DASHEN’S MOUNTAINOUS CLIMB

Yinager Dessie (PhD) (right), governor of the National Bank of Ethiopia (NBE), awarded Abennet Gebremeskel (left), CEO of MIDROC Ethiopia, a recognition plaque at a lavish silver jubilee Dashen Bank held at the Sheraton Addis on February 24, 2020. Looking at Abennet, whose company was recognised as one of the Bank’s biggest clients in terms of loans and deposits, were also Asfaw Alemu (centre-left), the Bank’s CEO, and Neway Beyene, its board chairperson. The latter two also gave speeches inside the hall that was decorated in navy blue, Dashen’s trademark colour.

The Bank spared few costs, starting the day with the federal police marching band on Sudan Street right by the headquarters it inaugurated three years ago. It was built by MIDROC Construction for about a billion Birr. It also sponsored Sheger Public Transport Bus to give service for free for a whole day. The celebrations will continue, its President said, for the next six months, including a photo exhibition and a visit to Ras Dashen, the highest mountain in Ethiopia from which the private bank gets its name.

Employing over 10,000 people and serving 1.5 million customers, the Bank that started its operations with 14 million Br in capital has risen to celebrate new heights this year. It outperformed most of its peers in the private sector by netting a profit of 1.54 billion Br in the past fiscal year, a figure that grew by 52pc in a reporting period dominated by news of a global pandemic and political unrest in Ethiopia. Its paid-up capital today stands at 3.5 billion Br, 24,900pc of what it was a quarter of a century ago.

There have been challenges along the way though, including during the last fiscal year. Dashen was among the commercial banks included in the central bank’s red list for a liquidity crisis that hit the industry. It was among nine banks to have dipped below the minimum threshold for assets held in cash.

Ethio Telecom Could Be Cash Cow, But Needs to Compete Fairly

That Ethio telecom would remain in the hands of the state was never a sure deal. A rarity in much of the world, Ethiopia’s government has maintained a statist policy that kept profitable service industries close at hand, especially the state-owned enterprises politicians fancy as cash cows. The state-owned telecommunications monopoly, Ethio telecom, has been one of the most prized possessions under the state’s hold for over a century.

The question of privatising the telecom sector was presented to former Prime Minister Hailemariam Desalegn in 2013. He concurred with the Financial Times‘ analysis that selling telecom licenses could fetch three billion dollars directly into government coffers. But he was not swayed. He chose to echo an infamous statement by his political mentor, Kassu Ilala (PhD), a senior minister under Meles Zenawi’s administration, that the telecom sector is “a cash cow.”

Hailemariam told a British daily that his government wants to use the telecom company’s profits from a captive market for infrastructure development. Ethio telecom had generated 430 million dollars in revenues at the time.

Under CEO Frehiwot Tamiru, it is a mammoth by any standard of measurement of profit-making enterprises in Ethiopia. The market remains captive, although the process of liberalisation of the industry moves at a snail’s pace. Ethio telecom’s revenues stood at 640 million dollars in just the first half of this fiscal year, growing by over 12pc over the same period in the previous year. It brought in 80 million dollars in foreign currency, on top of servicing debt valued at twice as much during these six months, and paid 16.2 billion Br in taxes. If its expenses continue as moderately as they had last year, gross profit will make up half of the revenues.

Ethio telecom has been sheltered from the competition and allowed to build on an impressive economy of scale; nearly half of the country uses its services, while almost a quarter are internet users. Its authorised capital has recently been raised 10-fold to 400 billion Br, the highest capital ceiling any domestic company has reached. Although this is not necessarily the same thing, in contrast the entire banking industry, including public ones, had a combined paid-up capital of about 113 billion Br last fiscal year.

Under Ethiopia’s economic circumstances, “cash cow” does not do it justice.

It is no wonder that successive administrations have resisted the notion of putting the goose that lays the golden eggs on the auction bloc. Protected from competition, its retail prices remain prohibitively high, its infrastructure inadequate, and its services frustratingly limiting. Mobile data, by last year, was still more expensive than in Kenya, Sudan or Somalia. Last year, Somalia outranked Ethiopia in terms of broadband download speed, according to an open-source aggregator, www.cabale.co.uk.

Neither has Ethio telecom been a standard-bearer for dependable innovation of services. It has yet to launch mobile money services, light years away from neighbouring Kenya’s largest telecom provider, Safaricom, in the financial services’ frontier.

The telecom industry was long hampered in the name of protecting Ethio telecom from the competition. The decision to open up the industry is thus overdue. Partial privatisation could have its benefits in giving a breather to a government perennially starved of foreign currency and to bring know-how to the firm. But liberalisation would ensure that there is competition. For end-users, this means lower prices, better quality services and more alternatives in products. The latter, in particular, goes a long way in ascertaining the sovereignty of the consumer.

The anticipation of the competition itself has incentivised reforms within the telecom monopoly under CEO Frehiwot. Earlier this month, she announced extending 4G LTE services outside of Addis Abeba to six towns in Oromia Regional State. She is also positioning the company to launch a mobile money transfer platform, which is perhaps its most critical investment since the introduction of internet services in Ethiopia.

These efforts are on top of several different package services, including airtime credit and significant tariff cuts. For an administration looking to incentivise digital services’ growth, these reforms can help unpack the potential of a growing young population and economy.

Unfortunately, the administration continues to dilly-dally on how far it can open up, impeding its own initiatives. To an extent, this should not be surprising. The telecom monopoly rubs shoulders with those with state power today just as much as it used to do. Old habits die hard. None of the incentives for protecting the status quo and preserving certain economic interests have gone away.

A good example is Ethio telecom’s contribution of half a billion Birr to the “Dine for Nation” campaign to raise money to develop three regional states’ tourist destinations. It is hard to imagine that it could cough up as much money when it becomes a share company, even if the state retains majority voting power.

This same urge seems to be behind two policy arsenals to ensure the telecom provider’s dominant position in the telecom market. A restriction on foreign firms from providing mobile money services is a blow to the new entrants. Last year, the National Bank of Ethiopia (NBE) came up with a directive that opens up the market of mobile-money services to non-financial institutions. The caveat was that it would be restricted to firms owned by Ethiopian nationals.

This would substantially impede foreign players from competing with as strong a base given that this service has come to represent a substantial chunk of telecom players’ revenues as financial services have evolved across the world. Take M-Pesa, the digital mobile payment system operated by Safaricom. Two years ago, it accounted for around a third of the Kenyan telecom giant’s revenues. It is unfair to give only one player such an arsenal at others’ expense, even if the others are foreign-owned.

Also, unhelpful are restrictions put on independent providers of communications infrastructure. This essentially forces companies to lease collocation services from Ethio telecom on infrastructure that is limited and has never really been as reliable even for the limited number of services Ethio telecom provides. This is a good deal for the telecom monopoly, which would collect revenues from the companies that rent its services. It is, nonetheless, not the best option for end-users that require quality services or, worse, have not been reached by telecom services yet.

The administration may retort that the industry’s liberalisation should not be rushed. Ethio telecom should not be expected to compete overnight against foreign companies that will come with sophisticated services and massive resources, they could argue. But the firm should be more than compensated by the lead it already has on incoming operators: universal market share, presently, as well as tens of thousands of kilometres of fibre optic cables and thousands of cell towers.

With already millions of customers and a privatisation plan that could help it obtain fresh capital, if not enhanced managerial know-how and transfer of technology, there is little logic in continuing to protect Ethio telecom. It could still be made to be a “cash cow” for the state, but this subverts the whole notion of benefiting end-users and the constructive knock-on effects throughout the economy.

Galloping Cost of Living Bites Harder

Anybody who is familiar with Shola Market would know that the area is the scene of a constant flurry of activity any day of the week. As one of the prominent marketplaces in the capital, shoppers from every corner pour into Shola to buy both food items and non-food commodities. Last week, however, walking down the streets of Shola felt more like walking through a graveyard than it did a market.

Anguach Mekuanint was sitting idly inside the shop operated by herself and her spouse. The couple sells berbere [Ethiopian spice mix], garlic, shiro and the like in a small quarter on one of the footpaths in the market.

“What sales?” she exclaimed when commenting about how business has been lately. “People don’t have money; they’re not buying anything from us.”

Not only is the shop troubled by a lack of customers, but the level of supply has dropped too, according to Anguach.

The market has been overwhelmed by a slew of challenges starting from the COVID-19 pandemic to political instability and armed conflict to the ever-present forex crunch. Some vendors in the market, especially those selling non-food items, claim that the market has been dead since March of last year, ever since the outbreak of the pandemic. The prices of goods have been steadily increasing as well, reaching a peak after the conflict broke out in Tigray Regional State, according to the vendors.

It seems that the recent climb in the price of fuel was the final straw; and the market, the metaphorical camel. Following the petrol price hike, the cost of everyday necessities like bread, milk, teff, onion, berbere, and flour, to name a few, has shown a marked increase. Cross-country and city transportation costs have also increased as well as prices for commodities like coffee and sanitary pads.

Experts explain that the disproportionate increase in the prices of commodities can be attributed to the excessively long value chains in the market structure and the expectation that a spike in certain commodities’ prices will translate to the same in others.

However, some, like Andualem Tilaye (PhD), a senior researcher at the Ethiopian Development Research Institute, believe that the interconnectedness of the market is not as simple as is usually presented. Even though the price increase in fuel cannot directly affect certain businesses, it is logical for the cost of outputs to go up as the businesses account for their indirect costs.

“All outputs are related to one another directly or indirectly,” Andualem remarked.

Although Ethiopia is touted as being one of the fastest growing economies in Africa, scoring 8.2pc GDP growth during the second five-year Growth & Transformation Plan, which ended in 2019, and experiencing 9.6pc growth over the last fiscal year, runaway inflation remains a headache. Over the past decade, the nation’s headline inflation rate averaged 14.4pc, driven by 15.2pc food and 13.7pc non-food inflation.

Last month, headline inflation registered at 19.2pc, while food inflation stood at 23.1pc. The numbers are expected to grow even more in the coming months, and the rise in the cost of living is noticeable by anyone.

Enanye Yalew is a single mother of two. She makes her living through weaving carpets, and she is struggling to make ends meet month after month. Her earnings are barely sufficient to sustain a whole family. This is why she has sought support from Together Ethiopia, a non-governmental organisation that supports blind women like Enanye.

“The cost of everything has increased. I can’t pinpoint something in particular,” she said. “We’re surviving through God’s will.”

The incessant surge in the cost of living has impacted her severely, leaving her practically incapacitated. Individuals like her are subject to even more misery as job opportunities or any means of extra income are slim. Much like many other economic and social affairs, it is the less privileged who are left to bear the burdens of poverty as well as growth.

Literature shows that Ethiopian economic growth was not accompanied by double-digit inflation rates before 2004. Experts explain that the exponential change in inflation can be attributed to post-2005 election economic policies when the government resorted to inflationary financing, simply explained as money creation.

The Homegrown Economic Reform Agenda adopted in September 2019 highlighted past challenges and set out ambitious plans in order to attain a stable macroeconomy. The pillars of the reform were to be the easing of structural bottlenecks and the creation of new opportunities and sources of growth, while its challenges were cited as the foreign exchange imbalances, a heavy external debt burden, limited access to finance and high inflation.

The Reform plan has been criticised for putting forth solutions without identifying the root causes of the country’s macroeconomic imbalances for which remedial actions should have been implemented. One of the critics in this regard is Alemayehu Geda (PhD), a macroeconomist with years of experience and several studies published on the topic.

Alemayehu argues that there is a sectoral imbalance in planning, where the planned growth does not result in the growth of food supply and foreign currency. The expert points out that food production growth does not match population growth and migration to urban cities.

Endalkachew Sime, the deputy commissioner at the National Planning & Development Commission, explains that inflation needs both structural and urgent interventions. The Homegrown Economic Reform Agenda is focused on addressing immediate needs, according to him.

Despite his argument, however, on-the-ground situations have not improved in the slightest. In relation to strategic interventions, the Commission has identified increasing production and productivity as one of the pillars of its 10-Year Perspective Plan. In addition, radical involvement from the private sector as a driver of productivity is another of the pillars.

Mamo Mihretu, a senior advisor for the Office of the Prime Minister, stated that basic supply intervention is being carried out through the import of wheat in addition to policy interventions.

“We recognise inflation is a serious macroeconomic challenge,” he said. “It’s not something that will vanish right away.”

Mamo argues that economic growth, as set out in the Homegrown Economic Reform Agenda, has been hampered due to factors attributed to the COVID-19 pandemic and the “law enforcement operation” in Tigray Regional State.

The go-to remedy for hikes in the cost of living frequently carried out by the Ministry of Trade & Industry and the Addis Abeba City Administration is strict control of “illicit” market activities. Early last week, the City Administration Trade Bureau stated that it would be holding hoarders and price gougers accountable for the rising costs. Later the same week, the Administration announced that it was taking steps against 30,000 businesses whom it says are being held accountable for hoarding and hiding commodities and unreasonable pricing.

The State Minister for Trade & Industry, Eshete Asfaw, backs the government’s belief that the current increase in the cost of living is caused by illegal hoarding and pricing. A taskforce headed by city mayors has been organised to regulate markets across Ethiopia. In addition, half a billion Birr has been dedicated to strengthening consumer cooperative unions, according to him.

However, some experts disagree, saying that the inflation this time around is not necessarily caused by growth in demand. Rather, built-in expectations, the depreciation of Birr, and rising fuel prices are the root causes, according to Andualem. The expert also raised his concerns about how the government defines illicit sales.

“What percent margin is defined as unreasonable?” he inquired.

Shuttering businesses, while these basics are not clearly defined, could backfire, according to him. By closing down shops, the market is made subject to a loss of supply, which could have short and long-term effects that cause rising prices.

Andualem also cites that high-profit margins are enjoyed by firms that have monopoly power over certain goods. A good example could be the few existing oil suppliers.

“I’m doubtful that monopoly power is characteristic of markets for most commodities in this country,” he stated.

Matiwos Ensermu (PhD), an associate professor of logistics & supply chain management at Addis Abeba University School of Commerce, also agrees that regulatory interventions have proved they are improper solutions, time and time again. He stated his opinion that those doing regulatory work are unaware of the existing logistics problems.

He urges that a value chain analysis be done for every commodity. “Those [stakeholders] who don’t add value should be removed from the value chain,” he said.

Eshete stated that a task force had been put together to look into the logistics structure though no action has been taken so far.

Matiwos also suggests that strengthening the Ministry of Transport’s project to digitise logistics mechanisms should be encouraged.

Some also cite high tax rates as a root cause behind the galloping market prices.

The taxation of certain food items was lifted in September 2020, in light of the pandemic, only to be reinstated shortly thereafter. The tax relief was applied to edible oil, sugar, bread and baby food. The act managed to stabilise the market for a short while. Edible oil, which was sold for around 480 Br, dropped as low as 280 Br. Currently, edible oil is being sold for as high as 450 Br in the capital. Attempts to elicit a response on the matter from the Ethiopian Customs Commission were unsuccessful.

Eshete explains that the taxation currently imposed on the import of wheat, rice, sugar and edible oil is only five percent. The State Minister does not believe the amount of taxation is a contributor to the price increase the country is witnessing now. He further stated that wheat and rice are currently being imported tax-free.

Another of the macroeconomic imbalances described as a contributor to inflation is the devaluation of money.

In October 2017, a 15pc devaluation of money was enacted, aiming to encourage exports so as to relieve forex exchange shortages. The first of its magnitude since 2010, the nominal exchange of dollars increased from 23.4 Br to 26.91 Br. Following that, the Birr has gone through a series of devaluations and currently stands at 40.7709 to the dollar, a 48pc decrease in three years.

The decision to frequently devalue Birr has received wide criticism. Although the export volume has increased by 12 percent since the 2018/19 fiscal year from 2.7 billion Br to just over three billion Br in the last fiscal year, the inflation rate caused by the devaluation surpassed export growth. The past fiscal year’s average headline inflation increased by 36.3pc from the previous fiscal year, whose average rate of inflation was 12.6pc.

The claim that devaluation is done for export growth is unacceptable, according to Alemayew.

“It’s only resulting in inflation in our context,” he said.

Another contributor to inflation recently is the government’s attempt to cut subsidies. The subsidy on electric power has been lifted for usage of more than 50kW a month. Following that, the price of electricity has surged dramatically, with users now paying between 115pc to 300pc of the previous prices. The final push in subsidy cuts was implemented this quarter.

The government has also increased the price of fuel by almost 20pc over the last two months following global price increases. The government decided to cover 75pc of the increased costs while the public is left to cover the rest. The rationale behind these subsidy cuts is narrowing the ever-increasing budget deficit.

A budget deficit occurs as the expenditure of the central government is not matched by the country’s gross domestic product. From 2003-2010, the budget registered a surplus; however, the government then started incurring a deficit, which increased severely year after year thereafter. In the 2018/19 fiscal year, the deficit amounted to 85 billion Br.

Mamo explains that the government plans to cease using money printing for deficit financing. In the last fiscal year, interventions were done to raise money through treasury bills which underwent a policy reform by which the constant return on T-bills was adjusted to be determined through competitive bidding. This was so that more institutions would take part, which has yielded positive outcomes. The outstanding treasury bills collapsed to 23.7 billion Br from 138 billion Br.

However, the timing when these decisions are taking hold is scrutinised as the country is rattled by a global pandemic and a regional conflict that has been ongoing for five months. Alemayehu, quite contrary to policymakers, adamantly says that cutting down on subsidies is the wrong move.

“It is obvious that subsidies are costly, but they are in place for a greater social cause,” he said.

Alemayehu points out that immediate remedies can be applied along with long-term policy restructuring. Strengthening projects operating in cultivating superior food supply should be given the utmost attention, according to the expert.

When it comes to artificial price increases due to unfair margins on goods, setting up a strict monitoring method could be challenging, but the government should set up professional and incorrupt public shops in every kebeleso that the competitively low price caps would force disproportionate margins lower.

Frequent attempts to gain insight from the Ministry of Finance for this article were unfruitful.

Ethiopia to Buy 2,400 Trucks through Private Sector

A little over six-dozen companies are vying to buy 2,400 freight trucks with a credit facility from the Commercial Bank of Ethiopia (CBE). The companies will raise 30pc of the value, while the remaining will be covered by a loan secured through the central bank’s guarantee.

The Federal Transport Authority (FTA) in collaboration with the National Bank of Ethiopia (NBE)initiated the process with the hope of easing problems in the logistics sector brought on by a shortage of trucks. With the new initiative, the private sector will procure the trucks through a supply credit modality approved by the National Logistics Council, a 10-member body in charge of making high-level policy decisions related to the transport sector.

For the procurement of the trucks, the FTA floated a tender on January 12, 2021, subsequent to a recommendation of a study it conducted on transportation impediments. The modality requires prospective companies to put up an initial deposit of with the remaining to be financed by a credit facility.

The buyers of the trucks will pay the remaining 70pc to the Commercial Bank within two years.

The buyers are expected to find the truck manufacturers or suppliers themselves and select the models and prices as well as the linkage between the potential companies that will be delivering the vehicles. The trucks, expected to be delivered to the country within 60 to 120 days, have to meet the specifications outlined in the bid document including the payload and carrying capacity.

Over 200 companies bought the bid documents, and 76 of them have submitted their proposals. The review process is expected to be finalised within the coming weeks, according to Abdulber Shemsu, deputy director at the Authority, which is overseeing the procurement.

Out of the total, 400 will be fuel trucks. After the winners are selected, they will get the loan and enter into a contractual agreement with fuel truck suppliers or manufacturers. Following the procurement of the fuel trucks, transporters will negotiate with fuel supply companies.

The companies will then pay the transporters for every trip as per the range of payments to be set by the Ministry of Transport, according to Tadesse Tilahun, CEO of National Oil Company (NOC).

Serkalem Gebrekristos (PhD), an expert with two decades of experience in petroleum supply, says that procuring the trucks is not enough to solve the fuel shortage in the country.

“These fuel trucks will affect the fuel demand and supply chain positively,” he said, “but unless there is a proper projection and plan for demand, it can’t be a permanent solution.”

The fuel trucks must be consistently replaced on top of the annual 10pc to 15pc fuel consumption rise, according to Serkalem.

The financial costs associated with the shortage of freight trucks in the country are numerous, and this is expected to alleviate the problems, albeit only as a short-term solution, according to Elizabeth Getahun, president of the Ethiopian Freight Forwarding & Shipping Agents Association. She added that this is on top of the environmental costs that come along with old and overused trucks.

Issues like mounting demurrage and warehouse costs are among the problems, according to Elizabeth, offering that the shortage also results in an inflated price for transportation costs.

The Association, a member of the National Logistics Council, also played a role in bringing this to the attention of the Council in a bid to find solutions, according to her.

“We need to look at other long-term solutions as well, since trucks are worn down over time and a certain amount need to be replaced by new ones every year,” she said.

Alongside the railroad facilities, freight trucks also play an important role in the landlocked country, according to Engida Tadie, a lecturer at the Department of Urban Transport Management at Kotebe Metropolitan University.

“These types of solutions need to be sustainable,” he said. “There needs to be a systemic structure that can be followed regardless of the country’s political tone.”

Railroad transport, with its ability to carry more cargo and deliver within a shorter time, should be further strengthened as an alternative solution, according to Engida.

Be that as it may, encouraging the private sector to get involved in bridging gaps is essential, according to the expert.

“This can be done by providing tax and duty breaks, as well as financial support,” said Engida.

Commission Forms Committee to Streamline Employment

A steering committee led by the Ethiopian Investment Commission is under formation to streamline employment at Hawassa Industrial Park, the largest of its kind in the country. The committee, which includes the presidents of the Southern and Sidama regional states, is being set up as a response to rising demand for employees at the Park, which is witnessing the revival of international buyers.

Facilitating the process to link unemployed youth at the weredaand zonal levels and inducting recruits through screening, orientation and the Park’s channels are the committee’s primary tasks.

Though it has long been under discussion, the idea for the committee came to fruition about a month ago, with regional heads committing to allocate a budget for the project, according to Belay Hailemichael, CEO of the Park representing the Ethiopian Investment Commission.

Members from the Hawassa Industrial Park management and the region’s labour and job creation & enterprises development bureaus comprise a sub-committee. The committee’s formation is expected to offer solutions to employment issues in the Park, which had seen an unprecedented decline in international business following the onset of the Novel Coronavirus (COVID-19) pandemic in the country.

In the first quarter of this fiscal year, the Commission had reported that over 11,000 employees had left their jobs at industrial parks across the country.

The Park usually sees high turnover around the beginning of the Ethiopian calendar year owing to the start of school, among other reasons, according to Belay.

“Most of the employees are at eighth or tenth-grade educational levels, so there is a tendency to go back to school as the new year starts,” he said.

The season also coincides with the harvest time for cash crops across the country, which offers much better pay than the Park, according to him.

With over 80pc of industrial park employees being women, the concurrent wedding season means that many also leave their jobs to get married or start a family.

“These issues have been challenges in the four years since the Park was operational,” said Belay. “Now, with international markets opening up again, we need more employees than ever.”

Among the issues that have held it up thus far have been the costs related to hiring the employees. These include orientation, transportation and then accommodation of the recruits until they begin work.

In the months following the pandemic, nearly 7,000 employees left their jobs from Hawassa Industrial Park alone due to austerity cuts enacted by companies in the Park as their orders fell through.

However, things are looking up for these companies, which have begun expansion. Though levels may not be where they were pre-pandemic, garment orders are rising perhaps because international buyers expect a bigger summer market, according to Hibret Lemma, board member of the Park’s Investment Association.

“Orders for July and August are increasing,” he said. “This may have to do with COVID-19 vaccines being rolled out.”

The break in the past few months, however, when orders were highly impacted and employees were on paid leave, is what has caused this rift, explained Hibret.

“It might take us another month to reinitiate hiring employees as companies were not hiring for months because of the pandemic,” he said.

Last September, the MasterCard Foundation teamed up with a local company to launch its BRIDGES Programme, a five-year project which is aimed at creating a digital industrial park labour database implemented across seven selected parks. It will play a role in creating this employment market linkage.

Experts in the field stress the importance of creating human relations at the companies to get employees and retain them. Creating environments where informal relationships can develop among employees and with the management is important, according to Challa Amdissa, a lecturer at the public administration department at Addis Abeba University and a member of the Ethiopian Management Professionals Association.

“This creates emotional and psychological attachments to the job,” he said.

“Providing competitive packages for the employees is another factor to consider,” he said. “This could mean facilitating housing or other packages depending on where the employees’ needs lie.”

He added the benefits of creating a promotion plan as one way to retain employees. Despite the high level of unemployed youth in the country, retention is essential as it avoids extra training costs and the time spent to incorporate industrial work culture in a predominantly agricultural setting.

Authority to Issue Final Telecom Bid This Week

The Ethiopian Communications Authority (ECA) is set to launch the final and long-awaited request for proposal (RFP) at the end of this week to issue two nationwide full-service licenses. The bid will be open for one month until April 5, 2021, and the National Evaluation Committee formed from the Ministry of Finance, the Authority, and the Prime Minister’s Office will handle the technical and financial evaluations, which are expected to be finalised by mid-May.

At the end of last week, the Authority and the Ministry of Finance held a conference with the bidders before floating the final bid. During the two-day bidders’ conference, which saw the attendance of representatives of Orange, MTN and Vodafone, among others, the Ministry of Innovation & Technology, the Ethiopian Investment Commission, the National Bank of Ethiopia, Ethio telecom, and the Office of the Prime Minister made presentations.

The bidders were briefed on the ICT policy and the digital economy of the country, mobile and financial services and investment laws. Technical requirements were also part of the briefing. Comments from bidders were also gathered for the final RFP.

The final version of the RFP that incorporates comments from the bidders will be launched on March 5, 2021, according to Balcha Reba, director general at the Authority, which got a new board of directors recently with Abraham Belay (PhD), minister of Innovation & Technology (MInT) replacing Getahun Mekuria (PhD), minister of Education, as board chairperson.

The new board also consists of Lelise Neme, commissioner of the Ethiopian Investment Commission, Shumete Gizaw (PhD), director-general of the Information Network Security Agency (INSA), and Abebe Abebayehu, former investment commissioner.

The two international operators will secure nationwide full-service licenses with Ethio telecom and will be licensed for 15 years. The license, which is subject to renewal, will enable the companies to provide mobile, internet and fixed call services.

Following one of the government’s major decisions to liberalise the telecom industry, the Authority initiated the bidding process last May and announced an expression of interest (EOI). The EOI attracted the interest of 11 companies, including Global Partnership for Ethiopia, a consortium of Vodafone, Vodacom and Safaricom; MTN; Etisalat; Orange; Saudi Telecom Company;  Liquid Telecom; Telkom SA; and Snail Mobile.

The Authority then floated the first RFP at the end of November, and a total of 36 companies have shown interest in the RFP document, with some of them buying the bidding document. The bidders’ conference was held last week with the attendance of these companies.

During the bidders’ conference, the prospective bidders voiced their concerns regarding the closure of mobile financial services to foreign companies and to firms that manufacture or supply infrastructure, aka infraco companies. In letting two companies join the industry, the government has closed the doors to firms that manufacture or supply infrastructure. Though mobile money remains closed to foreign firms, the government recently allowed Ethio telecom to venture into the service.

“We’ve explained to the companies that it isn’t a lifetime ban,” Balcha said, “and informed them that policies might be changed or amended by the government when needed.”

Once the monopolised telecom industry is liberalised, the country will follow a ”2+1 approach,” in which two operators along with the state enterprise provide full telecom services for at least 10 years. With the new landscape, Ethio telecom will hold the existing mobile network code 09, while the two new operators will operate with 07 and 08 mobile network codes.

The International Finance Corporation (IFC) is operating as a transaction advisor in the process of assisting the Authority in the license issuance process and drafting directives and a regulatory legal framework. So far, the Authority has prepared 16 draft directives, a regulation and a framework, of which 12 of the directives and the framework have been approved.

Coop Bank Joins Ranks of Top Tier

Cooperative Bank of Oromia (CBO), one of the mid-aged banks, registered the highest profit growth rate in the industry over the last fiscal year, recording a 79.6pc growth compared with the past fiscal year.

The Bank netted 1.2 billion Br in profit, making it one of the top three most profitable private banks in the country following Awash and Dashen banks, which made 2.6 billion Br and 1.5 billion Br in profits last year, respectively.

Parallel to its profit, Cooperative Bank’s earnings per share (EPS), the profit divided by the total outstanding number of shares, also grew significantly to 47pc, a sharp jump from 36pc.

The profit and EPS growth of the Bank is awe-inspiring, according to Abdulmenan Mohammed, a financial statement analyst with close to two decades of experience.

“The Bank’s performance is as high as the oldest private banks,” he said. “The management should be applauded for such a remarkable performance.”

CBO’s EPS snowballed, while its paid-up capital also surged significantly to three billion Birr, marking a 42.9pc growth. At most financial institutions, the two go in opposite directions.

Achieving a high level of EPS while increasing the paid-up capital significantly is impressive, according to Abdulmenan.

Last year was shaped by a series of the external and industry challenges that have affected the overall macroeconomy and the Bank’s growth momentum, according to Fikru Deksisa (PhD), chairperson of the board of directors of the Bank.

“Despite the fact that these external factors severely affected the performance of the banking industry and our Bank, in particular, it was a defining year for the Bank during which an incredible performance unfolded,” he remarked.

The Bank has been following expansionary growth over the past three years, according to Deribe Asfaw, CEO of the Bank, who explained that it has followed a “min-max” and turnaround strategy to steer the Bank over the challenges it had been facing.

“We’ve been investing over the past three years, and we’re reaping the fruit,” he told Fortune. “It’s all about earning assets.”

The growth in profit after tax was mainly driven by both financial and non-financial intermediation revenues expansion. The Bank’s interest income soared by 48pc to 4.2 billion Br, fees and commissions surged by 40pc to 762.8 million Br, while gains on foreign exchange climbed by 121pc 536.3 million Br.

Increased expenses accompanied a considerable expansion in income. Interest expenses soared by 47.6pc to 1.5 billion Br, salaries and benefits increased by 13.7pc to 1.1 billion Br. Other operating expenses exploded by 69.8pc to 1.4 billion Br.

The Bank’s expense-to-income ratio stood at 75.3pc, a marginal decline from the 79pc registered last year.

That year the Bank opened 31 new branches, putting the total number of branches at 420. Its total employee count also reached 8,163, a two percent growth from the preceding year.

In the last fiscal year, provision for impairment of loans and other assets of the Bank rose by 332.4pc to 153.5 million Br.

This may have been related to a surge in lending activities, according to the expert.

“The CBO has been repeatedly hit by a surge in doubtful loans and advances,” he said. “This area is the weak spot of the Bank, which should be addressed by an appropriate credit risk management mechanism.”

It is directly related to the impact of COVID-19, according to Deribe.

“There were many companies that have been struggling to pay debts,” he said. “Due to the pandemic, we fully removed interest rates for borrowers from the hotel industry, and we cut the loan interest rate for other borrowers, which is still active.”

The Bank’s total assets increased massively by 25.6pc to 52.5 billion Br. Loans and advances similarly surged by 40pc to 34.2 billion Br. The total deposits of the Bank reached 45.5 billion Br, an increase of 26pc. The loan-to-deposit ratio increased by 10 percentage points to 75.1pc.

The loan-to-deposit ratio of the CBO is at an ideal level, according to the expert.

The Bank’s investment in National Bank of Ethiopia (NBE) bonds and treasury bills increased by eight percent to nine billion Br. This investment represents 17pc of its total assets and 19pc of total deposits of the Bank.

Liquidity analysis indicates that the liquidity level of the Bank decreased in value and relative terms. Cash and bank balances decreased by 5.2pc to 6.8 billion Br. The ratio of cash and bank balances to total assets went down by 4.3 percentage points to 13pc, and cash and bank balances to total liabilities decreased to 14.4pc from 18.6pc.

The capital adequacy ratio (CAR) of the Bank increased to 13pc from 12.5pc.

Even though the CAR of Cooperative Bank is higher than the legal minimum, it should consider increasing it for precautionary reasons, according to Abdulmenan.

“We’ve noticed this as one of our weaknesses,” agreed Deribe.

The board and management have decided to have a CAR that considers its asset growth to carry a risk. The Bank’s growth strategy is also aimed at boosting the paid-up capital to reach 10 billion Br in three years, according to Deribe.

Ethiopia’s Silicon Valley Houses Orange’s Digital Centre

Orange, a French multinational telecommunications corporation and one of the potential bidders to secure a telecom license in Ethiopia, has launched a digital centre in the Ethio ICT Park. Orange Digital Centre Ethiopia will work on promoting digital skills, supporting job creation, and encouraging youth participation in innovation.

Orange, which reported a turnover of 42 billion euros in 2019, launched the Centre as a nonprofit organisation funded by the German Development Agency (GIZ). The Centre, which is also part of a network of 32 Orange Digital Centres located across Africa, the Middle East and Europe, is the third in Africa after Tunisia and Senegal.

The launching was attended by Abraham Belay, minister of Innovation & Technology, Lelise Neme, commissioner of the Ethiopian Investment Commission, Sandokan Debebe, the CEO of the Industrial Parks Development Corporation, and the German and French ambassadors to Ethiopia. The centre is housed at the ICT Park located close to Bole Lemi Industrial Park, which is considered Ethiopia’s Silicon Valley. The ICT Park is currently a home of private operators such as ZTW, Techno Mobile and Security Innovation Network, among others.

The Digital Centre consists of three components: a coding school; FabLab Solidaire, a digital manufacturing laboratory; Orange Fab, a startup accelerator; and an investment fund dubbed Orange Ventures Africa. The coding school, which currently has 25 trainees, is equipped with computers and software that Orange will use to provide both graduates and non-graduates with training and workshops on computer programming, cybersecurity and soft skills.

There are different application criteria for trainees to enroll depending on their status, according to Meron Bekele, director of the coding school.

Orange is one of the 11 companies that showed interest in becoming one of the two new operators that will receive full-service telecommunications licenses as part of the government’s liberalisation of the telecom sector. The winners are expected to be announced on April 5, 2021.

The centre will recruit unemployed students or graduates as interns; moreover, short-term training programmes are available to the general public without any stringent restrictions.

The FabLab Solidaire is part of a worldwide network of spaces that offer trainees the opportunity to create digital hardware using equipment such as 3D printers and laser cutters. The manufacturing laboratory offers training sessions, boot camps, and support programmes for innovators. Seven trainees are currently utilising these services.

The Orange Fab accelerator is part of an international network that helps incubated startups grow by fostering commercial partnerships at the national and international levels. Orange Ventures Africa is a 50-million-euro investment fund used to finance tech startups in the continent.

Markos Lemma, co-founder and manager of ICE Addis, explains that the Centre is crucial for the country. It provides basic skills to young industry amateurs and that it is instrumental because it will pave the way for the trainees to develop their own hardware. Overall, the centre will increase the value of ICT in Ethiopia, and after the trainees enter the system, it will play a large role in shifting the ICT sector one step forward, remarked Markos.

Henok Ephrem, a computer science lecturer at Debre Birhan University, highlighted that the Centre is notable in that it will provide access to equipment that is not readily available at higher education institutions.

Orange Digital Centre has plans to replicate its training services in cities and universities across the country over the coming months.

Orange is the latest in a series of international firms to set foot in the ICT Park. In November last year, four companies, Wingu.africa, Raxio Data Plc, RedFox Web Solution and ScutiX, were allotted land at the Park to construct data centres. Wingu broke ground on the construction of its data centre last month.

COVID-19 Uncertainty Leaves Wedding Industry in Limbo

Leul Gebrue and Eskedar Nigussie are co-owners of Romi Vello & Makeup, a shop in the Kotebe area that rents out bridal dresses and suits and provides makeup services. From April 2020 until September, their business was quiet due to the state of emergency declared by the government as a response to COVID-19. Like so many others, they did not expect that this would happen and had no backup plan.

The restriction on gatherings involving more than four persons meant that weddings were not celebrated. No one required photos, no one needed makeup, and no one was interested in renting clothes. They were hardly the only ones though. The partial lockdown boded ill for any business that depends on weddings: clothing rental shops, hotels and makeup studios to name a few.

Leul and Eskedar had no choice but to let their employees go.

“With the savings we had,” said Leul, “we couldn’t afford to support more people.”

When events were cancelled, people began to demand the return of their advance payments, and the shop obliged, returning almost all of the money they had received. For about four months, their landlord had allowed them to pay only half of their usual rent. But after July, they were back to paying the full amount despite a complete lack of customers.

The wedding business is seasonal in Ethiopia, and most marriage ceremonies take place in September, January and February or May following the celebration of Easter. With the first case reported in March, over 157,047 people have tested positive for COVID-19, and 2,340 individuals have lost their lives to the pandemic over the same period.

The loosening of COVID-19 restrictions and the arrival of the January wedding season is good news for businesses like Romi, but the pandemic’s effects have by no means dissipated.

Even though customers started to trickle into the shop last month, almost a full year since the pandemic’s onset, they were hard put to afford the usual prices.

“The pandemic also hurts people,” said Leul. “We’re trying to revive slowly, just by taking all the opportunities we get and by attracting customers with lower prices and quality products.”

He added that the business used to earn an average of 20,000 Br a week before the lockdown. However, even since business picked up last month, they barely earned enough to cover their rent.

The story is not much different in the realm of hotels.

The hotel industry used to enjoy a high rate of occupancy, often reaching 80pc. Since the outbreak of COVID-19, it has plummeted to a tenth of the available rooms. Not even the advance payments made booking ballrooms and halls for weddings were spared.

In the case of Ras Hotel, one of the hotels known for hosting weddings, the management had to return close to two million Birr in advance payments, according to its General Manager, Masresha Gebremariam.

Like Yetu Bridal Shop, some businesses were able to squeeze through by offering their services at discounted prices.

“We reduced our prices by up to 80pc,” said Yetnayet Tesfaye, owner of Yetu.

But hotels could hardly use the same strategy due to their high overhead costs.

“There is no plan of decreasing our prices until we get back on our feet,” said Debebe Worku, general manager of Ras Amba Hotel, which is located along Elisabeth Avenue going east to the British Embassy. “The only thing we can do is attract and satisfy customers by taking precautionary measures against COVID-19 and providing exceptional service and hospitality.”

As expected, wedding celebrations have picked up in the January season, but there are a few changes. Many couples are celebrating their wedding by way of photoshoots, wearing wedding clothes and makeup. Thus, the clothing rental shops and makeup studios are working a little, but other wedding businesses that do not involve clothes or makeup are still out in the cold.

People nowadays don’t gather their families and friends to celebrate their weddings, which makes hotel services unnecessary for them, according to Masresha.

“Even though Ras Hotel provides services at lower prices than other hotels, it works only at 25pc capacity. I can’t fathom how more expensive hotels are surviving.”

Government support to revive the sector, in the form of low-interest loans, has done little to remedy the situation.

“I object to the term ‘reviving,'” said Masresha. “It’s better to say there has been a slight growth.”

The first round of loans was issued in June 2020 with a five percent interest rate. A second round was then made available a few months later in December, but this time the interest rate had risen slightly to 5.5pc. The hotels were permitted to get loans from any bank of their choosing, and there were no general limitations on the amounts that they could borrow.

They must pay the loans back in a year, a difficult prospect considering the lack of business.

“The government tried its best to help us,” said Debebe, “but it would have been better if they gave us the money as support or extended the payback period.”

The hotels still have to contend with the added stress and expenses brought on by carrying out precautionary measures against COVID-19 for the few events they manage to host. They sanitise all their materials, including chairs, tables and cooking utensils. They provide masks to guests, not to mention their employees, who are instructed to wear gloves and maintain their distance from customers.

The hotels also do not let guests serve themselves, as is customary during weddings. Rather, waiters in protective gear are assigned to serve customers. On top of that, the hotels use their halls at half capacity. But here, some of the customers are a help too.

“We reduced our wedding guest list by half,” said a bride who wished to remain anonymous. “We only called our close family and friends.”

Regardless of the measures being taken, the risk of spreading the virus is still real, although experts say that there does not need to be a complete embargo on wedding celebrations.

Celebrating weddings while taking the appropriate measure is possible, according to Alemayehu Worku, a professor of public health at Addis Abeba University.

“The important thing is that every person is fulfilling their responsibility toward taking the appropriate precautionary measures against COVID-19,” he said.

But these measures are often ignored, according to the hotel managers. Hotels offer water and soap to their customers before entering the halls, but not many are inclined to acquiesce.

“We can’t oblige our guests to take the precautionary measures that we do; rather, we motivate them,” said Debebe. “If we make it an obligation, people will get the wrong idea that we don’t respect our guests; and right now, we can’t afford to lose the customers we have.”

Most people do not wear masks at all, while some people wear them when they enter the venues, but they eventually take them off, according to the managers.

Those who do observe the precautionary measures are mostly the elderly.

“If one person takes the precautionary measures while others don’t, it doesn’t have any use,” said Alemayehu.

Other businesses need to have these measures in place as well, but it seems that many are disregarding the pandemic.

Clothing rental shops indicated that they do not wash their products after a customer tries them on. They only wash them before handing them over once the customer has chosen what they like.

“People should avoid trying on these clothes,” said Alemayehu. “Still, the shop should provide water and soap and convince people to wash their hands before and after they try the clothes on.”

Makeup studios are not faring much better either. They serve up to four customers at once and sometimes cater to two wedding parties a day. The makeup artists wear masks during the service and are supposed to sanitise their materials after every use. Still, it is doubtful that they are all taking the necessary precautions, according to customers.

“They used the same materials to apply the makeup on my bridesmaids and me,” said a bride who wishes to remain anonymous.

“No material used on one person’s face should ever be used on another person before being washed and sterilised,” said Alemayehu. “The makeup artists should wear the same protective equipment used by doctors.”

Nyala Leads Industry with Strong Capital

Nyala Insurance, which recently celebrated its silver jubilee, stands as the best-capitalised private insurance firm over the last fiscal year. The firm’s paid-up capital stood at 530.5 million Br, registering a 27.2pc rise.

During the reporting period, the firm’s profits also rose by six percent to 139.8 million Br. Despite this increase, its earnings per share (EPS) fell by 15.5pc to 295 Br due to the injection of fresh capital, which secured a firm foundation for the insurer.

Despite the reduction in EPS, the returns that go to the pockets of the shareholders of Nyala are reasonable, according to Abdulmenan Mohammed, a financial statement analyst.

Getachew Birbo, the board chairperson of Nyala, says the firm achieved a positive performance despite the challenges facing the economy and the insurance industry.

“The insurance industry has continued to be challenged by a multitude of factors,” said Getachew.

A low level of insurance awareness, a shortage of skilled workers, an absence of attractive bundles of insurance products, heavy regulation, a low level of integration among insurers, heavy influence on the market through different affiliation and interests, unhealthy competition through price undercutting and unethical practices are the challenges cited by Getachew.

“On top of the impact of the COVID-19 pandemic,” said Getachew, “the country has been challenged by macroeconomic imbalances, serious political instability, violence with social turmoil, and natural disasters such as locust invasions and floods.”

Yared Mola, CEO of the firm, adds that the insurance industry was a direct reflection of the economic and socio-political situations of the past year. He stated that there were no new investments, road projects and government ventures and this led to a slump in insurance demand.

“The appetite and size of insurance demand from existing customers has also dropped,” said Yared. “We’re struggling to retain our existing customers by convincing them to renew their policies.”

Yet the firm managed to increase its profit after tax, mainly driven by significant growth in gross premium and dividend income.

Nyala’s underwriting surplus of the general insurance business registered at 123 million Br, showing an increase of 5.6pc from last year’s figure of 116.5 million Br.

The gross written premium of the company stood at 565.3 million Br, exhibiting a 15pc rise. The firm ceded 212.7 million Br of this amount to reinsurers, leading its risk retention rate to drop by 2.5 percentage points to 62.4pc.

The growth in gross written premium is remarkable for an industry that is known for fierce competition, according to Abdulmenan.

Nyala should consider increasing its retention rate, which is far lower than the industry average of 77pc, while putting appropriate risk management mechanisms in place in order to keep a considerable portion of its gross written premium, according to the expert.

Yared, who has a sharply differing opinion on the matter, says that his firm retains risks based on the project size, the nature of the project and the central bank directive that requires companies to have a risk gross retention rate that is not less than five percent of the company’s total capital and reserves.

“There’s no arbitrary and agreed upon lump sum to be read as a good retention rate,” says Yared. “And we don’t retain risks that can potentially paralyse the economy.”

In the past year, Nyala earned commissions of 56.8 million Br, an increment of seven percent. It paid commissions of 17.8 million Br to agents, an increase of one million Birr.

Claims paid and other provisions rose by 8.2pc to 175.3 million Br.

Interest earned on savings decreased by 1.8pc to 80.8 million Br, while dividends earned on investments spiked by 37.1pc to 37.9 million Br.

The growth in dividend income is impressive, according to the expert.

Expenses on salaries and benefits increased by 17.4pc to 102.6 million Br. Operating, administrative and other expenses increased by 12.7pc to 200 million Br.

“Considering the expansion in business and the level of inflation,” said Abdulmenan, “the growth of expenses is reasonable.”

At the end of the year, the total number of Nyala’s service outlets, including the satellite and contact offices, reached 47. The firm’s human capital also reached 344 employees, showing a slight increase of one percent from the preceding year.

The total assets of Nyala increased by 7.6pc to 2.2 billion Br. Out of this balance, 557.6 million Br was kept in time deposits, 269.2 million Br in shares and 116.4 million Br in investment properties. These investments account for 43.5pc of the total assets of Nyala.

Ratio analysis shows that the liquidity level of Nyala decreased in value and relative terms. Cash and bank balances went down by 31.7pc to 177 million Br. The ratio of cash and bank balances to total assets of Nyala declined to 8.1pc from 12.9pc. The capital and non-distributable reserves represent 38.7pc of its total assets.

This shows that Nyala has very strong capital, which should be used efficiently, according to Abdulmenan.

Three Local Firms Seal Road Deal Worth 1.1b Br

Three local companies secured contracts worth close to 1.1 billion Br to construct 17Km of asphalt and cobblestone roads at four locations in the city.

The Addis Abeba City Roads Authority signed contracts with Markan Trading, Tilahun Abebe Construction and Senan Construction early last week. Out of the road construction projects, the cost of which will be fully covered by the City Administration, 9.2Km of the total length will be asphalt road, while the remainder will be cobblestone. The roads will be completed within nine to 19 months.

One of these projects, covering just over 1.5Km in length with a width of 20m and stretching from Kotebe Kidanemihret to Kotebe Dehninet, was granted to Markan Trading. The contract is worth over 245 million Br, and the construction is expected to be completed in a year and a half. This road has a kilometre cost of 161.6 million Br.

The 324 million Br contract for the Beshale Condominium asphalt project, which covers a 3.6Km distance with a width of 20m, will be carried out by Tilahun Abebe Construction and is also expected to be finalised late next year. Tilahun Abebe will be paid 90.3 million Br for a kilometre.

The third project consists of internal pathways at three condominium sites, including Furi Hanna and Wotader Sefer, and is classified into two lots and awarded to two local companies. Tilahun Abebe Construction will be in charge of the construction of 6.2Km of cobblestone roads worth 253 million Br. Senan Construction will be in charge of the second lot covering 5.7Km, a third of which will be cobblestone. The project will cost the City Administration 285.5 million Br.

These latest contracts signed last week bring the total number of road projects to 18 so far this budget year, 16 of which are being handled by local contractors. The projects are expected to create job opportunities for up to 6,000 employees at permanent and temporary levels. These projects cover 102Km and are worth 8.4 billion Br.

For the current fiscal year, the City Administration allocated a 5.9-billion-Br budget for road construction. It has planned to build 146Km of roadway at condominium sites.

Furthermore, two contracts were granted to Wagwago Trading and Variety Electromechanical Engineering to enhance and modernise streetlighting in the city with a budget of 146.9 million Br. The streetlights are to be installed mainly in city squares and along roundabouts in areas like Mexico, Lagare and National Theater, among others.

The streetlights will be assembled in Meqelle, and most parts will be imported from China, according to Yared Tesfaye, CEO of Variety, who added that his company is playing a role in minimising foreign exchange loss by producing the lights domestically. He explained that the company would produce LED lights, which will cut down on power consumption and have the capacity to illuminate areas within a 50-60m radius.

“We have inventory stock at 10 locations, but three of them are in Tigray, and the rest are in Bahir Dar and Addis Abeba,” said Yared.

During the agreement signing ceremony, Moges Tibebu, director-general of the Authority, urged utility companies to settle right-of-way issues as early as possible.

Using a wired grid for streetlights in a country that uses the motto “13 months of sunshine” should not be an option, remarked Eskinder Eshetu, an engineering consultant with over a decade of experience. The project might have considered using solar-powered streetlights, he said.

“This shows a lack of feasibility studies for the project,” added Eskinder.

However, enhancing the old sodium vapour lights using LEDs is a wise choice, because the former are omnidirectional, meaning they produce light in 360 degrees, and are therefore inefficient, according to Eskinder. LED lights emit light at 180 degrees by default.

Besides, LEDs have a long lifespan, are energy-efficient and require little maintenance. The downside is that they are relatively expensive.

Sudan’s Invasion of Ethiopia Threatens Full-scale Border War

On November 6, 2020, the Sudanese military carried out unprovoked aggression against Ethiopia. Since then the Sudanese military campaign has continued and now they have occupied, by force, territories previously under Ethiopian administration. Despite Ethiopia’s repeated calls for peaceful settlement of the boundary disputes, Sudanese military leaders have intensified their military and propaganda campaigns against Ethiopia. Such unprovoked and irresponsible military adventure has posed grave consequences for the bilateral relations of the two countries and for peace and security in the region.

If the Sudanese government continues in this course of action, the situation can easily spin out of hand and lead to a dangerous armed conflict between the two nations. As a consequence of unexpected attacks by the Sudanese army, Ethiopian citizens reportedly lost their lives, many farmers were displaced, their farms and properties were destroyed or looted, and their livelihood is hanging in the balance.

Following this attack, Sudanese military leader Abdel Fattah Al-Burhan (Lt. Gen.) has given somewhat conflicting accounts about his action. First, his government denied that his forces ever crossed the international boundary.

“The Sudanese army had been redeployed along the Sudanese side in the border with Ethiopia,” Sudanese Foreign Ministry Spokesman Mansour Boulad said.

Later on, the General justified his action, which he said was to “re-take the land that was taken away by Ethiopia 25 years ago.” In a rather bizarre explanation, he even said that “his actions were in response to Ethiopia’s request to close the borders.” Sudanese press widely reported that the Sudanese army bragged that Sudan had re-occupied 80pc of its land that was seized by Ethiopia.

Despite credible reports that Sudan went deep into territories under Ethiopian administration — as deep as 50Km in some accounts — the Ethiopian government has exercised maximum restraint and “demanded the withdrawal of Sudanese forces from Ethiopian territories” and called for a dialogue to solve pending boundary issues that existed for a long time. Sudanese authorities are yet to respond positively.

In the meantime, concerned neutral parties including the African Union (AU), the Republic of South Sudan and Turkey showed their interest to mediate between Ethiopia and Sudan. If this materialises, it will be a positive development and consistent with Ethiopia’s policy of peaceful settlement of border disputes between two countries.

But how did these two neighbourly countries get to this point?

It starts with two treaties signed between Ethiopia and the United Kingdom (Sudan’s former colonial power) in 1902 and in 1907 that delimited the boundary between the two countries. The treaties required the formation of a joint bilateral commission to demarcate the boundary on the ground.

However, the boundary demarcation was carried out unilaterally in 1903 and 1909 by Charles Gwynn (Maj.), later knighted, representing the British Government. Ethiopia objected to Gwynn’s unilateral demarcation, as it was not consistent with the treaty’s requirement of setting up a joint boundary commission to demarcate the boundary.

The Major indicated that he had authorisation from Emperor Menelik II without producing any evidence. The British and later on the successive Sudanese governments had argued in the same line, but they also failed to produce any evidence. That was where the controversy began, a century ago, not over the past 25 years as Sudanese authorities indicate.

The outcome of the unilateral demarcation of the boundary was a history of friction and tension throughout the colonial period. Neither have matters improved much after Sudan attained independence in 1956.

Fast forward to July 18, 1972, Ethiopia and Sudan signed the Exchange of Notes of 1972 that stated basic acceptance of the boundary line as initially demarcated in the 1900s with the necessary rectifications and adjustments along the common boundary. Article III of the agreement set guidance on how both parties should handle the disputed territories stretching from Mount Dagleish (near Dinder River) northward to the Setit River, which is the tri-junction point of Sudan, Ethiopia and Eritrea.

The agreement demanded, first and foremost, the identification of all de facto holdings of territories and the limits of settlement and cultivation in the disputed areas. Once these were identified, the Agreement specified that both parties should find an amicable solution to re-demarcate the boundary. The agreement emphasised strongly that the status quo must be maintained until a mutually acceptable agreement is reached to address the problem.

“The status quo shall be respected until final disposition of the case by agreement between the two governments,” Article III stipulated. “The governments of Sudan and Ethiopia shall study the problem resulting from settlements and cultivation by nationals of either nation in the territory of the other with a view to finding an amicable solution.”

Following the signing of the agreement, both countries established joint boundary commissions in order to implement the decisions agreed to in the Exchange of Notes. In the course of long boundary negotiations since 1972, one would wish that both countries achieved better progress. But we know that such progress was slowed down partly by domestic political and security problems, which frequently took place in both countries and were partly due to the intransigence and inflexibility by Sudanese negotiators to find an amicable solution.

Despite the lack of the desired progress at boundary re-demarcation, however, both countries have worked together for decades, which assured relative peace and stability at the boundary areas.  They even carried out successful joint cross-boundary projects aimed at promoting mutual interest, which has become a symbol of good neighbourly relations for many African countries.

In 2002, Ethiopia and Sudan showed genuine interest in resolving all pending issues at the contested areas and set up the Ethiopia/Sudan Joint Special Committee to find a lasting solution to the problem in the disputed areas. Under the Committee, the Ethiopia/Sudan Joint Select Working Group composed of known experts from both countries with a mandate to conduct field studies in the disputed areas was established.

After a detailed and extensive field study, the group jointly identified de facto holdings and issued its joint report. This was an important milestone in the negotiations between the two countries, because for the first time the existing de facto holdings of Ethiopia and Sudan that are consistent with the 1972 Exchange of Notes were jointly identified. The remaining work was to find an amicable solution and go ahead in re-demarcating the common boundary.

In 2019, the Omar Al-Bashir regime was toppled, and the current government came to power in Khartoum. It was Ethiopia’s expectation that the Joint Special Committee would be allowed to finalise its mission, which is to identify amicable solutions to the problem. However, the Sudanese military, on the contrary, made a unilateral decision to settle the dispute by force in the contested areas (at a place they called Al Fashaga) taking advantage of Ethiopia’s domestic situation. This Sudanese action is a serious setback to time tested good neighbourly relations between the two countries. More importantly, it is a clear violation of a key article of the 1972 Exchange of Notes where both parties agreed to maintain the status quo until the final disposition of the case by agreement between the two governments.

It is also a violation of the joint agreement that identified the de facto holdings of territories in the disputed areas. The Sudanese officials should know that there was no amicable solution accepted by both parties — which makes their military action illegal and belligerent.

In the last few years, Ethiopia and Sudan have begun their own political transitions led by new generations in their respective countries. Accordingly, both leaderships showed their willingness to help each other fulfill the democratic aspirations of their peoples. They also renewed their commitment to pursue diplomatic and peaceful means to address boundary issues.

To that effect, high-level visits took place involving Sudanese Prime Minister Abdalla Hamdok, Abdel Fattah Al-Burhan and Vice-president of the Sovereign Council Mohamed Hamdan “Hemeti” Dagolo.

Ethiopian officials also made frequent visits to Khartoum. Prime Minister Abiy Ahmed (PhD) helped the Sudanese parties to establish a transitional arrangement between the civilians and military representatives. He attended the signing ceremony in Khartoum that created the transitional government in Sudan. Furthermore, Ethiopia has also participated in the peacekeeping efforts in Darfur and Abyei. When territorial disputes erupted between Sudan and the new state of South Sudan, Ethiopia mediated between the parties and helped avoid major military clashes between them.

Recently, Ethiopian Deputy Prime Minister and Foreign Minister Demeke Mekonnen travelled to Khartoum to avert military confrontation and tried to persuade Sudan to pursue diplomatic channels to resolve the current crisis.

Despite all these positive developments between the two countries, Sudan chose to occupy territories it captured by force when Ethiopia moved its Defence Forces from the border area to reinforce its law enforcement operations in Tigray Regional State.

For Ethiopians, the unexpected attack by the Sudanese military remains perplexing. Many believe that the Sudanese are their brothers and sisters. The peoples of the two countries have lived side-by-side for millennia and drink from the same river, the mighty Blue Nile. They both have a history that goes back to antiquity. They share many heritages together including people, religion, languages, culture and destiny. They even share a name with a similar meaning. Ethiopia means the country of black face in Greek and “bilad al-Sudan” means the land of black people in Arabic.

Both countries have gone through ups and downs in their modern history. They both were exposed to long devastating civil wars — after which the new nations of Eritrea and South Sudan were born. During those tough times, the peoples of both countries gave each other helping hands and welcomed those who sought refuge in each other’s country. Such solidarity between the people remained unbroken even when government-to-government relations were at their low points in history.

What went wrong suddenly?

It seems that recent Sudanese actions are influenced by two factors, internal and external. On the domestic front, the Sudanese domestic situation is increasingly deteriorating. The coalition between the military and civilian authorities is heading toward a stalemate and threatens the fragile political transition in Sudan. The military led by General Burhan and his powerful Deputy, General Hamdan Dagalo, are trying to bring the situation under control by undermining the civilian Prime Minister, Abdalla Hamdok.

Making matters worse, following the recent withdrawal of the UN and African Union Peacekeeping Forces at the beginning of the year, ethnic clashes involving armed militias have begun in Darfur, with thousands losing their lives, tens of thousands displaced, and many fleeing to neighbouring countries.

Domestic discontent, pushed further by a rising cost of living, that led to civil unrest and mass demonstrations in many parts of the country has been followed by state of emergency declarations in many parts of the country.

It is under such circumstances that Sudan accused Ethiopia for taking away territory “25 years ago” and waged a military campaign to retake it. Many observers believe that this is a deflection tactic by the military in Sudan hoping to “manage” domestic tensions.

On the foreign relations front, recent developments in the region have put Sudan in the spotlight. The construction of the Grand Ethiopian Renaissance Dam (GERD) and the politics surrounding it have attracted international attention to the Ethio-Sudan boundary. The Dam is only about 20Km from the Sudanese border.

It was also international news when two years ago Omar Al-Bashir’s government was toppled and replaced by a transitional government that promised democracy in Sudan. The country’s subsequent removal from the US terrorist list has brought Sudan back to the fold of the international community. Following these developments, competing foreign powers have established their presence in Khartoum. Regional analysts are even pondering that Sudan has become a convenient ground for regional geopolitical intrigues.

Sudan’s vulnerability to foreign powers is not new, but recently it is getting worse. Egypt has taken the biggest lead. After its absence for nearly 30 years during the time of Omar Al-Bashir, it is now returning back to Khartoum. Egypt’s main preoccupation is to bring Sudan on its side in its disputes with Ethiopia over the GERD.

As a result, Sudan’s inconsistent pronouncements on the GERD have become confusing. Many Sudanese officials have asserted that the GERD has many benefits to their country. For this position, they were even denounced by Egypt and the Arab League. Sudan also entertained bitter complaints against Egypt for occupying Sudanese territory at Halaib Triangle, located at their common border on the northeast African coast of the Red Sea.

Why there is a sudden change of heart now, no one knows for sure. But it is evident that Sudanese military leaders chose to compromise their county’s long-term national interest in exchange for a short political advantage ostensibly over Ethiopia. It is comical that Egypt issued a press statement warning Ethiopia not to respond against Sudan’s invasion. Sudan and Egypt also conducted a joint military exercise a few weeks ago — a message clearly meant for Ethiopia. Despite Sudan’s pretenses to look the other way, Egypt’s long historical ambition of domination and stewardship over Sudan has never gone away.

There are also other foreign powers that have established their presence in Khartoum and work to influence Sudan’s behaviour. Saudis and Gulf Arab states, as well as the Organisation of Islamic Cooperation and the Arab League, have their presence in Khartoum. Following Sudan’s removal from the US terrorist list, the United States, the United Kingdom and the European Union have strengthened their presence in Sudan. Recently, Israel has established diplomatic relations with Sudan and opened its embassy in Khartoum.

The geopolitical implication of such a growing foreign presence next door to Ethiopia and the region should be carefully watched. It could very well be that Egypt and its allies in the Arab world, in close consultation with some powerful military brass within the Sudanese defense forces, might have encouraged the Sudanese government to claim territories at a time when Ethiopia is preoccupied with its domestic issues.

This development is unfortunate. While the rapprochement between Sudan and Egypt is the policy choice of the two countries, it will be regrettable if the Sudanese military leaders are used to advance Egypt’s ambition over Ethiopia.

Sudan’s unexpected invasion of Ethiopia and its refusal to withdraw from the territory it occupied by force is a clear violation of the agreements reached between the two countries. It is also a breach of trust between the two countries. Needless to say, November 6, 2020, will go down in the history of Ethio-Sudanese bilateral relations as a day of betrayal by Sudanese military leaders against their neighbour Ethiopia.

It is the hope of many in Ethiopia that Sudan will be an agent of peace and stability in the region. If that is not the case, our region can easily go back to the old era of a destructive policy of mutual destabilisation. We all know that we cannot demarcate our common boundary by military means. We also know very well that violence cannot assure good neighbourly relations.

Dialogue is the only viable option. Based on mutual understanding, flexibility and give and take, it will assure a win-win outcome for all. The people of Ethiopia and Sudan deserve better — they deserve peace, stability and economic cooperation. Ethiopia and Sudan should join hands to fight their common enemy — poverty.