we’re operating properly now.”

Amin Hassen, CEO of HudHud Express, said that the warehousing company should start providing service 24/7.

“To deliver a satisfying service to our customers,” said Amin, “the warehouse service should operate round-the-clock.”

Courier service companies play a significant role in the economy; unfortunately, the companies were not given due attention, according to Matiwos Ensermu (PhD), associate professor of logistics & supply chain management at Addis Abeba University.

Currently, there are 58 private express courier service providers in the country, of which 51 are actively working.

“They were totally ignored,” he said. “They weren’t getting land to build a warehouse for courier services unless it’s needed for a manufacturing plant. The new National Logistics Policy can potentially address the challenges the sector faces.”

The ban on these companies means a lot in the economy since one of the prerequisites to measure the ease of doing business in the country is in terms of such kind of services, according to Matiwos.

Authority to Give Star Ratings to Transporters

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Based on the quality of their services, transportation service providers will get star ratings, according to a new directive drafted by the Federal Transport Authority (FTA). Categorising the transporters by one through five stars, the new quality certification system will assign levels of competency to transport operators based on the standards defined in the directive.

At the federal level, transport operators will be categorised using the system, with five stars being the highest and one star being the lowest rating. In regional states, however, the FTA will use a two-star rating system with two stars denoting the highest level of competency. The rating has three categories, namely associations, transport companies and private operators. There are 164,308 buses across the country, of which 1,787 of them offer cross-border transport services.

Expected to begin in a half-year period, the system requires the commercial public transport operators to apply for a star-rating by submitting a business license. Transporters who cross two or more regional states as well as transboundary transporters organised in an association, whether corporate or private, are required to obtain their qualification certificate from the Authority, which spent one year preparing the directive.

All transportation service enterprises are required to hire a general manager with at least six years of experience and a first degree in a transport-related field in addition to five additional staff. The new rating will replace the existing law that categorises transport operators into three levels with a special qualification certificate and mandates a maximum of 20 years of life service for all vehicles.

Small or medium-sized operators that do not engage in transboundary transport will be able to receive their rating from their respective transport authorities at regional states.

If approved, the directive will require all vehicles to be equipped with GPS and a speed limiter. It also stipulates that all vehicles must be fitted with seatbelts for passengers. Operators will be obliged to have at least a one-year contract of legal service to receive maintenance services. The draft will also increase the mileage limit for smaller public transport vehicles to 250Km from the 150Km currently being enforced.

Associations looking to secure the four-star rating need to have a fleet of 100 to 300 vehicles. The service life of all vehicles is not to exceed 12 years, and each vehicle should have 45 seats or more. Additionally, vehicles are required to offer Wi-Fi, televisions, DVD players and a refrigerator for passengers.

Three-star associations should operate a fleet of 75 to 275 vehicles with the service life of each vehicle not exceeding 25 years. Each vehicle is expected to provide the amenities mentioned in the four-star category.

Two-star public transport associations must have 60 to 350 working vehicles, each with a service life of fewer than 12 years. The lowest star rating mandates 12 to 25 years of service life for 80 to 450 vehicles. For both one and two-star ratings, the vehicles are required to have 14 to 44 seats.

Transport companies that want to secure a five-star rating are expected to utilise vehicles whose life service is no greater than seven years. Similarly, 12 years of life service is the upper limit for a four-star rating and 20 years for a three-star rating. All three categories demand a fleet of 10 or more vehicles with at least 45 seats apiece.

The two-star rating can be attained with 10 or more vehicles, each with under 12 years of service life and 14 to 45 seats. The lowest rating for corporations requires 15 or more vehicles, each with 14 to 44 seats and a maximum of 20 years of service life.

The rating was not developed independently but was in line with deployment and has been in place for the past eight years, according to Yigzaw Dagnew, communications head at the Authority, which registered a total of 1.2 million vehicles as of last June, of which over half of them are in the capital.

“The existing law has become obsolete and unfit for the current context, which is why the authority drafted the new directive,” said Yigzaw.

The separation of the rating and deployment is good, but building strong institutions to execute the laws and improve the sector is crucial, according to Thomas Melese, an urban transport expert at Stride Consulting Engineers Plc. Thomas also recommends that urban transport institutions work on research and improving the skills of their personnel.

“The country had been focusing mainly on road construction and not on urban transport,” says the expert. “The government should work toward consolidating effective executives and collaborating with non-governmental stakeholders.”

Public Health Institute Building Biological Labs for $150m

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The Ethiopian Public Health Institute (EPHI) started the process of building 16 state-of-the-art laboratories, investing 150 million dollars in the hopes of strengthening the nation’s laboratory studies and testing capabilities. Expected to take five years, the construction is financed by the World Bank.

One of the labs will be built at the premises of the Institute, while the remaining will be spread across the regional states except for Dire Dawa and Harar, which already have labs. The labs are expected to enable the country to provide increased diagnostic testing volume, locally carry out advanced testing techniques currently being outsourced overseas, and conduct improved research and study concerning public health.

The funding for the labs was secured from the World Bank after the Ministry of Finance signed the deal on February 6, 2020. Half of the funding comes from the World Bank, and the remaining is from the International Development Association (IDA). The funding from the World Bank has a maturity of 38 years and a grace period of six years. The project is part of the World Bank’s Africa Centres for Disease Control & Prevention Regional Investment Financing Project.

Two-thirds of the funding will go to the Bio-Safety Level 3 National Reference Laboratory that will be built at the premises of the Institute in the capital. This lab is used to work on microbes, which cause serious disease. The remaining balance will be used to construct 15 BSL-2 laboratories, which work with agents associated with human diseases, in strategic locations along borders with neighbouring nations.

The tender process for the construction of the National Reference Laboratory will be an internationally competitive bid, and it is a complex tender requiring design, construction, equipping and furnishing of labs. The first in the country, this lab will be one of only a handful of laboratories to carry that rating on the continent, surpassed only by two BSL-4 institutions located in Gabon and South Africa.

The World Bank prefers to invest in projects that operate at the regional level, according to Gonfa Ayana, a senior laboratory advisor at the Institute.

The list of the 15 BSL-2 project sites is not yet available, because two locations are still under deliberation with regional health bureaus, according to Gonfa.

Designs for these projects will be based on the designs used by the Institute to construct eight BSL-2 laboratories as part of a Global Fund financed project five years ago.

“These older laboratories are also set to receive additional equipment through the new funding,” said Gonfa.

The World Bank makes it a principle that before tendering such projects the parties involved should prepare environmental and social safeguard documents that assess feedback from local populations and experts concerning the construction of the project, according to Gonfa.

Neighbouring countries will also use this project, and several of the laboratories will be constructed near border areas, according to Addisu Kebede, director of national laboratories capacity building at the Institute.

“The main reason for this is to control and prevent the transmission of diseases,” he said.

The laboratory in Yabelo will also help the Somalian Health Institute to conduct health research as well as more affordable and quicker testing, according to him.

“It’s difficult and expensive to send samples to other nations for testing,” explained Kebede, “and developing local research and testing capacity will be advantageous both for Ethiopia and neighbouring nations.”

Since the lab is a huge project and the first of its kind in Ethiopia, it is difficult to find local consultants fit for the work, according to Abebe Dinku (PhD), a civil engineer and a lecturer at Addis Abeba University.

“It’s also hard to find local architects and engineers, because such a project specifies work experience in special design and construction that local firms simply don’t have,” Abebe said.

The new 46-floor Commercial Bank of Ethiopia building was designed and constructed by foreigners who have experience on such projects, though partway through the project a local firm joined and participated in consulting, according to the civil engineer.

“When the Institute is building this laboratory,” he added, “there should be multi-disciplinary engagement with physicians, architects, chemists and biologists since the work and research that is going to be conducted in this lab is complicated and sensitive.”