Adopt an Agile Digital Banking Platform Improve Innovation, Create New Value and Increase Profitability

Posted on January 31, 2022 by Web Master

It is no secret that banks face a multi-dimensional juggle of global technology and business and consumer demands that have local trends and needs. Bankers must be aware of the latest worldwide digital technologies and create strategies that use them to address customer-banking needs. Banks also operate in countries where people still use older technologies such as SMS-based phones. This means bankers must be aware of technologies, innovations and capabilities that can be deployed to older devices and channels. In a discussion with CR2, Stessa identifies:

Global trends and local trends and requirements that financial institutions have to juggle along with the need to identify new niche markets.

Use of new criteria to uncover new niche markets are essential to the bank’s ability to innovate and increase profitability.

Capabilities banks must have in an agile digital banking platform to support all of these demands.

Some of these global trends include:

Increased use of smartphones and mobile banking apps. This usage increased dramatically during 2020 due to the pandemic.

Customers demand for low friction experiences. Banks must constantly reduce the time to open accounts, make a payment and perform other transactions.

Rapidly changing competitive business environment. Banks worldwide face competition from:

Fintechs that offer “unbundled” and low cost and friction banking services such as car loans or person-to-person (P2P) payments.

Challenger banks who create new banks. They may be general banks that target a wide range of customers or niche banks that target a specific group, such as “gig” workers or musicians. Challenger banks have emerged worldwide – from Starling Bank in the UK, N26 in the European Union, Bettr in South Africa to Alex Bank in Australia.

Corporations in other industries that seek to verticalise their services and increase their revenue by leveraging platform technology as well as embedded banking and payment capabilities. Apple Pay is an example of a verticalised payment service. Buynow- pay-later (BNPL) is an example of a payment and banking service that can be embedded into any purchase.

Spinning off one or more challenger bank brands. Many banks seek to create new digital banks to compete with other challenger banks or target niche customer groups.

Open banking and embedded finance technologies. These technologies are designed to make it easier and faster to develop banking and payments capabilities with less friction, more seamless to customers. Companies in other industries can also use these technologies to provide banking services without a banking license or becoming a bank.

Pandemics and other external events beyond the bank’s control that impact bank operations and customer behaviors.

Local Trends and Requirements

Banks must also juggle their local customers’ preferences – whether for a payment method or for channel or devices. In the past, they used traditional demographic ategories such as age, gender, household income and education to support these preferences and capabilities. These segmentations no longer work. Customer preferences and requirements have expanded. To meet these needs of their local customers, banks must use appropriate technology. Some of the trends and local customer requirements include the following:

Manage the deployment and innovation of traditional banking services (open account, transfer funds, pay bills, KYC) and products (cash or payment account, savings account, consumer loans, credit cards, P2P payments) for both older and newer delivery technologies and channels. In African countries, for example, consumers continue to use feature phones as well as smartphones.

Customers who are both banked and under or un-banked. The number of consumers varies significantly by country. In 2017, the World Bank reported that 95 million adults in Indonesia and more than 100 million in Nigeria were unbanked. Unbanked adults have different banking and payments needs than banked adults in each of these countries.

Customer need for both cash and digital payment methods. The specific requirements vary by country and sometimes region.

Impact of pandemic, climate change and other external events in-country.

To address all customers’ needs, therefore, banks must juggle a broad spectrum of new and older technologies and global and local customer preferences. This means that while the bank must support customers who still use feature phones, the bank must also support other customers who would use WhatsApp to open a new account.

This juggle is not new to banks. Banks have done the best they can to keep all the balls in the air. Constant change in both global and local business environments demands that banks manage this juggle with a focus on new ways to attract and service more customers.

In addition, the increasing demands of this juggle means that banks cannot afford to make traditional assumptions about consumer needs and digital banking technology. They cannot assume that technologies and products that are successful in one country will be successful in another. Banks cannot rely on the legacy methods, data and banking systems to identify new customer markets and to create and deliver the products and services these new markets require.

Identify New Markets to Juggle and Drive New Value

On top of the technologies that bankers have to juggle, bankers find differentiation is more difficult than ever. All banks, fintechs and challenger banks offer the basic set of banking and payment services. Traditional customer data as the basis for new products and services is no longer enough to differentiate banks in an environment where competitors and disruptors emerge weekly.

Banks have to reach new customer markets. But how will they find these markets? If banks aren’t going to rely on traditional customer segmentation, which customers should they target?

New Data Identifies New Markets That Drives Differentiating Value – and Profitability

A bank’s value to its customers, then, is to use digital banking technologies to juggle global and local trends and preferences to create and deliver products that target new niche groups of customers. These customers won’t fit neatly into traditional demographic categories. Their needs go undetected and unmet.

Niche markets push the bank to innovate – to go beyond supporting basic and necessary banking transactions– on the same digital banking platform. By understanding customers in new ways, banks can leverage the appropriate global and local technology trends to attract new customers and increase profitability.

Innovation Requires Banks to Look Beyond Traditional Customer Segments

To identify niche groups, banks must be able to look beyond the borders of traditional customer segments. They must identify shared needs that are not apparent through traditional customer data and analytics. These shared needs cross those segments.

There is no template of what a niche market should or will look like or where a bank can find them. Nielsen provides an example of how banks can uncover niche markets. Nielsen has identified niche markets within the youth market for retailers in Africa. Based on their analysis of the way people consumed media, Nielsen classified 15 African countries into 3 new groups of consumers “Simple, Savvy and Selective.”

These groups were defined by “the frequency of usage, the range of programming/mobile services accessed and the digital and social media activities they engage in.” For example, young people in a Nielsen defined “Savvy” country are “more likely to access the internet, interact with social media and use advanced mobile services beyond basic calling and SMS activities.

They have the highest awareness of various instant messaging tools and social media, and of those they engage with, the frequency is daily.” In “Selective” countries, consumption ranges “from less involved media usage to becoming more engaged. Mobile voice and data costs are also, on average, at a premium versus the Savvy countries.” The cost of mobile data affects consumer behaviour in these countries

The characteristics of these two groups point banks towards different digital banking strategies and technologies to uncover and reach different niche groups of young consumers. Banks must think differently to use new factors and analysis to uncover and expose new customer groups.

But data is not enough. Banks who successfully reach these customers must have a digital banking platform that can accommodate all the technologies and strategies that a bank requires to operate in “Savvy,” “Simple” and “Selective” countries.

Digital Banking Platforms Designed to Support New and Old Markets

To uncover new markets, then, banks must seek digital banking platforms designed to both support traditional markets and use data in new ways. This digital banking platform must also be able to create the products and services to meet these market needs. Many banks view the process of acquiring digital new banking technology as a choice between build or buy. In the past, this was an important decision that impacted the bank’s ability to differentiate itself.

The availability of non-banking specific digital tools, platforms and data analytics solutions, as well as third party banking APIs makes it tempting for IT groups in banks to consider developing a digital banking platform in-house. Banks should resist this temptation. The current business environment, demands that banks bring new products and services and capabilities to market even faster. To increase profitability, they must be able to quickly identify and target new customer groups faster than ever. If not, competitors, challenger banks and fintechs will quickly step into the bank’s targeted niche markets.

Select a Digital Banking Partner Who Shares Your Innovation Vision and Supports New Value Creation

o do this, banks need not only a digital banking platform, such as CR2’s BankWorld, that is ready for customisation, integration and identification of new markets, but also a vendor partner that can provide the development and banking expertise that the bank may not have. This includes the technology development and integration expertise for deploying the platform as well as an innovation practice that continuously brings new technologies and capabilities into the digital banking platform. This type of partnership with a digital banking vendor like CR2 enables the bank to focus on the customers and products that will differentiate it from all its various competitors and on customising the platform to accomplishing that differentiation.

A digital banking solution that reduces transaction friction, improves customer experiences and focuses on channel integration isn’t enough to help banks manage the multidimensional juggle, identify niche markets and continuously bring new products to these markets.

Key Capabilities of a Digital Banking Platform

Provide standard banking and payment transaction capabilities and support governance policies and compliance regulations in the country across all channels and devices and across all types of banking.

Detect and support constantly changing customer preferences and needs at the local level to any and all channels and devices. The platform must enable the bank to leverage global digital technology trends to do this.

Continuous identification of new customer markets through analysis of data from both existing and new sources inside the bank or from external partnerships. Data about customer usage and behaviour from the digital banking solution itself will also be valuable.

Customise standard banking transactions and processes and create new transactions and processes to deliver functionality for uncovered niche markets

Adapt banking and payments transactions to reach customers in new ways. This means the digital banking platform must allow banks to incorporate or integrate technologies that support new capabilities for niche markets through any delivery channels, devices, and apps. This includes a range of technologies from embedded finance to QR codes as appropriate to the needs of any customer, regardless of the market.

Connect the bank to any customer, bank-owned or partner channels, devices and apps using open technologies. This enables the bank to go to market quickly with services that meet the needs of all customers.

Support the development of an ecosystem of partners and technologies to enable the bank to leverage emerging technologies and go-to-market with new products quickly without creating siloes.

These digital banking platforms, like CR2’s BankWorld, must also demonstrate that their ability to service high volumes of customers that include the broad spectrum of unbanked and well banked customers. These customers have both standard transactional and complex financial services needs. Digital banking platform vendors that support these capabilities do more than deliver banking and payments transactions. They create a path for the bank to create new value – for both the bank and customers.

It is only the banks that use these new digital banking platforms that are designed to create value with the ability to continuously uncover new customer needs and niche markets that will be able to differentiate themselves in a constantly disruptive and competitive financial services environment. These digital banking platforms will make the bank’s multidimensional juggle appear seamless – and more profitable.

DROUGHT LOOMS IN EAST. AGAIN!

Posted on January 30, 2022January 30, 2022 by Web Master

For weeks, stories and photos coming out of the Somali and Oromia regional states have revealed a growing humanitarian crisis of a magnitude unseen for decades. Cattle have been pictured with their bones poking out and hundreds of thousands displaced seeking nourishment. In the Somali Regional State, where the crisis hit hard, 1.4 million heads of livestock have been lost, dealing a severe blow to the livelihoods of pastoralist households. The lives of 3.2 million people are at risk. A similar calamity also haunts the southeastern parts of Oromia, where malnutrition cases are doubling. The culprit is a drought – unlike in the northern part of the country, where the ongoing crisis is largely manmade. It is hitting a part of the country that is already semi-arid, primarily supporting pastoralists. Drought is not new to the area, but it has not been this bad in four decades, according to United Nations Office for the Coordination of Humanitarian Affairs (UN-OCHA).

“Ethiopia is experiencing a prolonged drought with three poor rainy seasons in a row,” said the UN agency. Communities in six zones of Somali, four zones of Oromia and one zone of southern regional state have been severely impacted, according to UN-OCHA.

They need urgent humanitarian relief assistance, the UN urged. The federal government, the regional states and humanitarian agencies are scrambling after the fact. In response to the drought, the Somali and Oromia regional governments have eked out 200 million Br and half a billion Birr, respectively. Neighbouring governments and administrations have also been chipping in. The Addis Abeba City Administration recently made an in-kind contribution of 50 million Br to drought-affected people in the Guji Zone of the Oromia Regional State.

Federal officials have appealed to donors and international aid organisations. While the World Food Programme (WFP) supplied 1.1 million quintals of food aid, the federal government says this is still a million short. A shortfall in funding leaves millions in precarious situations. Experts believe that if the drought continues to become more stubborn in the semi-arid areas, the long-term solution may be resettlement programmes, a consideration with significant socio-political implications for decades to come.

Strong Dollar Sounds Default Alarm Bell. Policymakers Better Plan Ahead

Posted on January 30, 2022January 30, 2022 by Web Master

The scourge of inflation is rising globally, terrifying politicians and their macroeconomic advisors. The United States consumer price index has reached seven percent, the highest in four decades. Ethiopia’s latest year-on-year inflation figure for December shows headline inflation above 35pc and food at 41.6pc. Ethiopia’s inflation is at a record high in a decade.

All but a few people in Ethiopia would assume that there is a correlation between the inflationary trends in the most advanced and rich economy and the one that is poor and underdeveloped. But the unprecedented speed of globalisation over the past few decades means that the latter’s economy may come under tremendous stress for reasons outside the control of its policymakers. Emphasizing that Ethiopia’s policymakers should closely follow how inflation, interest rate and the price of oil in the global market move can only be an understatement.

Ethiopia has a macroeconomic team chaired by the Prime Minister. However, Girma Birru, an old hand in the policymaking circle for over two decades, commands sway when it comes to the nitty-gritty of macroeconomic policies. He is a revered figure in the eyes of policymakers such as Yinager Dessie (PhD), governor of the central bank, Ahmed Shedie, minister of Finance, and Fitsum Assefa (PhD), minister of Planning. The weight of the country’s economy is on their shoulders as the fate of over 100 million people will be determined by these individuals’ actions – or inactions -. Indeed, Eyob Tekalegn (PhD) and Nemera Mamo (PhD), states ministers of finance and planning, respectively, are the young and rising figures in the policymaking circle. Their views and recommendations are no less consequential.

These are all individuals trained in Western and liberal schools of economics. It should not be lost on them what is available in the policy menu to pick, from demand-side to supply-side and monetarism to inflationary targeting economics. Battered by the impacts of the COVID-19 pandemic and devastated by tragic civil war, Ethiopia’s economy suffers from a classic case of high inflation and high unemployment. Ethiopia presents a scenario for a curious economics professor to coin a new word in the economics lexicon other than “stagflation”.

It should be worrying that more blows are on their way but external in the source.

The price of crude oil in the global market is rising, surpassing 80 dollars a barrel last week. It is a piece of bad news for a country like Ethiopia, where almost all its foreign currency earnings from exports are zeroed by the bills to cover the imports of fuel. Further increases in the oil prices will inevitably erode the meagre foreign currency reserve the country struggles to keep up. The inevitability comes from an inflationary trend across economies globally, poor alike rich.

A high inflation rate in the world’s biggest economy will likely prompt the US Federal Reserve to act. Its Chairperson, Jerome Powell, is convinced that the inflationary pressure is no longer “transitory.” He indicated that a rate hike is due soon. The consequence of this is higher borrowing costs to reduce the amount of money in circulation. In any other country except China and the US, such a move by a foreign central bank may have little meaning to a country such as Ethiopia. When either of the world’s two largest economies alters monetary policies, though, it will be felt by nearly everyone else.

Ethiopia’s policymakers should look at this development as a new cycle of expensive borrowing costs in contrast to the cheap loans that underpinned the COVID pandemic era of monetary and fiscal expansionism. The same could take place in Europe, based on the appetite of the EU’s central bank to ward inflation off.

Ethiopia’s government is in no position to seek and qualify for commercial loans, given that its current debt stress and political situation are least attractive to any lender. But this will not matter. Higher borrowing costs in the US and the EU zone will mean a stronger Dollar, making repayment of existing debt denominated in these currencies harder. Dollar-denominated debt is already 25pc more expensive in Birr terms than a year ago. The cost of existing debt may increase further for this year and the coming years.

One structural obstacle to Ethiopia’s growth is the foreign currency crisis, save for the civil war. Pressures on the foreign currency reserve will make necessary investments for development ever harder to realise. Worse, it could spill over into debt default, one of the worst things a country can do to its economy. International creditors do not have a short memory. They see a country that defaults, whatever the circumstances, is a country willing to default.

Ethiopia’s policy advisors and makers should internalise that a dark and powerful storm is hovering. Inactions, as the case with the macroeconomic team, and knee-jerk responses as the central bank is famous for, are not the way to go about salvaging the economy from the brink of disaster. They can start by adopting a grand strategy picking one from the policy menu. They would not need to reinvent the wheel. Understanding the depth and scope of the problem is halfway through charting the economy to a stable destination.

They can also aim for low hanging fruits in the meantime. They work hard to get debt restructuring agreements under the G20 Common Framework. Nonetheless, with the current diplomatic fallout with the Transatlantic powers and lack of clarity of procedures with the framework itself, this may not arrive to meet the desperate situation. It will also be a dereliction of duty if the policymakers leave the possibility of Ethiopia’s default to the framework by remaining passive. They should know they owe to the suffering and plight of tens of millions of Ethiopians in whose name they swore to serve. It is time to be proactive.

One blessing of the current global inflationary pressure could be that commodity prices are also up. For an exporter of agricultural produces, this has meant that coffee export revenues are almost twice as high as they were last year at 578 million dollars. No wonder exporters are now required to surrender 70pc of their foreign currency earnings in their retention accounts to the central bank, a counterproductive – desperate nonetheless – policy choice.

But these are windfalls and not an actual increase in export value-addition or output. The price of coffee will come back down to its usual price as supply chain issues are addressed, and Brazil ramps up the export.

The most straightforward way to maintain foreign currency reserve needs is to grow and formalise remittances. The administration may be instinctive about its “Great Ethiopian Homecoming” campaign. But it was highly politicised. Creating a more inclusive political space could cast a wider net and grow the remittance pie. No less important is to follow a more innovative approach to encourage the diaspora communities’ involvement in the economy. This could be about issuing “diaspora bonds”, perhaps to be channelled to the Ethiopian Investment Holdings, which aims to become a sovereign wealth fund. But such a strategy needs a much better insight into the diaspora demographics, including per capita remittance and investment preferences. The biggest tragedy today is that as rarely as the diaspora invest, when they do, it is in Addis Abeba’s already bloated and speculative luxury real estate market.

Even then, the consequence of the Dollar’s volatility may not be contained. It may not even strengthen in value as expected. The only thing certain in these times is the stubbornness of uncertainty. It makes the job of the policymakers all the more complex but critical no less. The central bank, in particular needs, to become a bulwark of certainty that can be relayed on to mitigate risks proactively. Sadly, the National Bank of Ethiopia (NBE) is not doing well. It is most often seen adjusting and re-adjusting directives by the month, adding to the uncertainty. There is no better example of this than how it has changed foreign currency retention rules three times in just about a year, increasingly in its favour.

There is no doubt that the past two years have been highly unprecedented. But they should also be an opportunity to learn. Long-term predictability could be a thing of the past. The best weapon against this is a thoughtful, deliberated and forward-looking macroeconomic strategy. Despite the harsh currents, nothing passes better than a sense of direction people would like to have. Tragically, Ethiopia’s policymakers appear to have been lost in the policy wilderness.

Drought Endangers Millions in Somali, Oromia Regions. Response Remains Lukewarm

Posted on January 30, 2022January 30, 2022 by Web Master

The past two years have seen more than their fair share of tribulation. A global pandemic, desert locust invasions, economic stagnation, political instability, runaway inflation and a full-blown civil war are only a few of the talking points on the list of calamities plaguing Ethiopia.

The issues have been the centre of conversation in Addis Abeba. But for Abdul Farah, 73, a resident of Gode Wereda in the Somali Regional State’s Shabelle Zone, they are passing thoughts. He and his 13 children are caught in a much more pressing problem. With the public’s eye fixated on the militarised conflict that has been raging in the country’s north for almost a year and a half, a catastrophic drought in the east and south has gone largely overlooked.

Seasonal rains between October and December have failed. The unprecedented three-season drought sequence is taking a heavy toll in the Somali and Oromia regional states. Several areas have seen almost no rainfall for two years. Livestock, essential to the largely pastoral areas affected, are dying each day. But at the heart of the draught are close to four million people like Abdul.

Two years ago, Abdul had a herd of more than 60 goats, cattle and camels. The animals were a lifeline for Abdul and his family, who depend on them for nutrition and income. However, three consecutive seasons without rainfall have wasted the herd. Only nine survive today. Even the survivors are not healthy enough to sell.

“Not even to eat,” said Abdul.

Before the drought, one of his cows would have fetched 27,000 Br in local markets. Abdul cannot get a buyer for 1,800 Br now. The plight has made him send six of his children to stay with relatives in Jigjiga, a seat of the regional administration.

Shabelle Zone is one of nine severely affected in the Somali Regional State, putting the lives of 3.2 million people at risk. Half a dozen zones, including East and West Hararghe, in the neighbouring Oromia Regional State, suffer from drought, endangering over half a million lives. Conditions in these areas are worsening by the day as food and water become more scarce. Children have had to drop out of school while many choose to leave.

“For the first time in 4 decades, Ethiopia is experiencing a prolonged drought with three poor rainy seasons in a row,” reads a tweet from the United Nations Office for the Coordination of Humanitarian Affairs (UN-OCHA).

Most of the population in the vast semi-desert plains of eastern and southern Ethiopia are pastoralists, raising livestock on land otherwise unsuitable for agriculture. Like its arid neighbours in the Horn of Africa, the eastern part of Ethiopia has become measurably drier and increasingly hotter. Over the past two decades, four severe droughts have wreaked havoc in the area, a rapid succession of calamities that has pushed millions to the edge of survival.

The drought cycles are becoming more frequent in the Horn of Africa due to temperature changes in the Indian Ocean, says Eyasu Mekonnen, who pursues a doctoral study in climate-smart agriculture and biodiversity conservation at Haramaya University.

“Drought is a vicious cycle, and people are going from one crisis to another with very little breathing room to take stock,” he said.

The Shebelle, the main river in the central Somali Regional State, is having its water volume reduced. Untold numbers of pastoralist households like Abdul’s used to flock to the river banks to fetch water for their homes and livestock. Some would trek on foot for hours to find water on the Shebelle River. Eventually, it got so bad that fetching water from the river was close to impossible without the help of water pumps.

Many are unable to afford to buy pumps.

“We live on the edge,” said Abdul.

The lack of water has been disastrous for the pastoralists’ most valuable asset: livestock. Herders report losses of more than 70pc of their animals, and the death toll has surpassed 1.4 million heads of livestock in the Somali Regional State, disclosed Abdulfatah Mohammed, deputy head of the regional state’s bureau for disaster prevention and preparedness.

“The carcasses of dead animals are piled up in the streets,” Abdul told Fortune.

Nearly three-quarters of the livestock in Abdul’s village have died. In Shabelle Zone, drought has killed at least 45,000 cattle, goats and camels.

Neither have government response efforts been very encouraging. Adem Ahmed, the administrator of Shabelle Zone, says 17 trucks have been assigned to distribute water to the residents of his jurisdiction.

However, the emergency humanitarian provisions are but a drop in the bucket. Eyasu, who has also taught at the School of Natural Resources Management & Environmental Science at Haramaya University for the last 13 years, argues that a better understanding of what the future may hold will help people living in arid areas cope with the consequences of climate change.

“Enhancing irrigation schemes and diversifying rural livelihoods through social protection and introducing cash-transfer programmes can be useful tools,” he said.

Prime Minister Abiy Ahmed (PhD) echoed similar thoughts during his visit to Jigjiga last week.

“We’ll scale up the provision of water trucks, food, animal feed and essential medicines,” he said during the visit. “We will accelerate the small dam projects we’ve embarked upon to support water management in lowland areas as a pathway to circumventing future droughts.”

It is a message that comes too late for Ibrahim Alefe, a resident of Shekosh Wereda in Korahe Zone, one of the worst affected in the Somali Regional State. He and his family, with 12 children, had a herd of 90 well-fed and watered goats a little over a year ago. Only six of them have survived.

Ibrahim says the worst loss has been that of his camels. He once owned a herd of 65, more than enough to sustain his family. Nearly all of them have died over the past year. The toll on these drought enduring mammals illustrates how dire the situation has been. Close to 27,000 heads of livestock have died in Korahe alone.

“It’s unheard of,” says Ibrahim, “I have never known them to die like this.”

Close to 400,000 people in 10 weredas of Korahe need emergency relief assistance. However, only three are receiving aid, according to Abdulnasir Hassen, early warning and response coordinator for the Zone.

“The assistance we’re receiving is insufficient,” he told Fortune. “We’re prioritising the most affected areas.”

The lack of aid and the decimation of herds forced Ibrahim, his children and two wives to leave Korahe a month ago in search of food and water. They are among 4,000 displaced from the area and 220,000 in the regional state. Ibrahim and his family are taking refuge in one of the 35 temporary shelters to house internally displaced persons (IDPs).

“We’re only receiving enough to sustain our lives here,” he said. “I’m hoping for a miracle at this stage.”

The situation in Southeastern Oromia Regional State is no different.

Mechi Korecha, 26, a father of one, lives in Arero Wereda of the Borena Zone. His herd of 100 sheep and goats has dwindled to 15 over the past couple of years. Nothing can grow on the 2.5ht of land he farms. However, his chief concern is the safety and health of his child, who is already malnourished.

“All I can think about is my child’s future,” he told Fortune.

Malnutrition cases are doubling in Oromia Regional State. Incidents of diarrheal cases among children under the age of five are increasing, according to a report from the International Committee of the Red Cross (ICRC). Authorities at the regional and federal levels are struggling to cope with the scale of the emergency.

The Somali Regional State cabinet has approved 200 million Br to pay for emergency relief. Its counterpart in the Oromia Regional State has stamped half a billion Birr for the response efforts. These are funds nowhere near enough to overcome the drought’s grim impact on the population.

“It’s impossible to assist all affected people,” said Adem, the head administrator of Shabelle Zone.

The federal government has supplied close to 5,000 quintals of rice and nutritious food items to the Somali Regional State.

International aid organisations are on the scene, but they too are struggling to cope with the sheer size of the disaster. The World Food Programme (WFP), whose director for Africa had visited Jigjiga two weeks ago, has supplied 1.1 million quintals of food aid. The federal government has appealed to the organisation to provide an additional million quintals of rice and nutritious food to the Somali Regional State, according to persons close to the matter.

There are mounting fears that even higher numbers of people will be exposed to the drought as the next dry season approaches.

“If the drought continues like this, livestock populations will plummet to almost zero,” Abdul fears.

Beyond anxiety, the management of droughts needs a paradigm shift, says Eyasu, the climate expert.

“Governments of poor countries should recognise the traditional approach of mitigating drought is no longer viable,” he said.

Eyasu urges officials consider resettlement programmes in response.

“The relocation of herds and the use of special reserved areas can be useful strategies,” he said.

Pastoralists like Abdul and Ibrahim have little choice but to hope for rain or outside help in the meantime. Nonetheless, help is not coming in time or in sufficient amounts.

Humanitarian organisations face deep budget constraints for their operations in Ethiopia, while the number of people in need of emergency assistance grows to record highs. A UN report published last month estimated 22 million Ethiopians would require emergency humanitarian assistance worth 1.4 billion dollars this year. Close to 900 million dollars in funding has yet to be raised.

Urgent action is needed to reverse deepening drought impacts in southern and eastern Ethiopia, reads the report. Although the report authors chose to describe the alarming situation as a “continuous drought-like condition,” they see what is unfolding in southern Oromia and Somali regions with “particular concern.”

Telecom Infrastructure Sharing Deal Remains Unsettled Ahead of Safaricom Launch

Posted on January 30, 2022January 30, 2022 by Web Master

Two months are left before Safaricom Ethiopia launches what will be the country’s first private telecom services, but an infrastructure sharing agreement with the state-owned Ethio telecom remains inconclusive.

Negotiations between the two companies’ executives are ongoing, but they have yet to settle on terms, people close to the matter disclosed to Fortune.

Ethio telecom had initially offered to lease Class I towers (located in dense urban areas) for a little over 2,000 dollars a month for each tower, excluding tax. Its executives have expressed their desire to share up to 80pc of the 7,100 towers and power supplies and part of its 22,000Km fibre optics network, according to Tariku Demissie, chief technology officer of Ethio telecom. Safaricom has thus far requested to use 1,000 tower sites.

Ethio telecom’s initial offer has been revised to narrow the price gap between the terms envisioned by the two companies, says Tariku.

“[Negotiations] will be completed shortly,” he told Fortune. “We’ll sign the contract.”

Safaricom technicians have begun surveying the sites to identify how to co-locate on the towers. Backbone transmission sharing, which connects across city infrastructures, is also underway. Safaricom has placed requests on the sites it would like to rent out, Tariku disclosed.

The Ethiopian Communications Authority (ECA), established in 2019, sets an ex-ante tariff of 1,700 dollars for Class I tower rental. Ethio telecom’s initial offering of 2,070 dollars was presented assuming that two new telecom operators would be entering the market. The Authority is responsible for mediating negotiations if any dispute arises between operators. It may intervene at its discretion or, if requested by a party to an access agreement to determine whether the infrastructure sharing, collocation charges and compensation are cost-based, reads a telecommunications infrastructure sharing and collocation directive issued last year.

The Authority has not received a mediation request for a dispute between the negotiators thus far, according to Balcha Reba, director-general of the ECA.

Representatives of Safaricom Ethiopia Plc were not available for comment despite repeated efforts from Fortune.

Safaricom could face consequences if negotiations do not wrap up in time. The company could be forced to deploy more of its own towers. This would delay commercial operations but could save costs otherwise incurred for infrastructure sharing. The delay would entail the installation of redundant duplicate towers covering the same area.

The telecom operator, which paid 850 million dollars for a 15-year license, is moving ahead with its infrastructure development project, having contracted Huawei and Nokia. Nokia will carry out 60pc of the project. The operator wants to develop tower infrastructures on building-tops and import materials for its operations. Safaricom has also announced the construction of a 100 million dollar modular data centre in Addis Abeba.

Countries with multiple telecom operators are increasingly calling for the sharing of infrastructure to avoid coverage duplication and environmental impacts. For instance, in Denmark, home to over eight operators, the government has pushed operators to share existing infrastructure for years. The results have been increased coverage and reduced prices while competition does not seem to have been affected negatively, according to a report from the Danish Energy Agency published by the International Telecommunications Union in 2017.

The operator has nine months to launch its commercial operations based on the license agreement signed between the government and Safaricom. It was awarded a provisional license at the end of last May, while full permission was granted the following month. Failing to meet the deadline in April would entail a fine for the company. However, the operator, which will be using the “07” prefix for mobile calls, is not obligated to launch its services across the country but in defined economic zones.

The government’s decision to prohibit third-party infrastructure operators from entering and launching mobile financial services was cited as one of the main reasons global telecom operators shied away from the race to acquire the country’s first-ever private telecom license. Officials decided to include mobile financial services in the second offer, hoping to attract more operators and better offers.

The process to award the second license has been halted for an indefinite period after receiving “concerns and requests” from potential bidders to delay the process.

Supplementary Budget Raises Worries Over Deficit Financing

Posted on January 30, 2022January 30, 2022 by Web Master

Members of parliament have voted in favour of a record-high supplementary budget bill Prime Minister Abiy Ahmed’s (PhD) administration motioned last month. The bill met objections from nine of the 309 parliamentarians in attendance last week, while seven abstained.

The supplementary budget – 122 billion Br – represents a fifth of the 561 billion Br federal budget Parliament approved for 2021/22. It comes when the budget deficit is projected to reach four percent of the GDP, and as year-on-year headline inflation reached 35pc last December. How the administration plans to finance the supplementary budget exacerbates worries that it will fuel the inflationary pressure in the economy.

Much of the additional budget (90 billion Br) is earmarked for the Ethiopian National Defense Forces (ENDF), which has been in a militarized conflict for over a year in the north and flared up insurgency in the south-western parts of the country. The military receives four-fold the initial budget Parliament approved in July 2021. The military, along with the justice and security sectors, has consumed a third of the 49 billion Br allotted for the recurrent expenditures in the first five months of the fiscal year, reveals a report by the Ministry of Finance.

Emergency food assistance and market stabilisation procurement for wheat accounts for eight billion Birr of the supplementary budget, while an equivalent amount is earmarked for contingency. Of the balance, five billion Birr will be spent on reconstructing infrastructure damaged by the civil war, and two billion Birr will go to the rehabilitation of irrigation dams at state-owned sugar estates.

These include the Omo-Kuraz, Tana Beles, Tendaho and Kesem estates, all run by the Ethiopian Sugar Corporation (ESC). Initially planned for sugarcane, the Ministry of Irrigation & Lowlands wants to use them for wheat production, according to Birhanu Megersa (PhD), a state minister for Irrigation & Lowlands.

“The full potential is not utilised by sugarcane plantation,” he said.

The motion tabled before Parliament by the Ministry of Finance attributed the supplementary funds to budget restructuring and insufficient domestic revenues collection to cover public expenditures. The federal government targets to collect 368 billion Br this year. Over the first five months of this fiscal year, the Ministry of Revenues collected 147 billion Br, 16pc higher than last year and close to 90pc of its initial target. Though the figure has grown numerically, it has stagnated or even fallen when factored to inflation.

Eyob Tekalign (PhD), a state minister for Finance, told Parliament last week COVID-19 has had detrimental effects on revenues collection.

However, funding from external sources has also been sluggish. In the first quarter, the federal government received 137 million dollars in external loans, 32pc lower than the same period last year. According to individuals familiar with the external debt process, the government hopes to source a 300 million dollars loan from the World Bank and 150 million dollars from other sources.

Fundraising domestically and in the Diaspora is one avenue officials aspire to mobilise additional financing. The ministries of Education and Health have been granted nods to kick start campaigns. The Ministry of Education has already raised 42 million dollars, which its officials say will be used to rebuild 40 schools in the north damaged by war.

Disaster financing has been an issue officials of the Finance Ministry have mulled over in the macroeconomic framework. Although using available contingency funds is included in the budget, the administration has already spent the 11.3 billion Br in contingency budget.

Reallocating funds from other budget items to respond to rehabilitation and reconstruction needs is considered. According to State Minister Eyob, the administration has reassigned about 25 billion Br through a project restructuring regime this year though he declined from disclosing which projects have been restructured. Five billion Birr has been saved for recurrent expenses as well, he disclosed.

Governments often finance budget deficits through raising taxes, cutting back on public expenditures or borrowing from domestic sources. In contrast to the past few years, the administration has opted for domestic borrowing to finance the supplementary budget Parliament approved last week fully.

Eyob says the resources to finance the supplementary budget will be raised from financial institutions through the sale of treasury bills (T-bills).

Financing the budget deficit using treasury bills is not a bad option, says Patrick Heinisch, an economist and capital markets researcher.

“That is what has been done for a long time in Europe and the US without exerting burdensome inflationary pressure,” he said.

However, Heinisch observed much more demand for Euro and Dollar-denominated debt as these currencies are global reserve currencies.

“Demand for Birr-denominated debt is much more limited,” he said. “When it comes to T-bill financing in Ethiopia, my primary concern is not inflationary pressure but the stability of the financial system.”

His worries arise from the low yield rate of T-bills, which is far below the inflation rate.

“T-bill financing is better than borrowing directly from the central bank,” he said.

Officials maintain the administration is determined to avoid direct advances from the central bank, but the figures show otherwise.

Direct advances from the central bank grew by 52 billion Br at the end of last year and topped 113 billion Br (30 billion Br increase) in the first quarter of the current fiscal year. It is a phenomenal turnaround compared to 2019/20, where direct borrowing from the central bank dropped to 31 billion Br from 123 billion Br the previous year.

Heinisch urges officials to seek foreign assistance to pay for reconstruction and rehabilitation works in war-ravaged areas of the north.

“I would advise the government to reach out to donors and the Diaspora as the domestic financial market is rather small,” Heinisch told Fortune. “Donors and the Diaspora can provide funding in foreign exchange, which helps stabilise the exchange rate and causes less inflation.”

The analyst contends that it is crucial to finalise debt restructuring under the common framework agreement with the IMF. According to data from the World Bank, interest and principal payments on the external debt of 2.2 billion dollars are due in 2022, a few hundred million dollars short of the entire supplementary budget. However, no update has been provided on the negotiations with creditors since September 2021, when the creditor committee met first.

“The government needs to make more effort to achieve results,” Heinisch said.

Three weeks before the last fiscal year ended, Parliament had approved a 38.4 billion Br supplementary budget, financed mainly from domestic sources. Of the total, about 11 billion was meant to be covered by external sources. Subsequently, the National Bank of Ethiopia (NBE) held two auctions before the end of the year, raising 47.7 billion Br. Uncharacteristically, the central bank continued to hold auctions every week until the end of July, unlike its tradition of bi-monthly auction.

Alisa Strobel, a senior economist for Sub-Saharan Africa at IHS Markit, argues that additional budget spending was inevitable.

“However, higher reconstruction finances suggest that we are likely to see a higher fiscal deficit in 2022,” said the economist.

According to Cepheus Growth Capital Partners (Cepheus), a private investment firm, the budget deficit is expected to shoot up to four percent of the GDP from 2.7pc a year before.

Trade Ministry Sets Threshold Livestock Export Prices Amid Burgeoning Illicit Trade

Posted on January 30, 2022January 30, 2022 by Web Master

Exporters of live animals from Ethiopia cannot ask for less than a threshold price set last week by officials of the Ministry of Trade & Regional Integration. Cattle weighing more than 320Kg will not be sold for less than 750 dollars, and sheep and goats scaling over 25Kg will receive more than 85 dollars and 80 dollars, respectively.

The order was signed by Gebremeskel Chala, minister for Trade & Regional Integration, to remain enforced up until mid-April 2022.

The Ministry determined the threshold value after a study conducted alongside the central bank and the ministries of Agriculture and Revenues, revealed a continued decline in foreign exchange earnings from cattle exported.

Over the last decade, earnings from the export of live animals have shown a dramatic decline. A decade ago, Ethiopia had earned a record 200.7 million dollars, shipping close to 700,000 animals overseas, with cattle accounting for a sizeable proportion. The revenues plummeted to 44.1 million dollars last year. The number of animals shipped also receded below 100,000.

For a country that is often touted as home to the largest livestock population on the continent, the figures are a far cry from potential earnings. There are an estimated 59 million heads of cattle; sheep and goat populations stand at 7.5 million and 13.2 million, respectively. Though there are 41 licensed livestock exporters, less than half are currently active.

Desenet Belay, director of livestock marketing at the Trade Ministry, blames the growing contraband trade and rampant under-invoicing observed among livestock exporters.

“We took international commodity exchange figures and domestic prices into consideration,” said Desenet. “The threshold can be revised if the variables in the market change.”

Up to 80pc of the illicit financial outflows leaving Ethiopia, estimated to have reached 30 billion dollars, has been channelled through what experts call “trade mispricing,” a technical term for under-invoicing. The amount of forex leaving the country in the form of illicit financial outflows represents close to 23pc of the total value of its trade.

Unless it is resolved, under-invoicing could cause capital flight, Desenet warns.

Industry players, however, point their fingers at other factors contributing to the decline of export earnings from the livestock sector. The marketing system is cumbersome and underdeveloped, according to Moges Haile, president of the Livestock Traders Association (LTA). The trade lobby has 560 members under its wing.

Exporting livestock involves meandering supply chains and many actors, including cooperatives, traders, intermediaries and exporters. Pastoral and agro-pastoral areas such as Borena, Somali and Afar are the primary source of sheep, goats and cattle.

Hayder Kemal, a livestock exporter, sees the main hurdle in the lack of commitment from the government to use livestock resources, stopping cross-border trade. He exported half a million dollars worth of camels to Egypt last year.

Officials at the Ministry of Trade agree with Hayder.

“There isn’t an institution that monitors livestock trade and export,” said Desenet.

His point is illustrated by the constant reshuffling of the federal offices overseeing livestock trade and export. Five years ago, it was the Ministry of Trade before the oversight went to the Ministry of Agriculture and then back again two years ago. Cross-border livestock trade overtook the legitimate export. Live animals from Ethiopia cross to neighbouring countries of Djibouti, Somalia, Kenya and Sudan, then exported to markets in the Middle East through formal channels.

Export earnings might have plunged in Ethiopia, but Somalia has seen figures rise from 162.5 million dollars in 2010 to around 280 million dollars last year. Djibouti, home to a cattle population of 40,000, earned 26 million dollars two years ago, five million dollars more than Ethiopia had in the same year.

The Trade Ministry’s study reveals that close to 1,200 animals cross borders each day. It estimates the country loses 1.5 billion Br annually due to the illicit trade. The border areas of Wuchale, Dewaele and Galafi in the east; and Dolo, Odo and Moyale in the south have been identified as corridors for the illicit cross-border trade.

Negassie Ameha (PhD), lecturer of animal science at Haremaya University, argues that setting a threshold price for export cannot be the solution. The focus should rather be on improving animal data management and information tracking systems, which are inadequate for designing policies and overcoming problems, says Negassie.

There is also a poor animal health management and certification regime. There are 13 livestock health control and seven quarantine centres, where live animals stay for 30 days.

“They receive vaccinations at the quarantine centres,” said Tegegework Mekonnen, senior quarantine expert at the Ministry of Agriculture. “However, the existing facilities are very few considering the livestock population.”

Desenet recognises that many factors contribute to the problem but says solving them all at once is impossible.

“We’ve got to start somewhere,” he told Fortune.

Bill Regulating Dispute-Riddled Real Estate Market Surfaces at Ministers’ Council

Posted on January 30, 2022January 30, 2022 by Web Master

Authorities have sent last week a long-overdue bill to the Council of Ministers, which regulates the real estate market, troubled by a series of legal wranglings between developers and disgruntled homebuyers. The authorities hope the bill will be instrumental in reducing disputes that often end up at the courts.

Initiated by the former Ministry of Urban Development & Construction, now the Ministry of Urban Development & Infrastructure, the proclamation has been in the making for the past six years.

The lack of a consolidated legal framework has led to a cascade of legal battles between real estate companies and their customers. Among the issues at the forefront is the timely delivery, or lack thereof, of properties. Funds raised from homebuyers are the principal source of financing for real estate developers. It is standard industry practice for homebuyers to make an upfront payment of 15pc of the property’s value upon signing preliminary agreements.

The absence of laws governing project delivery has meant that courts have dealt with hundreds of cases of buyers suing developers over delays, seeking to get their money back or receive compensation.

A series of lawsuits filed against Access Real Estate, incorporated over a decade ago with 34 million Br in equity from close to 650 shareholders, is among the better-known examples. Three years after the company went operational, homebuyers demanded refunds due to delayed handover. Close to 140 homebuyers filed a lawsuit in 2013; the litigation went on for five years before judges at the Federal High Court ordered Access Real Estate and its subsidiary, Pacific Link Ethiopia Real Estate Plc, to pay 88.5 million Br in damages.

According to Arba Beyene, a legal expert who worked at the Yeka District Land Management Bureau for three years, there are times when the existing laws governing the real estate market contradict each other.

Ever since pioneers such as Ayat Real Estate began building and transferring houses two decades ago, the market has largely been governed by the country’s commercial and building codes. There are around 270 real estate companies operating in Addis Abeba with a combined registered capital of 5.8 billion Br. Close to 13pc of them are foreign-owned.

The bill proposes to make it mandatory for these developers to deposit upfront payments in a closed bank account. The bill states mechanisms for the disbursement of funds deposited in the closed accounts will be determined by a forthcoming regulation, disclosed Tadesse Kebebew, head of housing development & administration at the Ministry.

Arba welcomes the proposition.

“Putting the funds in a closed account and disbursing them for the intended purposes guarantees homebuyers’ investment,” he told Fortune.

Industry players say it is difficult to grasp the extent to which developers will be affected by this particular requirement.

Noah Real Estate is an industry giant incorporated in 2013. It taps on its sister company, Great Abyssinia Plc, to finance the initial stages of construction projects though it also receives funds collected from homebuyers and loans from commercial banks. Founded by two brothers, Tewedros and Dawit Zerihun, Noah had delivered 4,500 residential and commercial units by the end of 2020.

“The company requires a downpayment after construction progress reaches at least 50pc,” said Rataneh Fasil, an advisor at Noah Real Estate.

Noah requires homebuyers to shell out payments of up to 15pc of the property’s value and settle the balance in six subsequent instalments. However, unlike Noah, many other real estate companies depend heavily on the money collected from buyers and the credit they get from banks. Last year, commercial banks disbursed 28.6 billion Br in loans to the construction and housing sector.

For Habtamu Tekle, general manager of East African Real Estate Development Plc, disbursing money from blocked accounts based on construction progress will not be practical. Incorporated 16 years ago, East African Real Estate Development has thus far transferred 104 units to its customers.

“Loans from banks are not easily attained,” he said. “Developers depend on the money collected from buyers.”

Limited access to foreign currency affects the timely delivery of housing. Construction requires large volumes of imported materials and equipment, leaving those without access to forex vulnerable to delays. The bill proposes the federal government provide conditional guarantees to and allow the registration of both local and foreign real estate developers capable of long-term international borrowing. The bill allows foreign developers investing in construction input production facilities substituting imports and reinvesting 60pc of the income from the real estate business without repatriating foreign currency for 10 years to engage in the real estate market.

The draft law allows local developers to sell homes before completing construction. It restricts the transfer of title deeds before finishing at least 70pc of the structure and acquiring a landholding certificate for each unit.

“Further clarification about what constitutes 70pc is required,” said Rataneh.

Foreign-owned companies, however, will be required to sell units only after construction is completed. Real estate projects already in progress before enacting the law are not beholden to the proposed rules.

Although the bill does not set capital requirements for local companies, foreign developers will be required to register a threshold capital of 20 million dollars and commit to building at least 10,000 units, 40pc of which must be affordable housing for families with less than three dollars in daily earnings.

“The bill aims to address the housing demand from low-income households,” said Tadesse.

Private real estate companies primarily target high-income homebuyers, while the government focuses on meeting the housing demand from low-income segments of the population. The efforts include constructing 383,000 condominium units over the past 15 years. Yet, a considerable gap remains in the housing market where the needs of the lower-income urban population still have not been met. There is an estimated shortage of 1.2 million housing units in the capital. The government’s 10-year growth plan foresees the private sector building around four million units in the coming decade.

Leul Dejene has worked at one of the foreign real estate companies in the capital for seven years. He sees the requirements as discouraging to foreign investments. The capital requirement is much higher than the minimum threshold, 200,000 dollars, set for foreign investors in the law amended two years ago.

The bill also provides alternative options for foreign investors. If they wish to partner with domestic developers, they can ask for proportionate reductions in all of the requirements set for the registration.

The bill attempts to address the land shortage issues faced by developers. Although developers can acquire land in Addis Abeba through allotment and lease auctions, there have been no such auctions in the last three years. Around 77ht of land leased out is under development in the capital.

The draft proposes that real-estate developers that agree to build 10,000 housing units in the capital or 2,000 housing units near industrial parks will receive land based on a direct administrative allocation term lease. Developers who can build and transfer between 1,500 and 10,000 housing units in Addis Abeba or between 500 and 2,000 housing units near industrial parks will be allotted land on special bid lease terms.

Despite the positive changes the bill could bring into the real estate market, Rataneh argues that there should have been more thorough discussions before it was forwarded to the Council of Ministers.

“A lot has changed in the real estate market over the last few years,” he said.

Officials dismiss the criticism. Repeated consultative meetings were held two years ago, according to Tadesse.

“No major changes have been made to the draft,” he said. “There have been enough consultations.”

The bill has introduced complaint and grievance lodging procedures and proposes the formation of a committee to resolve disputes between developers and homebuyers.

Upcoming Regulation Offers Relief to Thriving E-Commerce Businesses

Posted on January 30, 2022January 30, 2022 by Web Master

The business of electronic commerce (e-commerce) will see a long-awaited law come into force that will define tax obligations, determine privacy issues and govern agreements with users made online.

The burgeoning online market has been operating in a legal vacuum where contracts with users are not established. Digital signatures were inadmissible in a court of law until Parliament legislated an e-transaction law last year. The law defines e-commerce as the transactions of goods and services through the internet or other information networks. It also established e-commerce platform operators (aggregators) as legal entities that provide two or more e-commerce operators with online sites for business operations, matchmaking, and posting information.

A regulation governing electronic transactions is close to approval after a draft has been forwarded to the Ministry of Justice. It will be tabled before the Council of Ministers soon, disclosed Abiyot Bayou (PhD), director of the Digital Transformation Programme Office at the Ministry of Innovation & Technology. Officials hope the regulation will bring relief for businesses in e-commerce that have had to jump through a slew of bureaucratic hoops. It has been in the making for two years by experts of the Innovation Ministry.

The draft regulation establishes guidelines for e-commerce operators but fails to mention the registration of e-commerce businesses. All entities operating as e-commerce service providers have to undergo business registration as legacy companies. Individuals in informal e-commerce, however, are exempted from business registration but are required to hold a tax identification number (TIN). Farmers offering produces online need not register as a business, according to Abiyot.

Thus far, e-commerce operators have had to register under different subsectors or operate informally.

For Temesgen Gebrehiwot (PhD), founder and managing director of Zmall, an e-commerce service provider and delivery company, the absence of a regulation that defines and governs electronic business has been a significant challenge.

“We’ve had to apply for three or four types of permits to run a single business,” he said.

The regulation allows e-commerce platform operators to provide auxiliary services such as warehousing, logistics, payment, settlement and delivery for intra-platform operators. Expanded internet penetration coupled with affordable access has provided room for e-commerce to thrive. Mobile internet service users have increased by 40pc to over 25 million since 2018. The online sale of electronics, furniture, and clothing has exploded in recent years.

Cepheus Capital, a private equity firm, counted no less than 200 e-commerce and e-classified companies operating in Ethiopia’s digital economy last year.

One of these e-commerce sites is Asbeza, a grocery shopping platform launched two years ago. But it has had to obtain two different permits, according to Bereket Tadesse, a founder and manager of the company. Partnered with seven supermarkets thus far, Asbeza buys and delivers groceries to customers shopping online.

“We thought there would be a regulation to govern e-commerce,” said Bereket. “The closest we could get was a commission permit.”

Other options would require the company to own physical shops.

“We don’t have a store, and we don’t want to own one either,” said Bereket.

The managers of Asbeza also had to register as a delivery company.

The draft regulation requires e-commerce platform operators to present information on the businesses transacting under them, including legal identity and tax information. Platform operators will have to keep transaction data for at least 10 years from each sale. The time was set based on other laws that require financial records to be kept for at least a decade, according to Abiyot.

Other African countries have travelled far ahead in helping e-commerce, and online transactions flourish. Kenya legislated its Electronic Transactions Bill in 2007; and the Information & Communication Bill the following year.

“The lack of regulation has been a bottleneck for us,” said Temsegen.

He observes that the regulation could enhance the e-commerce business, fostering trust between operators and users.

“The government can also better monitor online transactions,” he said.

Yehualshaet Tamiru, adjunct lecturer of law at Addis Abeba University, argues that officials will need to introduce a directive that outlines the licensing procedure for e-commerce operators. Although the commercial code revised last year allows individuals to operate as a business, a lack of lower legislation outlining the registration process has made it virtually inapplicable.

“There are usually legal vacuums in approved laws unless a lower legal document is issued to ensure applicability,” he said.

Simien Mountains National Park Reopens to Sluggish Tourism Industry

Posted on January 30, 2022January 30, 2022 by Web Master

One of Ethiopia’s main tourist attractions began welcoming visitors last week, following two years of inactivity after tourists arrival plummeted due to a pandemic and militarized conflict. Semien Mountains National Park was shut down in March 2020 and briefly reopened last year. It had to close again with the civil war in the north reaching the area late last year.

Located in the North Gonder Zone of the Amhara Regional State, the Park was opened in 1968; it is a UNESCO World Heritage site beginning in 2017. The Semien Mountain’s natural scenery has remained a popular tourist destination over the past five decades, consisting of high plateaus, steep cliffs and deep gorges. The Park is also home to several endemic species, including the Walia Ibex, Ethiopian Wolf and Gelada Baboon, and hosts Ras Dashen, the fourth highest peak in Africa at 4,550 metres.

The Park had witnessed robust growth in visitors and revenues generated in the decade leading to its closure. Over 38,000 sightseers visited two years ago, up from 17,500 a decade earlier. Revenues jumped over eight-fold during this period to 38 million Br. Entrance fees at 90 Br for foreign nationals and 20 Br for locals accounted for nearly a fifth of the total. Fees applied to filmmakers looking to take the Park’s vistas contributed to the growth. Those who take aerial shots are required to pay 20,000 dollars for each day of filming while taking photos and recording films on the ground carries a 9,000 dollar daily fee.

The Park’s reopening is welcome news to around 8,000 people who work as tourist guides, porters, cooks and park scouts in the area. Close to 20,000 households reside along the Park’s periphery.

Aweke Negash, 33, a father of two who depended on his work as a tourist guide, is among them. A farmer in his previous engagement, Aweke joined the tourism industry nearly a decade ago after completing a three-year tourism programme at a vocational school. He then moved to Debark, a town 90Km north of Gonder. Aweke says he was motivated to change, seeing the earning potential as a guide.

“I used to earn as much as 700 Br a day,” he told Fortune.

When the Park closed its doors, Aweke tried his hand at other jobs, including retailing cement. However, the money he generated has not been sufficient to meet his family’s needs.

“The regional government promised to support us,” said Aweke. “We haven’t received any attention at all.”

The civil war raging in the north for over a year has had a negative impact on the Park and the tourism industry. According to official figures, close to 812,000 tourists visited Ethiopia in 2019, generating a reported 3.55 billion dollars. During the first nine months of last year, 331,000 tourists visited, generating a little over 1.5 billion dollars, these figures disclose.

“Many tour guides left the area after the closure,” said Solomon Kidia, chairman of the Tourist Guides Association. “The remaining have been fighting in the war.”

Neither have other tourist attractions in the Amhara Regional State, such as Lalibela and Gonder, also inscribed as World Heritage sites, been immune to the consequences of militarised conflict.

According to Abraham Mareye, director of wildlife development & protection at the Amhara Environment, Forest & Wildlife Development & Protection, reviving tourist attractions in the regional state is crucial to recharging the country’s tourism industry. He disclosed that three protected areas in the regional state sustained damage due to the war: Abune Yoseph and Guassa Menz community conversations and Borena Sayint Sanctuary.

“We’ve reported the damage to regional and federal authorities,” he said.

Federal officials say they have heard the call. A full-scale damage assessment has been conducted, according to Seleshi Girma, a state minister for Tourism. A recovery plan for tourist sites has been prepared, though it is yet to be implemented, he disclosed.

“It’s awaiting approval from the Council of Ministers,” he said.

Very few people have been visiting Semien Mountains National Park since it reopened.

Aweke has decided to wait a few weeks to see if the tourist flow climbs back up. If not, he plans to move to Amba Ras, a town near the Park, and return to working as a farmer.

“It’s better to labour on my farm instead of sitting idle,” he told Fortune.

City Culture Bureau to Give Heritage Status to Properties, Taitu Hotel

Posted on January 30, 2022January 30, 2022 by Web Master

Many properties in Addis Abeba, including Taitu Hotel, are designated to receive certifications establishing their place as values of heritage. City officials will issue the certificates to buildings and structures in the capital in the coming week.

A two-month assessment conducted by experts from the Addis Abeba Culture, Arts & Tourism Bureau, partnering with the Authority for Research & Conservation of Cultural Heritage, identified 127 buildings to be heritage sites. Many of these face threat of demolition due to redevelopment works. The Bureau has registered close to 440 heritage sites, including houses and monuments, since 2012. However, the registration is not much of assurance as many buildings of historical importance have previously been demolished despite being listed in the city’s heritage book.

Two properties previously belonging to Ras Abebe Aregay, a patriot during the Italian occupation, were demolished within a month of one another in 2018. Landmark sites off Churchill Avenue, including an 80-year old structure in the National Theatre neighbourhood, were to be demolished last year, after six years of dispute over the historical value of the properties. The Bego Adragot Building, constructed in the 1930s, was among the structures to be razed to make way for the expansion of the Ethiopia Hotel.

Buffet De La Gare, known for its trendiness in the 1970s and 80s, was bulldozed last week to make way for the La Gare Eagle Hills project under development by an Abu Dhabi-based firm.

Registering properties and buildings as protected heritage sites is not enough to save them from demolition, says Dereje Seyoum, director of cultural heritage research and conservation at the Bureau. The Bureau has been taking cases of historic buildings threatened with demolitions to courts.

“When the Bureau takes cases to court, we’re usually asked to bring evidence that proves a particular property is designated as historical heritage,” Dereje told Fortune. “The certificate can be used as evidence before judges.”

The Bureau is in a series of legal battles against the Federal Housing Corporation, Noah Real Estate and Ethiopian Full Gospel Believers’ Church over the demolition properties marked as historical sites. Close to 80pc of the buildings registered by the Bureau belong to the Federal Housing Corporation. Among the historical buildings designated to receive certificates is a property in front of the newly-built Friendship Park in Kirkos District. It was built in 1898, once owned by Yemtubezenash Habte, a sister of Fitawrari Shimels Habte. It is now under Berhanu Mengistu’s ownership, the fifth generation in the family tree.

The property is undergoing renovation works under the supervision of the Authority.

“The renovation work is needed to integrate the house with the surroundings,” Berhanu told Fortune.

He covers the costs of the undertaking. The one-storey property built from wood and mud has been used as a gallery in the last decade.

Located in Piassa, the oldest hotel is on the list. Established in 1905, Taitu Hotel will receive certification during a ceremony hosted by the Bureau in the coming week.

Yohannes Mekonnen, who lectures on the conservation of architectural and urban heritage sites at Addis Abeba University, believes issuing certificates for heritage sites is not a common practice worldwide.

“The historical sites were demolished because there is a lack of commitment from the government,” he said.

The existing legal framework governing the protection of heritage sites was legislated in 2009.

According to Yohannes, heritage and historic sites are essential for the common good, passing through generations.

“Issuing a certificate to a particular individual or institution doesn’t take this basic principle into account,” he said.

New Players, Old Challenges, Exciting Innovations

Posted on January 30, 2022January 30, 2022 by Web Master

The entry of a new competitor into a market has repeatedly been identified as a critical determinant of a market’s structure and profitability. Entrants may affect existing businesses by taking market share away from them, thus shrinking their share of the profit pie and reducing prices to penetrate the market, intensifying competition among players.

Over the last decade, Ethiopia’s economy has benefited from a favourable economic environment, growing at a rate of around 10pc, albeit with significant inflation rising, above 30pc recently, and with the purchasing power of the Birr against a basket of major currencies falling by three-fold.

Growth in the “real” economy has fuelled the growth of Ethiopia’s banking industry, which has seen a more than 10-fold increase in deposits and outstanding credit on all commercial banks and the state policy bank. Simultaneously, per capita GDP has almost doubled, yet more than half the population is unbanked.

This and other factors have motivated business peoples in Ethiopia to look for a new venture. Ultimately, they found the banking industry lucrative. The central bank’s openness has brought exponential motivation, including the long-awaited full-fledged interest-free banking business. Regardless of political reasons, a logical argument can be made beyond the unbanked population’s inclusion that more competition will improve service quality and ultimately benefit the consumers.

These all sound great theoretically, but the reality on the ground is different and the challenges the management and shareholders of new banks will face cannot be discounted as the banking industry is already experiencing stiff competition. Therefore, unless these new banks get their act together early, shareholders could suffer a significant setback, and some of them could go extinct.

Let us refresh our memory about how banks make a profit. Banks make money primarily in three ways: the spread between deposit and lending rates; the fees they charge for various products and services; and investments on the surplus funds.

This is overly simplified; however, all these modes of earnings potential have been possible to some extent in the past, provided that the demand is growing, banks are well-capitalised and have the proper human resources.

But currently, due to the liquidity strain and stagnant economy, deposit growth from cheap resource bases is diminishing, which forces banks to look for expansion of fixed time deposits with higher interest payments while lending rates remain the same. On the other hand, due to the enduring changes of the National Bank of Ethiopia’s directives, the income from fees and commissions on international banking business is expected to diminish as the ratio of surrender requirements has reversed in the central bank’s favour. Neither will income from surplus profits, mainly by providing fixed time deposits to contenders at a premium, be an ideal business as liquid funds cannot satisfy even individual bank clients’ needs for credit.

Thus, CEOs should focus on innovation to create new revenue streams through market segmentation, new product development, product tailoring and matrix pricing strategy; going digital will also be critical.

Very recently, incumbent banks have focused on customer value propositions and pricing as their primary growth drivers. However, new entrants such as Goh Betoch Bank, Selam Bank, and the interest-free banks are set up to challenge the status quo with innovative services, market segmentation, and lower-priced banking.

Unlike conventional businesses, banking post-2022 will face a new wave of challenges from platform plays, integrating multiple financial and non-financial products and services into one easily accessible ecosystem. The emerging micro and nano credit platforms, which will operate without collateral and offer instant overdraft account facilities to individual clients, will undoubtedly infuse new energy into the playing field. Multiple e-commerce enabling fintech firms, payment instrument issuers, and payment gateway operators will also have a disruptive effect on our country’s banking ecosystem, with which both existing and upcoming banks may share a pie. Hence, the following 12 to 24 months will be critical for market players to position themselves at the epicentre of these new platforms. It remains to be seen whether banks, payment instrument issuers, telecommunications companies, or big tech companies will take the lead in platform development.

Financial institutions with a clear vision that can embrace change will outperform others. The winners will be those that assess their current digital challenger playbook and establish a proactive response.

No less thrilling with the new entrants should be human capital. Banking in Ethiopia could not continue as it has up to now. Senior executives and board directors should clearly understand that the industry is on the way to adapting and resiliently addressing customer expectations about convenience, accessibility, relevance, speed, and price. Moreover, Ethiopia is also on the verge of commencing a capital market. Specialised services like interest-free banking have been commenced on a full-fledged basis and are expected to bring about more businesses. At the same time, shareholders’ expectations remain the same.

The digital disruption is expected to significantly lower transaction fees and processing time, as interoperability is becoming the fashion now, requiring highly adaptable human capital. In light of this, the priority for a CEO of a new bank should be to recruit a team composed of competent and agile personalities or investing in human capital development and continuing strategy. This is for the reason that the banking industry is highly characterised by recruiting based on relationships and recommendations instead of objective requirements, past performance, and current capability.

I guess every executive requires subordinates to be diligent, result-oriented, team players, and value-adding, as the collective result will define the fate of the organization and the individuals in charge at any time. Quest for professional development, agility, technology utilisation, customer service are the most daring priorities as the dilemma between current realities and upcoming challenges should be high on the to-do list of every CEO.

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Month: January 2022

Adopt an Agile Digital Banking Platform Improve Innovation, Create New Value and Increase Profitability

Some of these global trends include:

Local Trends and Requirements

Identify New Markets to Juggle and Drive New Value

New Data Identifies New Markets That Drives Differentiating Value – and Profitability

Innovation Requires Banks to Look Beyond Traditional Customer Segments

Digital Banking Platforms Designed to Support New and Old Markets

Select a Digital Banking Partner Who Shares Your Innovation Vision and Supports New Value Creation

Key Capabilities of a Digital Banking Platform

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COVID UPDATE

Some of these global trends include:

Local Trends and Requirements

Identify New Markets to Juggle and Drive New Value

New Data Identifies New Markets That Drives Differentiating Value – and Profitability

Innovation Requires Banks to Look Beyond Traditional Customer Segments

Digital Banking Platforms Designed to Support New and Old Markets

Select a Digital Banking Partner Who Shares Your Innovation Vision and Supports New Value Creation

Key Capabilities of a Digital Banking Platform

Drop us a message

COVID UPDATE

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