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Month: October 2021

GOH SWEET HOME

Posted on by Web Master

Addis Abeba’s Mayor, Adanech Abiebie, was given a tour of the headquarters of Goh Mortgage Bank as it opened its doors last Monday by Mulugeta Asmare (centre) and Gebreyesus Egata (right), president and board member, respectively. On Zimbabwe Street (off Bole Road around an area known as Japan), Goh has been on a two-year journey to house itself in this building since its inception.

The promoters of the Bank and the Mayor took turns speaking on the chronic housing shortage in Addis Abeba. Driven by inflation, the property market is soaring, compelling the city administration to freeze the increase on rent and ban the evictions of tenants for three months. Goh, which received its operating license in August, and raised a subscribed capital of 1.2 billion Br, also chipped in 1.5 million Br to the city’s housing renovation initiative for low-income families.

The Bank is the lone mortgage bank in a country where demand for housing far outstrips supply, especially as the population grows and economic migrants from rural areas make cities ever denser. While commercial banks offer short-term mortgage loans, the interest rate and repayment period are out of range for most Ethiopians. The Addis Abeba City Administration’s plans to provide condominium housing have faltered in the face of delays, cost overruns and controversies.

Goh’s only competitor would have been Selam Bank, an initiative under formation but facing an uphill struggle as the deadline to raise half a billion Birr, the minimum paid-up capital requirement to open a bank, has passed. Selam now needs to raise five billion Birr to get its foot in the door and compete with Goh. It can potentially go for a merger with other banks, though none have plans to specialise in mortgage banking.

Central Bank`s Dillemma Under Governor Yinager Dessie

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Central banks are prone to conspiracy theories. It should be no surprise, for they are notorious for secrecy. The complexity of monetary policymaking makes decisions made incomprehensible for the general public. The latitude central bankers enjoy to keep these processes discretionary makes their work highly sceptical in the eyes of the market. This is the case even in developed economies with mature democracies.

The peculiarity of the National Bank of Ethiopia (NBE) is even more remarkable. Recently, it has been on steroids. Bouncing from one policy direction to another for the past few years, it has been confusing economic actors who are more disoriented by the COVID-19 pandemic and the ongoing civil war. If monetary policy tools and effective use of communications are central banks’ forte, the NBE`s scorecard should be the most embarrassing.

When was the last time the Governor, Yinager Dessie (PhD), made a public statement on any subject of importance to the economy?

Confirmed as a governor in June 2018, a few months after Abiy Ahmed took the helm of government, Yinager hardly speaks in public whether rain or storm hitting the economy. He may appear visible attending occasional inaugural events; however, he has not addressed the public since his last question time since April 2021. The economy remains besieged by galloping inflation, massive loss of productivity due to the war, erosions of the exchange rate, and a high risk of external debt default.

Governor Yinager has an impressive academic background, having studied economics in Ethiopia, the Netherlands and Austria. He has had educational exposures from Harvard to Yale and the London School of Economics (LSE). His last job before becoming a governor was as a commissioner of Planning, and he continued to serve in the macroeconomic policy team chaired by the Prime Minister. If there was anyone the market should look up to to get a sense of direction during such times of confusion and alarm, it is no one but Yinager.

Alas! The Governor is nowhere seen providing insight, hope and leadership.

From the chamber of his obscurity, the central bank does policy back-pedalling telling banks to do a whole list of things and restricting depositors in managing their savings.

The latest policy shot is forcing banks to re-invest in treasury bills of their returns from bonds. For eight years since 2011, the central bank had forced banks to buy bonds worth a third of loans and advances they made. A policy footprint of Meles Zenawi`s era, it was a deliberate move in the state`s determination to collect rent from the private sector and redistribute it to economic sectors of its preferences. It was an unpopular decision, for the non-market interest rate of three, and later, five percent the bonds yield in a country where the headline inflation is rarely in the single digits.

It was a policy bitterly resented for crowding out the private sector.

The central bank lifted the mandatory bond purchases two years ago with plaudits, freeing more credit to the private sector. But gradually, the decision is rolled back, and banks are forced to chip in more to the state’s coffers as their interest in the T-bill market waned. Governor Yinager and his policy team have also compelled insurance firms to invest no less than 40pc of the deposits they would park in checking, time and savings deposits into T-bills.

There are those in the high office of the administration who credit Yinager for successfully seeing through the demonetisation of the Birr back in September last year. It may have been the case, for demonetisation is a milestone a central bank can make. Nonetheless, subversion of an idea to create a financial sector that could be as fair to private creditors as it is to the state all in the name of propping up an unprofitable T-bill market will remain to be Governor Yinager`s legacy.

No less disorienting is the constant back and forth on forex account retention rules. In about a year, the central bank altered the retention regime where exporters were allowed to use 70pc of their foreign currency earnings to import to 31.5pc. Yinager and his team have not stopped there. Recently, they upped the regulatory uncertainty to the highest volume with a blanket freeze on asset-based loans, pulling the rug from under the feet of the economy. The Governor was nowhere to explain the rationale for such a bizarre decision affecting an entire market or when it will be removed. More importantly, he was reluctant to address the public if the central bank was even prepared to make policies that are not stopgaps to bandaging the economy.

Perhaps the best indication of the uncertainty is the informality with which the NBE communicated its decision to the executives of the commercial banks. The instructions to cease loans or the order to re-invest bonds on T-bills are not directives. The former was communicated through text messaging to heads of banks.

It is possible to sympathise with the Governor’s dilemma. Much of what is putting the economy in a trainwreck is beyond his control.

Ethiopia is nearly a failed state and cannot have its economy regulated like most countries worldwide. As a patient with a terminal disease, it is no longer at the point where it can be expected to optimise. The best policymakers could administer is less traumatising and painful prescriptions, sad as it may sound for its young and hopeful.

Policymaking at the central bank cannot be business as usual. Opening up the economy to more investments and strengthening the private sector are ambitions too lofty for a country going through a destructive civil war. A bare minimum level of social trust on the ground needed for economic activities to take off is fast eroding. The governor and his team could prioritise having a central bank focused on cushioning the fall. Opting to freeze loans instead of risk a foreign currency run on the black market could indicate that they partially understand this.

Sound macroeconomic policymaking requires a state that functions in a state of normalcy. The Ethiopian state has to restore peace and stability; there will be no way around that. Unwilling to enter into negotiated settlements to end insurgencies and civil wars, it is regrettable to see much tragedy befall Ethiopians. They will get ever poorer, even by the low standards of sub-Saharan Africa. The era of insecurity may be protracted for years, if not decades. The central bank needs to act having in mind an economic space besieged by uncertainty and insecurity.

Cushioning the impact of the fall, at the very least, demands developing a consistent monetary policy that makes it possible for fledgling businesses and savers to be able to make rational decisions. Regulatory uncertainty could lead to the economy going further underground, in turn making policymaking inept. Whatever policy the Governor settles on would be less destructive than something inconsistent and amplifies uncertainty for the ailing business environment.

This may require two things to happen. The central bank has to improve its risk management and projection capabilities. It needs to have a Governor bold, courageous and passionate about communicating policies designed to maintain confidence in the Birr and ensure the financial system’s stability. The latter is critical to allow the regular dose of glucose drips to the economy before its total implosion.

Ethiopia is credited for the wisdom, “You may well have two legs, but you still can’t climb two trees at the same time.” Governor Yingaer has to choose in doing one. He cannot be in the service of funding a war effort as well as sustainably growing the economy. These are nearly mutually exclusive goals. One needs to be sacrificed in the service of the other.

Fear Mounts Financial Institutions Face Bank Run as War Rages in the North

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The disturbing sound of shots – from a distance – has become familiar for people residing in Dessie town of Amhara Regional State, 400Km north of Addis Abeba. Some days, the sound of heavy artillery feels like it is nearing the city of over 257,000 residents. Other days, the shots seem to move farther away.

The militarised conflict has spilt over in recent months, intensifying and engulfing Dessie and the industrial city of Kombolcha. Millions of civilians in the three regional states of Tigray, Amhara and Afar, are trapped in a crossfire between the federal army and its regional allies and armed forces out of Tigray Regional State. One such resident is Daniel, who withheld his last name, a student and altar server at a church in Dessie.

Last week, Daniel was among a large crowd flocked to commercial banks in the town. As rumours spread that banks might be closing down their branches, Dessie’s residents were caught in a panic. Daniel and many others were worried they would soon lose access to banking services and rushed to stock up on cash.

“I withdrew all I had,” said Daniel, declining to disclose how much he had in his account.

It was not only the residents of Dessie crowding banks. Many of the thousands sheltered in the town after fleeing from the neighbouring zones tried to get their hands on cash before their fears came true. The war has taken a heavy toll on all aspects of life in the country’s northern parts. From education and healthcare to food supply and trade, the consequences of war has been devastating. At the back of their mind could be the memory of banks’ closure in Meqelle and many towns in Tigray Regional State since the start of the war almost a year ago.

Days following the war’s breakout, regulators at the central bank ordered all banks in Tigray Regional State to shut their doors, claiming signs of looting. It was the first development in a long list of incidents unwelcomed by the banking industry. Commercial banks operate some 600 branches in Tigray, close to nine percent of the total number of branches in the country.

Not longer afterwards, the central bank ordered that all bank accounts opened in Tigray be frozen. An individual residing in any part of the country could not withdraw cash from a bank account opened in one of the branches in the regional state.

The closure of branches meant banks could not mobilise deposits from the region, and forex dealings stopped, putting further strains on operations in other parts of the country. Remittance flow and import-export activities were also affected in a regional state that should have channelled over eight billion Birr in taxes to the federal coffers.

This took a heavy toll on the banks, especially those with a significant presence in Tigray.

The state-owned Commercial Bank of Ethiopia (CBE) has 120 branches there, the largest network. Though the figure represents less than 10pc of its entire branch network, the war and the ensuing restrictions have been a source of concern to its executives. It runs its branch network in Tigray under two districts – Meqelle and Shire – and was forced to completely stop providing services as the TPLF took control of Meqelle and much of the regional state.

When federal forces seized Meqelle, the regional capital, four weeks into the fighting in November 2020, the CBE reopened 50 branches. Even that number was difficult to ascertain given the infrastructure damage in the regional state and communications blackout.

“There are reports that some branches in Meqelle are open and handling small transactions,” a source at the CBE told Fortune.

Considering its size, the disruption in Tigray may not faze the state-owned giant too much. The same cannot be said for private banks.

Established 25 years ago, Wegagen Bank is among those in the industry hit the hardest. A third of the Bank’s 389 branches are located in Tigray, leaving it to continue operating with remaining branches battling liquidity problems and a shortage of foreign currency. Its Acting President, Aklilu Wubet, describes it as being challenging to navigate through these tough waters.

Wegagen Bank was subject to inaccurate reports that damaged its reputation for having branches found housing firearms. The Bank later disclosed the arms were stored for security purposes, standard practice for all banks securing vaults. However, the damage was done. The Bank had lost about 2.3 billion Br in deposits as customers withdrew their savings, disclosed Aklilu.

“Thankfully, we’ve regained our customers,” he told Fortune.

Wegagen’s deposits took a serious hit nonetheless. They grew by one billion Birr to 31 billion Br, while the total deposit mobilised by the banking industry had increased by 25pc to 1.3 trillion Br. Wegagen’s peers also saw more than modest growth in the past year. However, the most considerable growth rate of 41.2pc was recorded by the Bank of Abyssinia (BoA), which mobilised a little over 10 billion Br more than Wegagen’s aggregate deposits.

Awash International Bank (AIB) has the highest deposit among private banks. Mobilising an additional 33.8 billion Br last year, its total deposit reached 107 billion Br.

Abdulmenan Mohammed, a finance expert based in London, says mobilising one billion Birr by Wegagen shows a not-so-impressive performance.

“It significantly affects the Bank’s lending capacity,” he told Fortune.

The low deposits are a factor for the Bank’s liquidity concerns, causing a strain in meeting loan demands from clients. Wegagen had to seek support from the central bank, which, Aklilu applaud for having gone the extra mile to help it to stay afloat in the troubled waters.

“It was beyond my expectations,” said Aklilu.

Regulators at the central bank are aware that a lot needs to be done to help the industry pull itself through these challenging times. A survey conducted before federal forces left Tigray Regional State at the end of June this year identified that many branches had been completely damaged while others were looted.

“A little over half of the branches in the region were operational until banks and the regulator lost all control and communications,” Solomon Desta, vice governor of financial institutions at the National Bank of Ethiopia (NBE), toldFortune. “We discussed how to support severely affected banks and intervened to allow them to cash out their NBE bonds.”

The central bank has begun converting maturing bonds to treasury bills. Bonds maturing in July 2022 will now mature as T-bills and be repaid earlier in October 2022. Banks were also paid three months returns at the beginning of October, and they are allowed to retain returns from DBE bonds maturing until June 2022.

They can benefit from this, according to the Vice Governor.

However, the conflict harms the banking industry in more ways than the closure of branches in conflict zones. Convinced that there is an active and coordinated “economic sabotage,” federal authorities and city officials have taken a series of measures, including the arbitrary closure of businesses and suspensions of asset transfers.

Earlier this year, the central bank limited the number and volume of transactions individuals and companies can make, hoping to tame illicit transactions. A few months later, it was followed by monetary restrictions such as forbidding banks to provide any collateralised loans. Government officials attributed the move to a massive increase in outstanding credit to the private sector.

It had grown by 40.8pc in July 2021, while the figure for disbursement stood at 125pc. The central bank asserted the heavy loan disbursement was to be blamed for a significant uptake in “capital flight,” which was subsequently exhibited in dollarisation, pushing the parallel market value of the Dollar to an all-time high of over 70 Br, a 30 Br difference from the official market.

The restrictions were not received lightly. Exasperated by the increase of reserve requirements the central bank issued last month, banks have reported their liquidity status is “below adequate.”

Officials of the central bank remain adamant that they have met their goals in weakening the parallel market with these restrictions.

“These restrictions will not be here forever,” Solomon said. “They’ll be lifted as the conflict ends, and those sabotaging the economy can no longer cause harm.”

The consequences of war on the financial sector do not stop with banks; microfinance institutions (MFIs), the vehicles used to expand banking in small towns and rural communities, have been hit as hard.

Amhara Credit & Savings Institute (ACSI) operates with 472 branches and 1,200 satellite offices across the Amhara Regional State, where a large area has seen destruction. The Institute, which has 10 million depositors, disbursed five billion Birr in loans last year to close to 69,000 clients who are now either not economically active or have been displaced.

Mekonnen Yelemwessen, the chief executive officer (CEO), estimates the Institute will require one billion Birr to recover its branches and rebuild damaged assets. ACSI does not have insurance coverage for these assets. It would not mean much if it had, for insurance firms would not be liable to settle claims for damages caused by war. ACSI is on its own for now.

“We’ll seek support from the government and other sources,” said Mekonnen.

This would not have come at the wrong time. Established in the 1990s, the Amhara microfinance is one of six microfinance institutions transforming itself into a full-fledged bank.

While the ACSI is the first to conduct a preliminary assessment on the damage it suffered, industry insiders caution there should be a coordinated national effort to conduct assessments, determine the damages and how to report them on annual financial statements for shareholders and regulators. Whether retail banks or microfinance institutions, they all continue to sustain losses with the war getting protracted and expanding the area it covers.

Zafu Eyesuswork, an industry veteran, observes the conflict has taken an undeniable toll on the financial sector. He acknowledges that some financial institutions have been hit harder than others, making it difficult to prescribe any remedies for the situation.

However, Zafu urges that the focus should be attaining a satisfactory degree of separation between politics and business.

For now, the two remain intertwined with devastating outcomes. The banking industry’s woes in Tigray and the neighbouring states have challenged humanitarian organisations operating in the area.

According to the UN-OCHA, the amount of cash allowed to be brought by humanitarian organisations into the region is still limited and insufficient to sustain humanitarian operations. Humanitarian organisations estimated 6.5 million dollars are needed every week.

A report from the World Food Programme (WFP), another international organisation providing humanitarian assistance to war-torn areas, alludes to the same concern.

“Challenges in accessing cash and fuel hampered the humanitarian response,” states the report published in August 2021. “Consequently, only 40pc of the planned beneficiaries received assistance.”

Daniel and many residents in Dessie and towns across the northern region do not want to see themselves trapped without food or the means to buy it. Their desperation to get hold of cash from their savings has already caused bank runs in these areas, putting pressure on the banks struggling to remain afloat in the liquidity requirement.

EthSwitch Launches Overdue Bank Transfer Feature, Users Grapple with Flaws

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A national switch operator has launched a long-overdue connectivity between banks that allows for the instant transfer of funds. A microfinance institution and nine banks have already been integrated, while 10 other commercial banks are lined up to join a national integrated payment system. From the state-owned Commercial Bank of Ethiopia (CBE) to the Bank of Abyssinia and Berhan, as well as the Somali Microfinance Institution, many have joined the system.

EthSwitch S.C. was established a decade ago by the banks and the National Bank of Ethiopia (NBE) as founding shareholders to create a national payment system. It has been testing the system over the past few months, with the pilot project undertaking close to 125,000 transactions with a value of 1.1 billion Br. The switch operator observed a surge in transactions when Somali Microfinance was integrated into the system.

“There’s a habit of using digital transactions in that area,” said Fikru Woldetensie, director of marketing and innovation at EthSwitch.

Bank executives are enthusiastic about the system, which they hope offers convenience and easy access to banking.

Melkamu Tadesse, head of card banking at Awash International Bank (AIB), sees the integrated system cutting down costs for banks associated with branch-based inter-bank transfers. For Aklilu Wubet, acting president of Wegagen Bank, it is a crucial feature in building a digital ecosystem and a milestone towards attaining a cashless society.

Bank-to-bank account interoperability was carried out through real-time gross settlement and an automated clearinghouse under the central bank. Though these have been in operation for a decade now, they have some drawbacks.

The settlement is used to transact high-value or time-sensitive payments, where money transfers from one bank to another in real-time. It is meant for large transfers, amounting to no less than 250,000 Br. All commercial banks have an account with the central bank where the transferred sum is debited and credited to the receiver bank. However, the banks need to know whether they have sufficient balance at the central bank before committing to the transfer. They check their balance from finance departments before approving the transactions.

Recently though, banks have begun using gross settlement for small value transactions. These transfers have an estimated efficiency rate of above 95pc as transactions are declined only if the bank does not have sufficient balance with its account at the central bank. The service is commonly provided at branches, but a few banks such as the Bank of Abyssinia and the CBE have integrated it with their respective mobile banking applications.

The automated clearinghouse is used only for cheques, for payments to get settled within two days. The central bank has developed a digital payment strategy to expand its clearinghouse system to accommodate low-value payments, to be settled in a day. The improvement of interoperability features is among the critical priority this strategy.

The limited coverage of telecommunications remains one of the main roadblocks for the nascent digital banking industry. The highest Internet coverage is 86pc for 2G, and 70pc for 4G. However, only 19pc of Ethiopians report regular Internet use, according to data from the central bank. Countrywide infrastructure challenges directly impact financial services and the digital payments infrastructure, particularly the lack of reliable and ubiquitous network coverage, limited access to electricity, and the absence of a centralised national identification system, reads the digital payment strategy document.

Expanding mobile wallet interoperability (where multiple mobile wallets exist) can increase financial inclusion by bringing down the costs of payments in the market, especially for people in the low-income bracket, says Endashaw Tesfaye, a digital financial services expert leading digital programming at the United Nations Capital Development Fund (UNCDF).

“The significance of this system is beyond what is broadly conceived,” said Endashaw.

Digital wallet services such as Gize Pay, Yene Pay, and mobile money service providers like Telebirr are expected to join the integrated system, connecting users with banks, microfinance, and mobile wallets. Telebirr has taken the mobile money market by storm since its launch last May. Operated by Ethio telecom, the platform has garnered more than 10 million users and integrated over a dozen commercial banks.

Executives of the Ethio telecom were not aware that the infrastructure existed, according to Fikru.

“We’ve held discussions for them to join EthSwitch’s system,” he told Fortune.

East African countries have successfully implemented mobile money interoperability systems for several years now. Tanzania launched it in 2014, accounting for nearly a third of all person-to-person transactions in the country. Kenya’s central bank launched the interoperability of mobile financial services in 2018. Ethiopia has a long way to go.

As news of the integrated system launching was shared last week, clients who attempted to make bank-to-bank transfers were met with failure.

Ebba Debare was one of these clients who tried to send money. Unable to have his account credited, he contacted the call centre of one of the commercial banks. He was told to wait for up to 10 days for the issue to be sorted out. It was frustrating, but Ebba says the tool will be indispensable when fully operational.

“I may try it again when I’ve more confidence,” Ebba told Fortune.

Failures in transactions could be associated with multiple factors, ranging from issues with the banks to internet connectivity and systematic flaws, according to Fikru, EthSwitch’s innovation director.

“Complete efficiency can’t be achieved,” he said. “It’s a work in progress.”

When a dispute arises due to incomplete transfers, the banks themselves are expected to settle it. They are subjected to fees if settlement is delayed.

Salt Trader Embarks on 8b Br Addis Abeba Tower Projects

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A proprietor of a landmark building near Mexico Square aspires to finance a series of skyscraper projects in Addis Abeba estimated to cost close to eight billion Birr.

Temesgen Kefyalew, a businessman behind the construction of Debrework Tower, plans to erect four skyscrapers, with the tallest building designed to have 52 floors. The others will be 42 storeys each, intended to serve as mixed-use buildings.

Temesgen is a well-known figure in the business community. A major shareholder and general manager of Jerr Plc, incorporated in 2004 with a capital of 95 million Br, Temesgen is an influential player in the salt supply chain.

He plans to erect the four high-rise towers on a 10,000sqm plot adjacent to Debrework Tower, disclosed Berhanu Bogale, a representative of the project owner.

Temesgen was not available for comment to discuss the source of finance to pay for these projects, despite repeated attempts.

The projects are designed by SLIK Architekten GmbH, a Switzerland-based firm. Bamacon Engineering, a grade-one contractor incorporated in 2001, was awarded the contract to carry out structural works two months ago.

“They’ve got a good track record in Addis Abeba,” said Berhanu. “We thought we should work with a local contractor.”

Bamacon constructed the Omedad Building on Africa Avenue (Bole Road), Century Mall in the Gurd Shola area, and Enate Building on Guinea Conakry Street. The contractor must dig 23 metres deep for the buildings’ foundation and begin installing 380 foundation piles. It has finalised shoring, a work undertaken to protect the main structural elements of the building from the risk of collapse.

Laying the foundation will need 20,000 cubic meters of concrete, according to Dawit Nigussie, the project coordinator at Bamacon.

The contractor plans to erect a batching plant near the site and manufacture 700 cubic meters of concrete, Dawit disclosed. Land for the plant has not been secured yet; Bamacon plans to use its existing plants located around Bole Bulbula.

Berhanu says the structural work for the towers is estimated to cost up to three billion Birr and is planned to be completed in three years.

The building will be the tallest in Ethiopia, surpassing the Commercial Bank of Ethiopia’s 48-storey skyscraper erected near the capital’s fast-changing financial district. Several commercial banks are setting up their headquarters in Sengatera, along Ras Abebe Aregay Street. Last month, Nib Bank inaugurated a 37-storey tower in an area dubbed Addis Abeba’s Wall Street. Hibret Bank has also moved into a 32-storey headquarters next door. Zemen Bank is expected to do the same in the coming months.

Although high rises are popping up across the city, delays in construction and the associated escalated costs remain a headache for contractors and project owners.

Delays are mainly caused by poor planning and the failure to complete designs before construction is begun, says Haben Abraha, a construction expert with over a decade of experience.

The initial schedule to complete CBE`s headquarters launched in 2015 was two years. Contracted to the China State Construction Engineering (CCECC), the building is yet to open for service after consuming much higher than the five billion Birr project cost estimated at the launching. Rising construction costs are issues that contribute to delays.

Construction costs have skyrocketed from 25,000 Br a square metre to 40,000 Br the last year, Haben believes.

“This is a major concern for contractors and their clients,” said Haben.

Businesses to Authenticate Loans above 25,000 Br Before Notary Officer

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Businesses taking loans of above 25,000 Br from non-financial institutions will be required to authenticate the borrowing before an officer of the Documents Authentication & Registration Agency if a directive in the making by the Ministry of Revenues is approved.

This will change the practice where tax officers do not recognise borrowing exceeding 500 Br as legal transactions both for the lender and receiver before they are authenticated. The limit was derived from the civil code, which was ratified decades ago. The threshold has been adjusted to 25,000 Br as the original value does no longer hold the same value today., according to Abere Asfaw, legal director at the Ministry.

The Ministry has drafted a tax accounting directive that will change this and make it mandatory for category A and B taxpayers. Taxpayers under category C may choose to authenticate their loans. Businesses are categorised based on their annual gross revenue, reporting more than one million Birr designated as category A taxpayers. Category C taxpayers have a yearly turnover of less than half a million Birr.

Businesses that want to authenticate loans will go through a process that takes less than half an hour, according to Muluken Amare, director of Documents Authentication & Registration Agency.

“The process entails checking the legality of the agreement and verifying identification cards,” he said.

A little over 7,000 personal and business loan agreements had been authenticated last year.

Business owners and auditors strongly contend the draft, claiming the minimum amount businesses can borrow without authentication should be much higher.

According to Aster Solomon, a businesswoman and chairperson of the Addis Abeba Hotel Owners’ Association, it is a tiny amount to make any difference for many businesses.

“The authentication process hinders ease of doing business,” she told Fortune.

Borrowing is listed under liabilities on balance sheets, but some businesses use unauthenticated borrowing to justify unhealthy transactions.

Abraham Zewdi, head of an accounting firm, believes the Ministry is reasonable to introduce a more relaxed requirement. He, however, has urged tax officials to reconsider increasing the amount to 100,000 Br.

Not everyone is on the same page. The damage this may cause small businesses without access to finance outweighs its merits, experts fear.

Henok Tadesse, a tax and financial advisor and a charted accountant involved in the industry for 17 years, questions the introduction of the requirement. He instead would like to see tax officials focus on broadening the tax base.

“They can broaden the tax base, introducing new categories such as inheritance tax,” he said.

Officials at the Ministry insist that the procedure was introduced in the interest of business owners and the state.

“If people keep coming up with unauthenticated loans, it’ll delegitimise the tax system,” said Abere.

If taxpayers report loans not authenticated in their accounts, the amount they add would be subject to taxation.

This year, the federal government has planned to mobilise 334 billion Br in taxes, 145 billion Br higher than it collected last year.

Yohannes Woldegebriel, a law expert and former public prosecutor, raises concerns about the directive’s legality. The Ministry cannot impose what is not stipulated in the Civil Code, which asserts if a loan sum lent exceeds 500 Br, the contract has to be proved only through writing or an oath taken in court.

“The commercial code doesn’t state that obligation either,” said Yohannes.

Foreign Affairs ‘Right-Sizing’ Leaves Citizen Abroad in the Cold

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Ethiopian citizens abroad are in a precarious situation following disarray at diplomatic missions resulting from the administration’s overhaul in the Ministry of Foreign Affairs.

The missions witness significant disruptions as all diplomats – except for ambassadors – have been called back to Addis Abeba to attend reorientation seminars. A series of these seminars have been ongoing at the Africa Leadership Academy in Sululta and at the Ministry’s head office. The diplomats are awaiting redeployment, with those who had served less than one year and longer than three years abroad are to stay back. Some of the diplomats who were called back did not return, leaving those who had gone through the reorientation for reassignments.

Almost half of the country’s 60 missions are being closed by the Ministry of Foreign Affairs to cut back on foreign currency expenditures. The Ministry operates with a budget of 3.7 billion Br this year, close to a billion Birr more than last year. Dina Mufti, a spokesperson for the Ministry, called the retrenchment a “right-sizing” and not downsizing as it is perceived.

The retrenchment in the missions abroad and the reshuffling has been all but smooth for Ethiopian citizens residing in the United Arab Emirates (UAE), particularly in Dubai.

Wassihun Bitew moved to the Middle Eastern country four years ago with three friends. All of them have seen their passports expire recently, and repeated visits to the consulate in Dubai for renewals have proved vain. Almost all the missions are running on a skeletal staff, interrupting consular services.

“There are only security personnel handing out renewed passports from previous applications,” Wassihun told Fortune.

The renewal fee was 600 dirhams, close to 8,000 Br at official exchange rates, compared to 600 Br at home.

However, the fee is the least of Wassihun’s worries as the expired passports come at a great cost for him and his friends. It entails the expiration of their visas, which makes them liable for penalties and fines, adding up to 25 dirhams (320 Br) a day, on top of 125 dirhams on the day of expiration. The amount of the fine doubles if they fail to renew their passports within six months and exceeds 100 dirhams (1,300 Br) a day in a year.

“It would be impossible for us to live like this,” says Wassihun.

Dina acknowledged that some of the consulate services had been disrupted due to the ongoing reform. He attributed the interruption to the scale of the overhaul.

“Things don’t go smoothly when moving to a new house,” Dina said at a press briefing last week.

Ermias Zerihun works as a taxi driver in Abu Dhabi, UAE. The Ethiopian Consulate there is not doing much more than delivering renewed passports to those who had applied for renewal prior to the call back of diplomats. Women working as housemaids, he believes, are suffering most from the predicament.

“Most haven’t been working much since COVID-19,” Ermias said. “The least the embassy could do was to spare them from the penalties.”

Awash Insurance Profits Surge, Shareholder Earnings Dwindle

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Shareholders of Awash Insurance may have reasons to get displeased despite a remarkable net profit the firm has made from its operations last year.

Awash has reported a 270 million Br profit in 2020/21, a jump by 23pc from the previous year. However, earnings per share (EPS), industry jargon for the benefit to shareholders, dropped to 178 Br, an 11pc fall, after the firm decided to boost its capital base.

Awash’s profit demonstrates how little the financial sector’s bottom line is affected in the face of instability, the COVID-19 pandemic and an economic slowdown tightening the budgets of businesses and individuals.

Despite the economic downturn and increasing instability, Awash has opted to boost its paid-up capital to 755 million Br last year, maintaining its position as one of the highest-capitalised insurance firms in the industry. The aggregate capital of the 18 insurance companies reached 10.6 billion Br in March 2021, according to a quarterly report the National Bank of Ethiopia (NBE) releases. This growth represents an 18pc increment from last year, and private insurers account for nearly three-quarters of it.

The banking industry has also seen a rise of 13.6pc in total capital, hitting 125 billion Br last month. Private commercial banks account for a little over half the amount.

“Given the various challenges Awash faced during the year, the profit increment, as well as capital buildup, are satisfactory,” said Kebede Borena, board chairperson of Awash Insurance, addressing shareholders met at the Hilton Hotel on October 30, 2021.

Ebsa Mohammed, an insurance expert and manager at Alpha Consultancy, applauds the efforts to increase capital.

“Growth in paid-up capital comes at the cost of earnings per share,” said Ebsa. “It’s a good sign either way.”

Not all shareholders were displeased to see a drop in return for their investment.

Amsalu Bezuneh, a businessman in export and import, is one of the 1,670 shareholders. He has no qualms with the firm’s performance this year and plans to buy more shares.

“The EPS is still high compared to other insurance companies,” he told Fortune. “Awash is still registering high profits.”

However, Ebsa argues that insurance companies could have done more considering growing demands for risk coverage due to the instability in the country.

“Insurers should introduce more products,” Ebsa said.

Awash Insurance’s executives say they are doing that.

“We’re introducing new insurance products,” said Gudissa Legesse, CEO of the company.

Awash launched a mobile phone insurance policy earlier this year, the second firm to offer the product, after Nyala Insurance. It also launched takaful, a Shariah-compliant insurance product, in July. Most recently, the firm has applied to the regulatory authorities to begin a clinical-trial coverage policy.

The company has recorded good results in other categories as well. The total assets Awash holds increased by a fifth to 3.5 billion Br, while gross written premiums climbed 43pc to 1.28 billion Br. For the second year in a row, Awash managed to open only one new branch (in Debre Birhan, Amhara Regional State), bringing its total network to 59 branches.

The 27-year-old insurance firm also kicked off the implementation of a 10-year roadmap dubbed ‘Transforming AIC: Vision 2030’ last year developed by Deloitte.

Labour Union Struggle Faces Stiff Resistance in Hawassa Park

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Five companies operating in Hawassa Industrial Park have rejected the rights of nearly 6,000 employees to form labour unions.

Managers of Arvind Lifestyle Apparel, JP Textile, JP Garment, Isabella Socks, and Everest Textile have declined to allow their workers to form labour unions despite a decision to organise workers employed by companies in the Park. A tripartite meeting was held two months ago between officials of the former Ministry of Labor & Social Affairs, representatives of the Industrial Parks Development Corporation, and senior managers of companies operating in the Park. The executives of 15 companies operating in the Park allowed their employees to form and join labour unions.

Leaders of the Textile, Leather & Garment Workers’ Trade Union wrote a letter to the CEOs of the five companies three weeks ago. They demanded explanations from the senior executives of these companies for the rationale for rejecting workers rights to organise for a collective bargain.

Yidinekachew Matewos, human resources manager at JP Garment, specialising in woven shirts and loungewear, said the company was not asked to consent to form a labour union.

“The CEO of JP Garment already sent a letter to the Ethiopian Investment Commission asking for an explanation on the matter,” he told Fortune.

JP Garment employs 718 people.

A senior manager of Arvind Lifestyle, who requested anonymity, admits the company’s workers have formed no labour union. Close to 700 people work at Arvind.

“But this does not mean that the company is against the formation of labour unions,” he said.

Executives of JP Textile, Isabella Socks, and Everest Textile were not available for comment.

JP Textile and Isabella Socks employ 715 and 712 workers, respectively, while Everest Textile leads the pack in Hawassa Industrial Park, employing the largest labour force of 2,911 workers.

Three other companies failed to let their workers form unions, according to people following the dispute. Ontex Hygienic is to relocate its factories outside the Park while Quadrant Apparel is yet to start operation. The third company, KGG Garments, is closing down its facility.

By constructing industrial parks along key economic corridors, Ethiopian authorities hoped to create jobs and boost export revenues attracting foreign investments. The federal government embarked on the development of industrial parks in 2011, building 10 industrial parks. Settled on 400ht of land, Hawassa Industrial Park was the first and the largest of these parks, employing close to 30,000 people. The companies operating in the park generated 114 million dollars in export revenues, with the United States and Europe buying the most.

Compared to many other countries, the workers are paid meagre wages, leading labour union organisers to push employers for better pay.

Elfnesh Tadele, a mother of one, has worked at TAL Apparel for the last five years. Her monthly salary stands at 1,300 Br, or 27 dollars at official exchange rates. It is a far lower wage compared to over 120 dollars workers in Kenya’s apparel industry earn.

“My expectation from the labour union is to negotiate on behalf of workers and increase their salaries,” she told Fortune.

If employers do not cave in, leaders will form labour unions without their consent, warns Angesom Gebreyohannes, president of the Federation, representing 54,000 members.

However, the number of companies that have consented to the formation of labour unions jumped last month from two to 15, employing 22,705 workers. Workers for Hong Kong-based TAL Apparel, which began operation in 2017 and currently exports dress shirts to the US, are among the employees who have formed and joined labour unions.

City Cabinet Increases Public Health Premium Rate by 30pc

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Under a public-health scheme in Addis Abeba, community insurance beneficiaries will be subjected to a 30pc increase in their annual premium to 500 Br.

The move comes a year after the Ethiopian Health Insurance Services (HIS), formerly the Health Insurance Agency, forwarded a recommendation to push premiums to double the amount the City Administration decided to accept. The scheme was launched in 2011 with 170 Br as the annual fee, however, the rates have increased at least twice since.

The Addis Abeba City cabinet has approved the increase in premium rates on a scheme designed to provide affordable access to healthcare by low-income households. The scheme covers 288,000 households in the capital, catering to 1.3 million low-income residents primarily engaged in the informal sector. It was an agenda tabled for the cabinet on October 16, 2021, during its first session after the Prosperity Party formed a government earlier this month.

“The cabinet made a reasonable adjustment by taking the current living cost into consideration,” said Ibrahim Keke, director of Community Based Health Insurance at the Addis Abeba Health Bureau.

There is no uniform premium adjustment across the country, with regional states mandated to change rates within their respective jurisdictions. The highest premium in urban areas such as Dire Dawa is 520 Br, while the premium ceiling in rural areas is 250 Br. Regional administrations and Dire Dawa city are expected to adjust their respective premium rates in the coming months.

According to sources close to the matter, the premium rate in some regional states might be set close to the ceiling proposed by the HIS.

“Our mandate is to propose the ideal premium rate,” said Zemedkun Abebe, communications director for Health Insurance Services. “The decision lies with regional states and city administrations.”

Since January this year, the escalation of service fees charged by public health centres and hospitals put pressure on the scheme.

“We’re not confident the premiums collected will be sufficient to cover costs even after the adjustment,” Zemedkun told Fortune.

Last year, the Health Insurance Service collected 2.2 billion Br in premiums and paid out 1.2 billion Br to 2,000 public health institutions.

The adjusted rate will mean more expenditures for the roughly 40 million poor rural residents and low-income urbanites under the scheme. In an inflationary economy where households spend 60pc on food, food inflation hit 42pc last month, according to the latest consumer price index released by the Ethiopian Statistics Service. Low- and fixed-income groups are left with little to pay for health services, making the prospect of affording the growing premium rates doubtful for many.

One of the scheme’s beneficiaries is Kuri Ayele, a resident in Yeka District with her husband and five children. Her income of 4,000 Br comes from renting out two rooms.

Kuri and her family have been signed up for community-based health insurance since its inception a decade ago. Her husband is mainly dependent on the scheme as he requires medical attention due to a back injury.

“We visit a health centre twice a month,” Kuri told Fortune. “We can handle 500 Br but it can be an issue if rates continue to increase.”

Those involved in the insurance industry have a different take on how to approach the issue. The more viable solution would be improving the healthcare ecosystem involving private insurance companies.

“It would be more beneficial if the government sets a uniform premium for the coverage and includes private firms in the scheme,” said Ebsa Mohammed, an insurance expert and manager at Alpha Consultancy. “This could help not only the healthcare system but the insurance industry.”

Alemayehu Kabtimer, manager of the life and health insurance division at Awash Insurance, believes private insurers could handle shortcomings in the medical insurance business if the government allowed them to get involved.

“However, this requires setting appropriate premium rates that match the risk,” he said.

Farmers Shift to Green-Gold Eying Export Markets

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Not long ago, Ashenafi Ayalew, 41, would have laughed if told he could generate over half a million Birr from growing avocado on a hectare of land. A father of five, Ashenafi has spent the better part of his life engaged in growing wheat and teff on over 30ht of land in Lemu Wereda of East Shewa Zone, in Oromia Regional State.

Ashenafi spent his days toiling over the land, and the best yield he could hope for was 30 quintals of wheat from a hectare. Recently, he has been selling a quintal for close to 3,000 Br in the markets near his farmland. The work was challenging, but he stuck with it; he did not have many options.

That all changed three years ago. Ashenafi and two other farmers in the area received training on cultivating avocado. The Agricultural Transformation Agency (ATA), now Institute, was behind the training Ashenafi and his neighbours took. They decided it could not harm to give it a chance and Ashenafi planted avocado trees on a hectare of their land. His bet has paid off. Last month, he was the first to export avocado from a yield of 100qnt, pulling in 600,000 Br from the crops.

“It’s a life-changing opportunity,” said Ashenafi.

His achievements did not go unnoticed. He was honoured at an agricultural conference held earlier this month with Shmelis Abdisa, president of Oromia Regional State, and Oumer Hussein, minister of Agriculture, present. It may take three years for an avocado tree to mature. Once it does, it can yield up to 50Kg of fruit every six months if used in tandem with irrigation.

A kilo of avocado goes for around 40 Br in markets in Addis Abeba. Exported, it may earn 10 times, particularly in North America and Europe where there is a considerable demand for the fruit.

Mexico, the Dominican Republic, Peru, and Colombia are the largest avocado exporters in the world. Proximity makes these countries prefer to ship their product to the US, where consumers could spend two dollars on a single avocado fruit. This imbalance has left European and Middle Eastern markets without a dependable supply.

Ethiopia is trying to capitalise on this shortfall.

The number of farmers engaged in growing avocado for the commercial end has been increasing rapidly. It almost doubled last year from 1.8 million farmers three years ago, according to the Ethiopian Statistical Service (ESS). The total farmland used for cultivating the fruit also jumped by 70pc to 30.6ht during the same period. With this came significant growth in production, shooting by a little over 200pc in the past three years, reaching 2.45 million quintals.

Farmers like Ashenafi exported close to 3,000tn of avocado last year, either fresh or dried. This put Ethiopia on the map of avocado exporting countries, generating around 800,000 dollars. Seemingly a fraction of the total export earnings of over three billion dollars last year, this is a value 800pc more than four years ago.

Ethiopia exports the Hass variety of avocado, the most prevalent accounting for 80pc of cultivated avocados globally. Ever since the variety was introduced from Israel four years ago, the Agricultural Transformation Institute has been seedling the variety at its nursery stations, distributing it to farmers like Ashenafi at the end of the training, and creating market links. The Institute provides support to 53,000 smallholder farmers in four regional states, including Oromia and Amhara regional states. These farmers produced 1.1 million quintals of avocado last year.

There are only 15 commercial avocado farms in the country. However, a growing number of farmers are shifting from cultivating other crops to avocado, says Techane Adugna, director of agriculture commercialisation at the ATI.

“Some farmers in avocado-friendly environments are shifting from cultivating teff,” Techane said.

It seems an observation consistent with the declining trend in the number of farmers growing teff. It dropped to 6.8 million last year from 7.2 million the year before.

This can be attributed to many factors, according to Beyene Tadesse (PhD), an agricultural economist engaged in research.

“Factors such as the introduction of new technologies and the easy adaptation behaviour of other crops are the major reasons that force farmers to shift from teff to other crops,” he said.

However, the rapid growth both in land size and productivity remains far from matching the demand.

Tewodros Zewdie is the executive director for the Ethiopian Horticulture Producers Exporters Association (EHPEA). Many of the Association’s 120 members are involved in the export of flowers, including its Chairperson, Zelalem Mesele. However, the Association has 15 requests from buyers in Europe and the Middle East on hand, each interested in buying an average of 20tn of avocado every week. Tewodros sees the demand as a golden opportunity.

“Only a few of the domestically produced avocados make for export,” he said.

Last August, 24tn of avocado harvested from Koga, near Bahir Dar in Amhara Regional State, was shipped to Europe. Packed in refrigerated containers, the avocado arrived in the United Kingdom three weeks shipped from the Port of Djibouti. Compliance with hygiene, packaging and product quality standards determines when targeting the export market. Here is where the government should come in handy to commercial farmers, says Tewodros. Making land available, training and agro-logistics services are some of the ingredients the Director believes are lacking.

The biggest challenge is perhaps transportation. The unavailability of refrigerated containers in Ethiopia, coupled with the high cost of air and ship transportation, has stunted the growth of avocado exports.

However, the prospect for avocado farming and export looks promising. Farmers like Ashenafi have no plans of slowing down. He has two hectares of avocado trees waiting to be harvested in a few months, with plans to convert more of his wheat and teff fields to avocado. Other farmers in his vicinity have also taken the cue, with no less than 54 of them getting started on the lucrative endeavour.

In Sub-saharan Africa, Elsewhere, Gov’ts Need to Look Harder for TB

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Before COVID-19 came along, tuberculosis (TB) was a primary focus of health authorities in sub-Saharan Africa. In 2019, approximately 1.4 million people were diagnosed with TB in the region, but epidemiologists estimated that one million more had TB but were neither diagnosed nor treated.

The scope and intensity of the global TB epidemic is fueled by antiquated and inadequate TB drugs, most of which were developed more than half a century ago. But, given how contagious TB is, we need to find and treat many more people. It is a disease that strikes impoverished communities the hardest, and those same communities can be hard to reach with healthcare services.

And then came COVID-19, the only infectious disease that killed more people than TB in 2020. The regional numbers have held steady this past year, according to the World Health Organisation (WHO), but a deeper dive shows that more attention is needed.

In Nigeria, my home country and Africa’s most populous, nearly three out of every four cases of TB were missed. Ethiopia, Africa’s second-largest country, fared better, missing less than one out of every three cases. Kenya, a hub for international development in East Africa, missed almost half its TB cases. South Africa – where I work and which has one of the heaviest burdens in the world of drug-resistant TB infections, TB/HIV co-infections, and all TB infections in total – missed 40pc of its cases in 2020.

Earlier this year, researchers analysed how public health resources previously dedicated to addressing TB were allocated instead to handling the COVID-19 pandemic. The drop in cases of TB that were reported and treated at that time indicated that many more infections were slipping through the cracks of the world’s badly overstressed healthcare system. The researchers concluded that COVID-19 cancelled out the last 12 years of advancements in finding and treating people with TB.

Last month, a new report found that the number of people treated for TB in 2020 declined by 18pc. Even more troubling, the number of people treated for the worst cases of drug-resistant TB strains declined by 37pc – even with 41 countries in varying stages of evaluating and implementing a new regimen for these cases that my organisation developed. Like all strains of TB, drug-resistant TB can be easily spread by a cough or a sneeze – and it is far more difficult to cure. In some regions, as many as 40pc of new TB cases are drug-resistant.

In 2018, the United Nations General Assembly held a high-level meeting on TB attended by more than 1,000 people – including the president of Nigeria and 14 other heads of state. At the meeting, pledges amounting to 13.5 billion dollars annually were made to help governments find and treat TB patients, with an additional two billion dollars pledged to boost the research and development efforts needed to develop new cures, and new ways of diagnosing infections. We are less than halfway to meeting these pledges, and as a result, TB has increased in strength in sub-Saharan Africa and other regions of the Global South.

As bleak as all this sounds, 2021 is on track to be much worse. Initial estimates from epidemiologists point to a lack of direct response to TB in projecting an escalation of missing TB cases. Even though both COVID-19 and TB are respiratory infections, TB lost whatever sunlight it may have once had.

There are some countries that have managed to keep moving forward though. Zambia, which missed one-third of its estimated TB cases in 2020, may actually diagnose and treat a larger share of its TB caseload in 2021. But these success stories are few and far between. All too often, when the going gets tough, programmes that tackle diseases of poverty fall by the wayside.

These diseases do not come in single file, patiently waiting their turn for a chance to wreak havoc. COVID-19 decimated the TB response because that response was weak and vulnerable. Now, we still have to handle another year of COVID-19 along with a resurgent TB.

It is time to strengthen our resolve and tackle all of the diseases that afflict our most vulnerable communities – at the same time. TB has shown us that no one is safe if a contagious infection is thriving, regardless of whether we look for it or not.