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Month: February 2022

TIME FOR ANSWERS!

Posted on by Web Master

For the first time since Prime Minister Abiy Ahmed (PhD) was sworn in for a five-year term in office, he was back in Parliament early last week to answer questions from MPs. The period in between had been marked by one of the most consequential, if not disconcerting, episodes in the civil war, death, suffering, runaway inflation, drought and massive displacements. It was followed by a moment of respite with a semblance of calm. The Diaspora homecoming campaign and the African Union summit helped give a sense of normalcy, albeit precarious. Parliamentarians’ questions to the Prime Minister on Tuesday, February 22, 2022, reflected these.

The Prime Minister conceded that the economy had been impacted by a convergence of events, from the war in the north to COVID-19 and the drought in the south and eastern parts of the country. With over 18 million people receiving at least one dose of the vaccine, the pandemic seems to be receding. However, the drought has devastated livelihoods in the mostly pastoralist areas where it is occurring, though assistance is ramping up, including the World Bank’s 64 million dollars in emergency assistance to the Somali Regional State. The civil war is another matter as it continues to see the many, and the humanitarian impact worsens. But the Prime Minister did not rule out a negotiated settlement with his arch-enemies.

“True triumph necessitates victory in peace,” he told parliamentarians.

Prime Minister Abiy was exuberant in his view of the prospect of the economy; he told MPs it would see better days than what has transpired over the past year. Neither the Prime Minister nor his senior macroeconomic advisors have addressed the issue of the source of growth. Where does growth come from? What will drive the growth in GDP they projected? This year, the budget deficit is forecasted to reach four percent of the GDP, partly due to the 122 billion Br supplementary budget approved last month. The government is in a desperate battle to close the gap using treasury bills in the bond market to avoid printing money. Pundits see it as unavoidable. The foreign currency crisis also continues unabated, with the import bill for essential items such as fuel, fertiliser and wheat doubling. The most worrying macroeconomic indicator is inflation. At 34.5pc last month, it led to a rise in the cost of living not seen in about a decade. The possibility of deficit financing as a cause was sidestepped, instead blaming hoarding, COVID-19 and poor supply chains.

GERD Remains a Monument for Cooperation, Solidarity!

Posted on by Web Master

A little over a decade ago next April, Meles Zenawi gave one of his indelible speeches from the little known valley of Guba in the Benishangul Gumuz Regional State. His administration connived with an Italian construction firm, Salini, to keep what was unfolding in location 20Km away from the Sudanese border away from public knowledge as long as it could have. The late Prime Minister was worried premature disclosure would create undue expectations and alarm adversaries such as Egypt to undermine the project before it took off.

His speech made these concerns evident when launching the Grand Ethiopian Renaissance Dam (GERD) in April 2011. Nowhere in his remarks the acronym GERD can be found as the dam’s inceptive name was the Ethiopian Millennium Dam (EMD). Meles’ messages were two: after centuries of ambition and active planning since Emperor Hailesellasie, the time had come for Ethiopia to demonstrate its capability to erect the largest dam in the continent it wholly pays for. But this should not come at the expense and in a complete disregard to the concerns of the downstream countries and the impact it would create on them. He declared all but malice to Sudan or Egypt.

The launching of the dam’s construction had galvanised the whole country in a way no other event had ever done, bar a few fringe groups in the Diaspora. Ever since, GERD has been seen as a symbol of pride and collective determination to see it through. It was projected to be completed five years ago to generate over 5,700mw power from the 15 turbines to be installed. Almost 11 years later, belatedly and with a considerable cost run, the first turbine roared last week, generating power.

It was a milestone event. The single turbine has an installed capacity to generate power over twice that of Gilgel Gibe I and more than Tekeze’s 300mw. The overall capacity of the GERD will double electricity generation when the project is completed two years later as planned.

The GERD has begun feeding into the national grid but less than the full capability of the first turbine. It also does not mean that power outages will go away anytime soon as they are caused partly due to aged transmission lines, particularly in Addis Abeba. But, eventually, having already consumed around five billion dollars, GERD will need to prove its worth. The plan is to meet domestic electricity demand and export energy to neighbouring countries to generate no less than one billion dollars annually. The dam will also transform the Benishangul-Gumuz Regional State as it will create an artificial lake twice the size of Lake Tana once the reservoir is full.

The significance of the dam could be beyond its potential in energy production and its impact on the environment and the ecology. It is also symbolic. GERD is bound to have lessons from its financing to geopolitical consequence when striving for a better future; the benefit from cooperation far outweighs the loss from confrontation. A country that has come to terms with itself, and achieves a stable state, can do wonders.

There is hardly any issue most people of various creeds and political persuasions would agree on in as much as they do with the importance of the GERD and Ethiopia’s right to equitable use of the water resources of the Nile. Take two political figures on the farthest side of the spectrum, Jawar Mohammed and Eskinder Nega. Before they were jailed in 2020, one of their last tweets was made to defend the country’s right over the dam from interference. If anything, the muckraking is about who betrayed the promises of the dam. It has served as a rallying cry in a country that desperately needs to rally for a shared cause.

Consistency has also been critical. It is one of the few projects that had been given significance across various regimes and administrations over the decades, ensuring it would one day translate from a dream. Its conception dates back to the reign of Emperor Haile Selassie when surveys were conducted, and the location was identified. It might have been locked in a dusted shelve dubbed “Project X”. The ambition might have been to generate as much as 2,000mw power. But it became a fully-fledged project when the construction commenced in 2011 with a turnkey contract awarded to Salini Impregilo. The country had embraced the slogan, “We Build!”

Among the figures from that decade blessed to take a photo-op with Prime Minister Abiy Ahmed (PhD) last week were Mulatu Teshome (PhD), Hailemariam Desalegn, former president and prime minister, respectively, and Girma Birru, chief economic advisor to the Prime Minister, who was then a trade minister. It shows an inter-generational effort that could be used to emphasise that progress is not built in a fortnight. Overcoming poverty, building institutions and forging social cohesion need time and effort to realise.

A project of this size cannot be without its challenges, though. It starts from its undue and unwarranted politicisation, which has threatened to erase the significance of the GERD for shared growth. It will be to undo the symbolic purpose of the dam to claim singular credit for a project that could have only been possible through a collectively concerted effort.

No less worthy of consideration is the poor and non-transparent project implementation at different stages that have delayed the dam and went over budget. The initial project calendar is almost silly in retrospect. Early power generation was planned to start in 2014, and the GERD was to be completed three years later. Megaprojects are almost always prone to delays anywhere in the world. It could be impossible to consider every factor when planning and implementing a multi-billion dollar project, but a four-fold delay in power generation is an indictment of federal agencies’ incapacity to follow up and deliver.

The current administration, and others that come after it, should also consider the consequence of personalising foreign policy over sensitive geopolitical issues such as the GERD. An ill-advised decision to bring third parties (the United States and the World Bank) into the tripartite negotiations with Sudan and Egypt may have derailed initial momentum in shaking off undue pressure. Career diplomats, who keep getting sidelined, would have not likely walked into such a mousetrap.

It does not mean that Sudan and Egypt matter no longer now that GERD has begun generating power. More than ever before, it is essential to reach a deal with these countries that is fair to all to reduce regional tension. The hardest part would be to agree on how much volume of water to release, especially during times of drought and prolonged drought. It is one of the few points of divergence where the talk remains stalled. However, the ideal deal would be to agree on water sharing with all the Nile Basin countries. A separate deal with Sudan and Egypt regardless of the volume of water Ethiopia would agree to release based on Egypt’s requirements, would be undermining the Nile Basin Cooperative Framework Agreement (CFA) initiated in 1999 by nine countries.

Meles’ call to turn a new “page of cooperation and solidarity remains valid a decade later. He declared: “Let it be known to all that it [GERD] will stand as an expression of our commitment to the benefit of all the countries of the Nile Basin.”

The Tumultuous Saga of Low-cost Housing

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At the end of a long workday last week, Yohannes Zenebe wanted to take a shower. He had spent hours lifting cargo at a customs warehouse in Addis Abeba Bole International Airport, employed by a local logistics firm as a porter.

Yohannes was at his parent’s house near Menelik II Hospital, where he stops by a few times a week on his way home. His parents share public housing in a compound with nearly a dozen other households. It is one of the heavily subsidised kebele-owned dwellings nationalised after the revolution in the mid-1970s. The families residing there share a tap, depending on its water for washing clothes, cooking, and cleaning. Taking a bath in a standard shower at home is a luxury.

The 11 kebele-owned houses in the compound, each no larger than 40sqm and accommodating two to five occupants, are all made of mud. They represent a defining feature of Addis Abeba for decades as unplanned and informal settlements. None has a room for a shower. Only two communal latrines serve the 40 or so people living there, such as Yohannes’ family. This is far from an isolated case for the neighbourhood. A survey Habitat for Humanity conducted estimates that 73pc of Ethiopians do not have access to safe drinking water, and 90pc have no access to sanitation facilities.

Close to 60pc of the 136,330 dwellings in Addis Abeba were dilapidated and needed upgrading or demolishing, finds a study by Sascha Delz, presented to a conference in Zurich in 2016. No less than 34pc of the houses built in the city that prides itself as a diplomatic and political capital of Africa in the seven years from 1996 were informal dwellings, known as Chereka Be’t in the local parlance, dotting its outskirts.

Yohannes was born and raised in a dwelling with no separate running water and toilet. He lived his life there through adulthood until he moved out last year after getting married. He and his wife initially found a room they had rented for 4,000 Br a month in the same neighbourhood. Under the kebele administrations, these are informal but legal properties providing shelter to 40pc of the city’s population, covering 11pc of Addis Abeba’s 54,000hct.

Despite the steep rent, Yohannes thought urban life was manageable. He nets a little over 5,000 Br a month, including gratuity from customers. His wife contributed to their expenses, running a small eatery. However, she took a break from work due to pregnancy. Two months ago, she gave birth to twins.

With little in the way of options to support a family of four with his salary, Yohannes was relieved when his in-laws offered them a room in their home at no cost.

“We surely couldn’t afford to live had we kept renting, especially with the two infants at home,” he told Fortune.

Deprived of basic provisions, life remains precarious for millions of residents. Yohannes had high hopes toiling life in a single room would have been over having his enrolment in a state-run housing scheme panned out. He had signed up for the Addis Abeba City Administration’s low-cost housing scheme in 2013, one of 700,000 who had hoped to benefit from the program popularly referred to as “20/80”. Beneficiaries make a 20pc downpayment, and the state-owned bank provides loans to pay for the balance in a long term mortgage.

It was a signature policy of the EPRDF government to provide housing to the low-income segment of the city’s ever-growing population. The centre-left approach of governance they upheld in the early 2000s led them to believe the housing scheme could help transfer wealth from the expanding middle-class to the low-income group. It was thought the massive projects of erecting 150,000 units in 54 towns would create business for 10,000 micro and small enterprises and jobs for 200,000 people. The scheme was hailed as a “pro-poor” policy for the largest public housing project in sub-Saharan Africa.

It began in the late 1990s after the federal government partnered with the German technical cooperation, GIZ, to experiment with the construction of low-cost dwellings. A pilot project was launched in the Gerji area; the condos there remain a source of envy for many for their better quality in the building materials used and quality construction. It was important enough for the government that Prime Minister Meles Zenawi inaugurated these units in the mid-2000s.

The federal government sought with the Integrated Housing Development Project (IHDP) the provision of land for free and made selected applicants (through raffle) pay for the cost of construction, whose material cost was substantially subsidised by the state. The subsequent years saw the construction of 175,000 units in Addis Abeba scattered all over the city, thereby changing the city’s urban character.

Officials had registered around 300,000 people in the first round; another round eight years later brought the figure close to one million. Applicants were given three options – 10/90, 20/80, and 40/60 – based on the downpayment they were expected to make upon signing up. The balance was to be paid off through bank loans in 20 years. The bank takes 7.5pc in interest on the mortgage, half the market rate, but also offer a 5.5pc interest on their savings, 0.5 percentage point above the threshold rate on deposit.

The price of a three-bedroom unit at one of the condos was around 27,000 Br a square metre when the second round kicked off in 2013. In comparison, private real estate firms charge as much as 60,000 Br a square metre for a three-bedroom house at present.

Those who have saved but are unable to get their flats feel trapped. They are in a constant dilemma seeing their savings eaten up by runaway inflation and hope against hope that the city administration eventually would deliver the condos.

Yohannes was one of these who had been saving 300 Br a month in the hopes of landing a two-bedroom condominium unit in seven years, as city officials had promised. Nine years later, there was no sign of this working out. He had to spend most of what he had saved when he got married.

“I’m afraid my kids may go through the same troubles with housing,” he said.

His fears are anything but unfounded. Only a fraction of the registered has moved into these units thus far. The City Administration’s housing scheme has been moving at a snail’s pace since first introduced in 2006. Construction costs ballooned; hence the price of units skyrocketed from 76,615 Br initially projected.

The Addis Abeba Housing Development & Administration Bureau, under Yasmin Wohabrebbi, a former state minister for Finance, is tasked with constructing the condos and administering them through the Addis Abeba Housing Development Corporation. Budgeted with a 1.9 billion Br this year, the Corporation has over 139,000 units on hand, with 59,000 of them having already been allocated to homeowners. Close to 73pc of these have been handed over, city officials claim.

In the scheme’s early days, the Corporation would transfer the units to homeowners upon completing construction. However, financial troubles have led it to hand over unfinished housing. A visit to any inner city’s condominium sites meant for middle-class buyers makes the paralysis obvious.

Hintsa Akirabi, a condominium site in the Gerji area, is one of these projects launched in 2013 under the “Addis Ababa Grand Housing Program”. It was meant to address the overwhelming housing backlog, estimated at 300,000 units, and replace half the kebele houses.

The yellowish buildings in the Gerji area have eight blocs of 14-storey structures in neat rows, comprising over 1,100 units. Last March, they were transferred to homeowners following a raffle held three years ago. There is barely anyone residing there as owners or tenants have yet to move in. The roads that criss-cross the site are littered with rubble from homeowners’ attempts to refurbish their units to meet basic standards.

The scene in Ehil Nigid’s site around Megenagna, comprising six blocs and 790 units, was no different. Homeowners received keys about the same time their counterparts in Gerji did, but only a few have moved in since. The majority are busy with finishing works to bring the flats to livable conditions. Not far from Ehil Nigid is another site, “Tourist Site.” The Bureau has been readying to transfer keys of more than 1,900 units to homeowners. Here too, finishing works remain lacking.

The Corporation’s officials concede a dearth in financing has forced them to transfer the units unfinished, leaving homeowners to share the burden. Infrastructure like sanitary and water services, electricity, and roads are incomplete at most sites. The blame for this does not rest on the Corporation’s shoulders alone, argues Gashaw Tefera, communications director.

“Its responsibility is to build the units,” he told Fortune. “Other agencies are responsible for providing infrastructure such as water and electricity.”

Others point fingers at aspiring homeowners’ default to make the initial payments following the raffles for the delays and unfinished housing.

“We’ve seen how big of a disruption drawing the lottery before completing the units has caused,” said Yasmin.

The state-owned Commercial Bank of Ethiopia’s (CBE) reluctance to provide financing for the housing scheme brought the delay. When the low-cost housing project was launched 17 years ago, the CBE provided finance for constructing units across the country. Three years ago, it ceased funding for all sites but the capital. Nonetheless, projects in the capital are not receiving adequate financing. The Bureau had planned on receiving loans of over 38 billion Br in corporate bonds this year. Only 3.3 billion Br has been availed thus far, Yasmin disclosed. She has requested an additional 5.4 billion Br to finish the remaining 80,000 units.

The CBE has reasons for its reluctance to provide additional financing, disclosed Muluneh Aboye, vice president of credit management. Several billions of Birr in loans advanced to homeowners have yet to be recovered by the bank, showing badly in its balance sheet. The City Administration owes it 54 billion Br in debt disbursed thus far. These loans are three-year bonds, during which time the units were supposed to have been transferred to the homeowners and repayments begun.

Long delays have meant most of these  debts are still outstanding, although the federal government guarantees them.

“The inefficiency affects not only the homeowners but also the Bank,” said Muluneh.

Executives of the Corporation try to ease the financial burden by auctioning off ground floors of the condominium buildings to businesses on lease terms. Last year, 149 shops at eight sites in Addis Abeba were awarded. Debub Global Bank made the highest offer of 151,000 Br a square metre for a shop at the Ehil Nigid site. Over 1,500 shops were up for bids a month ago, but the process was cut short after bidders lodged complaints to the City Administration, alleging corruption.

The Federal Police got involved, and the ensuing investigation led to the arrest of seven committee members in charge of the auction. Under custody for a month, the individuals have since been released and allowed to return to their jobs, though the case remains pending.

The financial constraints have also been tough on the individuals and businesses involved in the construction works. They face a range of problems, including delayed payments and vandalism.

Tariku Yitayal & Friends, an enterprise of five, was formed under the Akaki Qality District four years ago. Its members underwent training for metal works and were provided contracts by the Corporation following commendations from district officials. One of the 159 contractors, they supply doors, windows and rooftops for seven unfinished condominium blocs in Bole Arabsa. In the eastern outskirts of the capital, past the upscale neighbourhood of Ayat, Bole Arabsa is of the largest sites, comprising over 45,000 units, second to the Koye Fitchie site.

Tariku Yitayal & Friends was to be paid around half a million Birr for each bloc, depending on size, to install an average of 128 doors. However, none of the doors installed have had keys, leaving the work incomplete. Less than 10 of the more than 100 unfinished blocs have locks installed. Part of the payment is withheld until the enterprise completes the job, although the Corporation is responsible for providing the locks and keys.

Tariku and his partners have been visiting the Corporation’s head office since last April to collect 700,000 Br in outstanding payments. They have not had any luck thus far.

“We couldn’t pay our taxes last year,” said Tariku.

The situation has also encouraged vandalism and theft at the site. Tariku saw two dozen doors were stolen from the blocs he works on. Officials at the Bureau are aware crimes are taking place.

“Some theft is observed at the sites due to the problems with finalising the projects in time,” Yasmin confirms.

The troubles can all be traced back to the government’s insistence to be the foremost player in the housing scheme from the very beginning, says Imam Mahmoud, chair of the housing department at the Ethiopian Institute of Architecture, Building Construction & City Development. He blames the government’s limited capacity to execute massive procurement, supervision, and testing projects at housing development offices.

“The private sector had to be involved heavily,” he said. “The government can’t provide solutions for problems of such magnitude on its own.”

City officials seem to have had similar views when they introduced a new model for affordable housing last year. They called on people willing and able to build housing independently by forming cooperatives, while the City Administration provides land.

“We had to compromise and come up with other plans,” said Yasmin

Over 12,000 people signed up online last year, ready to finance construction with their funds or through bank loans. However, nearly a year passed before any of them received any updates. Last week, the Bureau called on them to report to their respective wereda offices, where the cooperatives would officially be formed.

“Even though a little bit late, some works like identification of sites have been completed,” Yasmin told Fortune.

She declined to disclose the land size to be apportioned and where the constructions would occur.

Imam applauds the initiative to bring individuals into the process but questions the effectiveness of the new model. The scheme requires the registered individuals and cooperatives to cover over half of the total cost in advance.

“This defeats the project’s goal in providing housing to those unable to do so on their own,” Imam said. “It was supposed to work for the poor; it doesn’t.”

What comes next in the tumultuous saga of low-cost housing in the capital is almost certainly not going to work, favouring Yohannes and the hundreds of thousands in the low-income group waiting with so much hope. Having lost faith in the scheme, Yohannes plans to build an attic-like residence, known in Amharic as “Qot”, atop his parents’ house. He believes the government’s promise was made never to come.Over 12,000 people signed up online last year, ready to finance construction with their funds or through bank loans. However, nearly a year passed before any of them received any updates. Last week, the Bureau called on them to report to their respective wereda offices, where the cooperatives would officially be formed.

“Even though a little bit late, some works like identification of sites have been completed,” Yasmin told Fortune.

She declined to disclose the land size to be apportioned and where the constructions would occur.

Imam applauds the initiative to bring individuals into the process but questions the effectiveness of the new model. The scheme requires the registered individuals and cooperatives to cover over half of the total cost in advance.

“This defeats the project’s goal in providing housing to those unable to do so on their own,” Imam said. “It was supposed to work for the poor; it doesn’t.”

What comes next in the tumultuous saga of low-cost housing in the capital is almost certainly not going to work, favouring Yohannes and the hundreds of thousands in the low-income group waiting with so much hope. Having lost faith in the scheme, Yohannes plans to build an attic-like residence, known in Amharic as “Qot”, atop his parents’ house. He believes the government’s promise was made never to come.

Sesame Second Cash Crop to Receive ECX’s Special Attention

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The Ethiopian Commodity Exchange (ECX) is introducing a special trading window for sesame to ease supply shortages facing exporters of the oilseed. To open in the coming days, the window will trade once a week.

This marks the second time the ECX has opened a window for agro-processors. Two years ago, the Exchange established a window to allow exporters and processors of soybean to get the legume from the central market.

The sesame trade has been rocked by the militarized conflict in the country’s north, particularly in the Amhara and Tigray regional states, which account for 90pc of total sesame production. The war has exacerbated a decline in revenues from sesame exports, dropping by almost 115 million dollars last year from 450 million dollars five years ago. Sesame was the second-most valuable agricultural commodity next to coffee, earning the country the highest export revenues.

Industry players attribute the dwindling earnings to price volatility in the global market, currency fluctuations and a fall in productivity, the latter due to the ongoing war.

Two years ago, 309,000 smallholder farmers harvested 3.6 million quintals of sesame cultivated on 369,000hct of land, mainly in the western regions of Tigray Regional State, including Humera and Welqayit, and in central and west Gonder of the Amhara Regional State. The war has had a devastating effect on agricultural productivity, although data from the Tigray Regional State is hard to come by. However, the Amhara Regional State officials say the fighting has left close to 300,000hct of land unploughed this year.

Unable to source a sufficient volume of sesame from the ECX, the managers of a few agro-processing companies approached the Ministry of Trade & Regional Integration for redress. The Ministry recommended the Exchange allows select agro-processors to transact on its floors through a special window, according to Wondimagegnehu Negera, chief executive officer (CEO) of the ECX.

“We’ve been preparing for the last three months,” Wondimagegnehu told Fortune.

Three exporters and agro-processors have already been selected. The Trade Ministry is responsible for regulating the volume of sesame they can buy from the ECX trading floor.

Incorporated in 2008 with an initial capital of 30 million Br, Oliva Agro-Industry Plc is among the agro-processors granted the permit. The company ships organic and conventional hulled sesame to high-value markets abroad, including the United States and Europe. Oliva had been sourcing 15,000qtl  of the oilseed annually from Humera through contract farming.

Humera is a hub of sesame production, known for its high-quality, aromatic, white seed in high demand in international markets for its suitability for baking. Farmers in the area produce up to 150,000qtl annually.

Oliva Agro-Industry processes the oilseeds at its hulling and roasting plant in Burayu town, Oromia Regional State, in the outskirts of Addis Abeba. Disruptions to the sesame value chain had forced the company to buy the commodity from the ECX through intermediaries. However, the supply remains far from meeting demands.

Last year, the company secured a deal with a US-based buyer to supply 43 containers of hulled sesame. A tonne of hulled sesame seeds can be sold for 2,200 dollars, 55pc higher than the price of the raw product. A container can accommodate 19tn of the oilseed.

However, Oliva has struggled to keep up its end of the deal.

“We’ve only managed to send eight containers of hulled sesame,” says Capital Atmoisa, CEO of the company. “We’re forced to renegotiate with the buyers since the deal expired last September.”

The ordeal has had a “profound” effect on the company’s profitability and reputation, says the CEO.

VitaBite Nutrition Plc, incorporated in 2015, and KROTAJ Tahini Manufacturers Plc are the other two allowed to trade using the window.

KROTAJ was incorporated as a joint venture between K. Mikedem of Ethiopia, RENEW Investment Strategies LLC of the US, and the Israeli firm J & O, in 2018, with 4.5 million dollars in capital. It exports tahini, a condiment made from toasted hulled sesame, and processes the oilseed at its plant in the Haile Garment area of Nifas Silk Laphto District.

These agro-processors can trade through the special window in market centres in Addis Abeba, Hawassa, Neqemte, Gonder, Jimma, and Adama.

Daniel Alemayehu, a former lecturer on food processing technology at Haromaya University for 11 years, emphasises that value addition is crucial to improving export revenues from oilseeds and other agricultural products. But, much needs to be done to substitute imported food items by producing locally, according to Daniel.

Bereket Meseret, trading operations manager at the ECX, hopes to see the agro-processors substitute imported food items in the long run.

Daniel, however, warns the task will be challenging to accomplish without weening the agricultural sector off subsistence and rain-fed farming practices.

“Farmers with relatively small holdings can’t produce a surplus to satisfy the demands of agro-processors,” he said.

Ten agro-processors were permitted to buy soybean from the special window last year. The number has doubled since, though it is far below the window’s capacity to accommodate up to 200 buyers at a time. Close to 48,000tn of soybean worth 1.2 billion Br was traded through ECX.

Half of the volume was facilitated through the special trading window, which shows that the undertaking can be successful, according to Bereket. He disclosed that the ECX will up the number of days the sesame window is open after evaluating the performance of the three agro-processors. Last year, the ECX facilitated the trading of over 614,000tn of agricultural commodities worth 39.6 billion Br.

Tax Burden Pushes Liquor Bottlers Over the Edge

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Liquor bottlers continue to face declining sales and dwindling volume due to a high excise tax rate, a survey submitted to the Ministry of Finance revealed.

Experts at the Ethiopian Food, Beverages & Pharmaceutical Industry Development Institute surveyed the worrying performance of eight liquor bottlers after managers of the bottlers had requested the study be conducted in May last year. The excise tax regulation was amended in February 2020, imposing a 60pc tax on items used as inputs to produce liquors. An additional 80pc was set on the final product.

Bottlers complain they have been subjected to double taxation and urged officials to reconsider the excise tax imposed on the liquor industry.

The industry comprises three categories of bottlers. Larger firms buy rectified alcohol (molasses) to produce alcohol and liquor. Others distil the alcohol to make liquor, and the others buy the liquor to blend with flavouring. Close to 30 companies are bottling spirits like gin, vodka and cognac, though the industry is dominated by large bottlers such as the National Alcohol & Liquor Factory. It produced 14 million litres of liquor last year.

The study finds that industry leaders are alarmed by a rise in unregistered products, disruption of the value chain, and competition from imported liquors. Rising prices of rectified alcohol from sugar plants since the pandemic is another headache for the industry. A litre of the input was sold for around 16 Br before the COVID-19 pandemic. During the pandemic’s early days, a severe shortage pushed prices nearly 10-fold, though it has since fallen to about 110 Br a litre.

This remains too expensive, says Wengelawit Sine, finance manager for Meskerem Liquor Factory, in business for over two decades.

Combined with a significant fall in sales, the company has scaled back production since the revised excise tax rate from nearly one million litres of liquor. It now produces less than 10pc.

“It’s even less now,” says Wengelawit. “We remain open only to keep the company from closing.”

Neither have industry giants been spared. The revised excise tax has had a big impact on all players, according to Sahle Halefom, domestic sales team leader at the National Alcohol & Liquor Factory.

“We’re not growing in sales as we had wanted,” Sahle told Fortune.

A state-owned company, the National Alcohol & Liquor Factory, has not adjusted its factory-gate price, further diminishing profit margins. It has thus far paid half a billion Birr in excise and value-added tax (VAT), five times more than what was paid two years ago.

The eight bottlers included in the study produced a combined 27.5 million litres of liquor two years ago. Production has plummeted by 40pc in a year. Smaller companies with lower production capacity were the most affected, facing an average of 52pc decline in productivity. The bigger bottlers endured a 36pc drop.

As consumers shoulder the excise tax imposed on end products, it has affected sales too, the survey discovered. Five of the companies in the survey reported a 36pc drop in sales from 1.7 billion Br two years ago. The annual turnover of smaller bottlers has fallen by an average of 68pc.

The survey revealed that skyrocketing prices for liquor are pushing consumers away, leaving bottlers at risk of bankruptcy. A tremendous reduction of the labour force in the liquor industry, estimated to provide direct and indirect job opportunities for around 10,000 people, is underway. The eight companies have trimmed their workforce by 45pc to 407 employees. Experts say the larger bottlers have seen 67pc reductions in the workforce.

Meskerem Liquor has laid-off over 40 of its 70 employees in the past two years.

The regulation subjects all products from bottlers to excise tax, subjecting them to pay excise tax on products that have yet to be sold. This led to the stocking of products at warehouses.

The industry’s only uptick was on the export front. Over the last six months, export earnings showed a 32pc increase to reach 1.5 million dollars.

Addis Sewnet, a researcher at the Institute’s beverage department, argues the excise tax should not be imposed on inputs. The survey he participated in proposed that excise tax should not be a blanket applying to all bottlers and products. It urged the Ministry to reduce the tax rate to 10pc and set payments following the completion of sales.

Others question the motive behind high taxes on the liquor industry. They claim it is driven by a social policy to subdue the industry’s growth by imposing “sin-tax”.

Abat Abebe, a tax expert and general manager of MilAbi Trading Plc, believes policymakers have targeted the industry to discourage alcohol consumption. He says the falling employment in the liquor industry should be weighed against job opportunities created with the additional income the government collects through the excise tax.

National Cement Hopes Invasive Plant Delivers Factory from Expensive Coal

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Executives of National Cement are moving forward with a plan to use an invasive species of weed to partially replace coal at its plant in Dire Dawa, 515Km east of Addis Abeba,

Native to the Americas and the Caribbean, Prosopis juliflora was introduced to Ethiopia in the 1980s, following a severe drought in the previous decade. The invasive plant has proliferated since, covering an estimated two million hectares (10pc), mostly in arid and semi-arid areas of the country. Growing to 12m high, the plant covers nearly 22pc of the Afar Regional State’s landmass.

East Africa Mining Corporation, a sister company of National Cement under East Africa Holdings, has been experimenting with the idea of converting Prosopis juliflora into biomass since 2015. In collaboration with the former Ministry of Industry, the company conducted a study on the feasibility of using the plant as a source of energy for cement plants. The study found one kilogramme of the weed stem can produce up to 4,000 calories of energy, 12pc higher than the power generated from a kilo of locally-produced coal.

The 19 operational cement factories require 4,600tn of coal a day. They have a combined annual production of 18 million tonnes of cement at full capacity.

Another study conducted by the Chemical & Construction Inputs Industry Development Institute six years ago has arrived at similar conclusions. Initially, its officials intended to pilot the biomass project at National Cement and Messebo Cement Factory in Tigray Regional State. Messebo had conducted a study on biomass as an energy source in 2014. It had invested 109 million Br to erect a biomass energy processing plant, converting sesame hay to biomass.

National Cement was chosen as the second candidate because it has conducted a certain level of research in the field, according to Samuel Halala, director-general of the Institute. Its plant has an installed production capacity of 4,500tn a day and consumes around 120,000tn of coal annually.

The Institute has temporarily suspended the trial at Messebo, whose plant is in the outskirts of Meqelle, the seat of the regional state under the control of armed forces fighting the federal government.

The Institute has acquired a biomass harvesting machine for 3.2 million euros, with financial support from the European Union’s Climate Resilient Green Economy (CRGE). The 33 million euro programme emphasises economic growth resilient to climate change without increasing carbon emissions. The Prosopis project was selected as one of three beneficiaries three years ago.

The all-in-one machine supplied by the German-based firm, PRINOTH, can produce 160tn of biomass daily. PRINOTH has delivered similar machinery to countries like Namibia and Cuba. The harvested weed is transported to warehouses to be baled and packed.

Samuel disclosed that the Institute, which has been providing consultancy, training, and research services to support the operation of cement plants, will avail the machinery to National Cement at no cost.

“It’s already reached at the Port of Djibouti,” he told Fortune.

National Cement has bought a biomass feeding system at the cost of 600,000 dollars.

“In the first phase, the factory plans to replace up to half of its annual coal consumption with biomass,” said Fitsum N. Demissie, CEO of East Africa Trading House and board member of the Ethiopian Cement Manufacturers Association, representing National Cement.

Replacing imported coal has been the focus of Prime Minister Abiy Ahmed’s (PhD) administration. Two months ago, the federal government granted concessions to eight companies involved in coal extraction, including East Africa Mining. With a combined registered capital of six billion Birr, the companies are expected to start operations by the end of this year and fully substitute the coal imported by cement companies next year.

The Prime Minister told Parliament last week the country has thus far managed to substitute nearly 80pc of imported coal, shipped in mainly from South Africa. The import bill for coal stood at 275 million dollars last year.

“When the eight large-scale companies begin production, the country will substitute imported coal completely,” said Prime Minister Abiy.

Around 4,000hct of land in the Afar and Somali regional states has been prepared for the production and packaging of biomass from the plant, disclosed Gezahegn Hamza, general manager of East Africa Mining, a subsidiary of East Africa Holdings, mainly owned by Buzuayehu Tadelle.

National Cement SC was reincorporated in 2005 after East Africa Group Plc acquired 80pc of Dire Dawa Cement Factory. First established during the Italian occupation, the plant had a daily production capacity of 500tn before the government fully privatised it in the early 2010s.

The mining company has been granted a concession to produce 360,000tn of coal annually in the South-West Regional State, with plans to invest 731 million Br over the coming decade, according to the General Manager.

“The coal production and biomass projects go together,” said Gezahegne.

“The goal is to substitute coal consumption with biomass,” said Gezahegn. “National Cement will keep sourcing coal from East Africa Mining.”

Experts like Tigabu Atalo, an independent power consultant with over a decade of experience, say biomass is among the ideal options for environment-friendly energy sources. Samuel says there is a sufficient supply of the invasive plant to produce adequate biomass for the next 50 years. He raises, however, doubts over the sustainability of Prosopis to power cement plants.

Agricultural experts warn that converting the entire plant might not be a good idea.

“The plant plays beneficial roles in the ecosystem of semi-arid areas such as reducing soil erosion,” said Ayele Akuma, a soil scientist who teaches at Haromaya University. “It was introduced to reduce the effects of drought; there needs to be an alternative before its overuse.”

In the Afar and Somali regions, the plant has also become a primary feed source for goats, camels and donkeys in dry seasons.

Fed Doubles Down on Domestic Debt Financing, External Lending Remains Languid

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The federal government continues to rely heavily on domestic sources to finance a growing budget deficit, under pressure from decreasing disbursement in external loans. Over the first half of the year, outstanding debt secured through the sale of the central bank’s treasury bills (T-bills) shot up 110pc to 253 billion Br.

Funds raised from T-bills have grown over five-fold after Prime Minister Abiy Ahmed’s (PhD) administration adopted a policy measure to tie T-bill auctions to market forces in late 2019. The administration has since been using T-bills to substitute direct lending from the central bank to address its budget deficit, which had hit 123 billion Br by the end of the last financial year. Cepheus Capital, a private equity firm, projected the budget deficit to reach four percent of the GDP, the highest since 2005.

Many countries have economies operating under fiscal deficits. The longer these deficits sustain and the higher their share to the size of the national economy, they spell trouble. Budget deficits crowd out private borrowing, undermine net exports, abuse capital structures and interest rates, and lead governments to impose higher taxes, higher inflation or both. How policymakers choose to finance the deficit tells on their convictions and priorities.

Prime Minister Abiy’s administration wants to raise the funds entirely from selling T-bills to pay for the 122 billion Br supplementary budget Parliament approved last month, according to Eyob Tekalign (PhD), a state minister for Finance. The additional financing represents a fifth of the 561 billion Br federal budget bill Parliament voted for last year.

Experts are not surprised about the growing reliance on T-bills. They expect the administration to continue financing the fiscal deficit through T-bills until it hits a peak. The main buyers of the T-bills are financial institutions and the federal pension agency.

“It’s likely to continue until these are no longer liquid,” said a macroeconomist who has over 20 years of consulting experience and requested anonymity.

The authorities had eschewed direct borrowing from the central bank since 2018/19. The following year, loans from the central bank declined to 31 billion Br, less than a sixth of the amount recorded in the preceding year. However, the policy has remained inconsistent, with borrowing bouncing back to 83 billion Br last year. By the end of last December, it had hit 113 billion Br. Officials had counted on borrowing 68 billion Br to finance the budget deficit this year, but the trend reveals a net 162 billion Br has been borrowed thus far.

“This isn’t a normal budget year,” says the macroeconomist. “It’s difficult to follow through on the plan.”

It has been a year of enormous stress to the economy. It is a war-footing economy, the Prime Minister admitted in his address to Parliament earlier last week. Close to 75pc of the supplementary budget is apportioned to cover defence expenditure. A large segment of the population in three regional states in the north have been out of production. Supply and logistics chains were disrupted. Drought has displaced millions in the south and eastern parts of the country. These all came in the aftermath of the pandemic and floods that have haunted the economy since 2019.

What follows is a rising cost of living with runaway inflation. Year-on-year headline inflation reached 35pc last December.

The expert cautions increased direct borrowing from the central bank to tame inflationary pressure will inevitably be inflationary as the country does not produce enough to meet the needs brought on by the creation of new money.

“That’s where they need to rethink,” he said.

Alisa Strobel, a senior economist for Sub-Saharan Africa at IHS Markit, also raises concerns about the rising domestic debt levels.

Ethiopia’s characteristically high twin deficits do not bode well for the economy and suggest a further national debt spiral in the near term. Strobel observes the direct advances crowd out the private sector as the public borrowing reduces the pool of available funds invested in other businesses. The sale of government securities used to finance the deficit also directly impacts interest rates.

“Growing domestic debt can lead to inflationary pressure if the finances are not channelled towards productive sectors,” she said.

The authorities argue they would focus on revenues mobilisation to offset the inflationary pressure. Finalising mega-projects has been chosen as a priority expenditure target, with the largest share of budget allocation steered towards the construction sector and urban development (14.9pc), followed by education (11.8pc). However, despite the plans, financing for several development projects has been restructured to cover recurrent expenditure, Eyob told Parliament last month.

The restructuring attempts to compensate for a drop in external loan disbursement.

Foreign loans clocked in at 138 million dollars in the first quarter (37pc lower than the same period last year), with close to 95pc of the funds disbursed to the government. Only 38pc of the 456 million dollars disbursed during the second quarter went to the government, while the balance was provided in non-government guaranteed loans to the Ethiopian Airlines Group. The loans to the national carrier, guaranteed by the Exim Bank of America, came from ING Capital, a commercial creditor headquartered in the Netherlands. The funds are to be used for the procurement of two aircraft.

Despite the falling external financing, the federal government managed to service 1.1 billion dollars of foreign debt over the first half of the year. Close to 495 million dollars went to service non-government guaranteed loans, while the remaining went to private and bilateral creditors such as the World Bank (77 million dollars) and China (242 million dollars).

The payments have lowered the country’s external debt stock by a marginal nine percent to 28.9 billion dollars. But it has eroded its foreign currency reserve down to one billion dollars, only enough to cover imports of less than two months.

Officials at the Ministry of Finance remain bullish that external debt stock will continue to shrink despite the stemmed flow from creditors. They are serviced with no arrears, according to Yohannes Hailu, director of debt management at the Ministry.

External debt accounts for around 51.5pc of overall government debt, which stood at 56 billion dollars by the end of last December. Over the first two quarters, total external debt’s share of the gross domestic product (GDP) dropped by one percentage point to 26pc.

“The external debt burden decreased because the government decided to stop commercial borrowing,” the Prime Minister told Parliament last week.

His administration has not taken loans from commercial creditors for three years.

Economists warn that if external concessional funding remains sluggish and Ethiopia loses access to market-based financing, the country’s already high liquidity risks would surge further. This would lead to a potential default and spiral back to the risk of having no access to international credit in the future or foreign exchange earnings from privatisation efforts, according to Strobel.

“As a consequence, with tighter finances to support its budget, one would expect cutbacks in social spending that bodes ill for Ethiopia’s already weak domestic demand,” she said.

Experts foresee there is no easy way out of the predicament.

“It might be necessary to endure some inflation as well as cut back in government expenditure,” said the macroeconomist.

Capital Threshold Pushes Banks Under-Formation to Mull Over Investment Options

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Several initiatives to form commercial banks are on the verge of giving up their ambition to enter the industry, while others are weighing options elsewhere in the financial sector.

Dreams of forming banks are cut short after the central bank increased the minimum founding capital threshold to five billion Birr last April. Regulators at the National Bank of Ethiopia (NBE) had given promoters of banks a six-month window to be incorporated with half a billion Birr capital, following the 10-fold jump in the minimum threshold. Two dozen banks in the process of incorporation were also required to increase capital to five billion Birr in seven years, with banks in business given five years to meet the requirements.

Only two interest-free banks (ZamZam and Hijra), a mortgage bank under the brand Goh Betoch Bank, Gadaa and Ramis banks joined the industry after raising half a billion Birr in equity before the deadline last November.

The challenge proved too difficult for others on the way, who pleaded with the central bank for an extension. Regulators at the NBE declined. Among those between a rock and a hard place is Afro Bank, which started floating equity to the public last January. It had offered 750,000 shares with a par value of 1,000 Br. Its promoters say they had raised a subscribed capital of around 200 million Br from 54 shareholders. However, raising five billion Birr remains a dream.

They want to persuade shareholders to consider other investment alternatives, according to Kassahun Haile, one of the promoters of Afro Bank.

Time to raise the five billion Birr is not on their side, according to Kassahun. It would be too long a wait for shareholders looking to recoup their investment. The equity is kept in non-interest bearing accounts, and the Bank would lose out to inflation and currency depreciation.

“This is one of the things we asked the central bank to reconsider,” said Kassahun.

Yinager Dessie (PhD), governor of the central bank, held discussions with the promoters a few months ago.

“Many of them have informed us they’ve dropped the sale of shares,” Frezer Ayalew, director of banking supervision at the NBE, told Fortune.

This entails notifying the central bank and returning equity raised to shareholders.

The promoters of Akufada Bank, another initiative unable to meet the threshold, seem to have found a resolution. Its shareholders have agreed to divert equity to a microfinance institution (MFI) dubbed Akufada Microfinance. It was incorporated last year with 10 million Br in capital, according to Robel Nigusse, project manager at Akufada.

Financial experts say shifting towards establishing a microfinance or fintech company is viable. Incorporating as an MFI has its own incentives, according to Kinfemichel Yibkaw, an expert who has worked in the microfinance industry for over a decade.

Forty-one microfinance institutions serve five million clients, most of whom live in rural areas.

Other promoters have been consulting with the central bank about their options, according to Frezer.

“But none have officially started the process to form a microfinance institution,” he disclosed.

The banks under formation are not limited to investing in the financial sector. With shareholders’ consent, they can stop forming banks and redirect the resources into other ventures.

Ge’ez Bank, which raised 300 million Br in subscribed capital since 2020, is considering all options, according to Layne Kinfe, marketing manager.

“The future of the initiative is under discussion,” he said.

Abdulmenan Mohammed, a financial analyst based in London, advises shareholders to pull out of these initiatives. The capital requirements will mean years before shareholders begin to see returns on their investments. A bank with a paid-up capital of five billion Birr would need to earn 350 million Br in net profit to achieve returns of seven percent – equivalent to the average savings interest rate at commercial banks.

“It’s not a wise option for prospective investors,” said Abdulmenan. “The better option would be to invest in the existing financial institutions, provided their shares are priced fairly.”

Abdulmenan says considering investments in other financial institutions, such as microfinance institutions, is a viable way forward as there are no significant entry barriers.

“The track records of non-financial institutions are not impressive,” he said. “This option may not be appealing to investors, who are likely not ready for such investments.”

Only four of the 19 private commercial banks – Awash, Dashen, Cooperative Bank of Oromia and Bank of Abyssinia – have topped the central bank’s capital threshold. Third-generation banks such as Enat, Addis International, and Debub Global have a long way to go, each having less than two billion Birr in paid-up capital. The number of operational banks is expected to swell to 27 when new entrants, including Amhara, Tsehay, and Geda and microfinance-turned-banks like Sinqe, Tsedey and Shebele acquire operational permits.

Of those under formation, Selam Bank is continuing efforts to raise equity. To be formed as a mortgage bank, Selam’s promoters, including Bethlehem Tilahun and Zemedeneh Negatu, initially had planned to collect two billion Birr in a few months before the deadline closed in. They were encouraged by positive feedback from the Diaspora and prospective investors at home, according to Zemedeneh. He remains bullish that the demand for housing will help the Bank raise funds.

“The Bank is on track to raise the required capital,” Zemedeneh told Fortune.

Still, other initiatives like Damota, Huda, and Hossana will need to decide on the way forward.

Federal Gov’t Keen on Expanding Biogas Plants to Rural Households

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Authorities are keen on scaling up a nationwide biogas programme to provide reliable energy sources to tens of thousands of rural households across 10 regional states.

The Netherlands Development Organisation (SNV) supports the programme initiated in 2009 with an outlay of 22 million euros. Experts from the Netherlands studied biogas feasibility in Ethiopia back in the late 2000s. Building biodigesters – a mechanical process that breaks down organic materials to produce biogas – to use animal dung and generate electricity at the household level is a main part of the programme. The federal government agreed to cover 10pc of the project cost, and donors such as SNV and the European Development Fund’s Biogas for Africa Initiative finances the balance.

The National Biogas Programme has thus far seen around 34,000 biogas plants erected in the Tigray, Oromia, Amhara and Southern regional states. Although biogas technology was introduced as early as 1979, barely 1,000 plants had been set up when the programme kicked off 13 years ago. With the third phase scheduled for completion at the end of this year, officials at the Ministry of Water & Energy have shown interest to expand it to six additional regional states (covering all but Harari Regional State).

Close to 6,500 biogas plants will be constructed as part of the piloting, according to Yesihak Seboka, director of alternative energy and technology at the Ministry.

Initially, the plan was to scale up construction to 100,000 biogas plants by the end of this year. However, officials brought the number down to 36,000 following a progress review conducted in 2016.

Energy experts like Tigabu Atalo, an independent power consultant, say the programme is well suited to a developing country like Ethiopia, where around half the population does not have reliable access to electricity.

“Modern energy sources are unavailable in rural areas while traditional sources of energy are rapidly depleting,” he said.

Dung, the main component of biogas production, is plentiful in a country that claims to have 59.5 million heads of cattle, the largest livestock population in Africa. Each animal begets around 700Kg of dry dung annually, and 25Kg is sufficient to produce one kilo of biogas.

Rural households with more than four heads of livestock and access to water make it ideal for the national biogas programme, according to Mekonnen Mekuria, a bio-slurry value chain expert at SNV.

Officials estimate that five million farmers are potential candidates for the programme.

Endalemaw Admassie, 45, is a father of five and a resident of Baso Liben Wereda in East Gojjam Zone, in the Amhara Regional State. A farmer, Endalemaw was happy to adopt biogas technology when officials from the region’s Water & Energy Bureau approached him five years ago with an offer. Endalemaw and his family had no access to electricity at the time, fully dependent on firewood to meet their energy needs for cooking and lighting.

His family has 15 heads of cattle and uses access to nearby springs and groundwater, making him an ideal candidate for the project. He agreed to cover the 13,000 Br cost of building a six cubic metre, fixed-dome biodigester on his two hectares property. His plant is one of nearly 7,000 in the Regional State. Although Endalemaw’s wereda was connected to the electric grid last year, he still uses the electricity generated from the biogas plant.

“Because [the electricity] comes and goes frequently, my family is still dependent on biogas,” he told Fortune.

An added benefit from the digester is the slurry byproduct, which Endalemaw uses as a natural fertiliser. It has been three years since he bought chemical fertiliser imported. He used to buy two quintals annually to farm wheat and maize. A quintal of fertiliser costs 3,000 Br in the current market. The slurry produced by the plant can reduce chemical fertiliser expenditures and improve agricultural yields, according to Lemma Wogi (PhD), assistant professor of soil science at Haromaya University.

“However, a large volume of slurry is needed to have the desired impact,” he said.

The expert recommends the application of integrated organic and inorganic fertilisers.

“Combined application can improve soil fertility, productivity and reduce the impact of inorganic fertiliser on the environment,” he said.

Still, others say that poor coordination and low awareness around biogas limit the programme’s potential reach. Water and energy bureaus supervise the programme at the regional level, and regional Biogas Programme Offices coordinate daily activities undertaken at the zonal, wereda and kebele levels. Partners like SNV provide technical assistance, resource mobilisation and knowledge brokering.

“Water scarcity and drought are also contributing to the problem,” said Bayessa Abdiisa, head of the Oromia Biogas Programme Coordination Unit.

The region has been a major beneficiary of the programme thus far, with 9,500 biogas plants erected since 2009. Along with Somali Regional State, it is bearing the brunt of the worst drought seen in the country in four decades.

Lion Bank Picks Daniel Tekeste to Spearhead Road to Recovery

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Lion International Bank (LIB) has appointed Daniel Tekeste, 43, as its president, following approval from regulators at the National Bank of Ethiopia (NBE) last week. Taking the helm as the Bank’s fifth president since its founding in the mid-2000s, Daniel is tasked with reversing the lacklustre performance LIB registered last year.

Unlike the three years beginning in 2017 when Lion Bank had enjoyed robust growth – net profits were shooting up by an average of 20pc annually – it suffered a 47pc dip in profits last year. The Bank netted 334.5 million Br, leading returns for its 12,000 shareholders to nosedive by 57pc to 3.59 Br. The icky development was mainly driven by the militarised conflict in Tigray Regional State, where half of its 276 branches are located. Unoperational since the war broke out in November 2020, these branches account for close to 60pc of deposits.

Deposits shrank by 0.5pc to 25.9 billion Br last year, in sharp contrast to the banking industry’s 25pc jump in the aggregate deposit of 1.3 trillion Br. Lion Bank had seen deposit mobilisation grow by an average of 42pc annually over the five preceding years, higher than the 36pc average growth registered by second-generation banks. According to people familiar with the industry, it also suffered a bank run last year where political uncertainty led account holders to withdraw billions of Birr in one month.

Steering the Bank back into the realm of positive growth is a burden Daniel and his executive team have to shoulder all the way through.

Born in Adwa, 993Km north of Addis Abeba, Daniel embarked on a career in finance after joining the state-owned Commercial Bank of Ethiopia (CBE) in 2003 as a junior officer. He was assigned to lead a team for credit risk management. After a decade at the CBE, Daniel, a father of one, joined Lion International Bank in late 2014 as head of its risk and compliance department. He was later appointed director of the international banking department.

In 2018, Daniel was promoted to the vice president office for business strategy management and modernisation, a position he held until he was appointed as acting president following the departure of Getachew Solomon last year. The fourth president of the 16-year-old Bank, Getachew moved to North America this year after a brief stay in Dubai.

Daniel studied undergraduate business management and completed post-graduate studies in business administration at Addis Abeba University.

Michael Gezahegne, head of Lion’s human capital department, has worked alongside Daniel for the past 10 years at LIB and the CBE. He speaks of Daniel as a person raising the elephant in the room.

“He raises important issues and makes arguments that hold water during quarterly management meetings,” Michael recalled. “He knows how to lead and push others to the limit to achieve the desired outcome.”

Lion Bank’s board of directors spent two months reviewing two candidates before vesting the top position to Daniel. He is well aware of the predicament the Bank finds itself in.

“We’re already diversifying our resource mobilisation efforts by opening up more branches in feasible areas,” Daniel told Fortune.

The Bank has opened two branches in the last six months.

Under the chairmanship of Gebrehiwot Ageba (PhD), the board of directors established a resource mobilisation committee at the beginning of this year to restore LIB to its former standing as a mid-tier but reputable bank. Daniel heads the committee along with six vice presidents. The Bank will also step up banking service accessibility, according to the President.

“Digital banking services will be instrumental in the Bank’s resource mobilisation efforts,” said Daniel.

LIB had over a quarter million mobile banking users by the last financial year. The number of card and internet banking users stood at 175,000 and 31,600, respectively.

Daniel is not alone in facing the task of rebuilding a financial institution damaged by war. Last month, Aklilu Wubet was appointed president of Wegagen Bank, another in the industry suffering due to the armed conflict in the north. Having a significant presence in Tigray Regional State, its profit after tax plummeted 85pc to 126 million Br last year.

Daniel is one of the youngest presidents in the industry, but with 21 years of experience in finance.

Michael sees Daniel’s youth as an advantage.

“His relatively young age will allow him to forge ahead with technological advancements and the rapidly changing banking industry,” he said.

The average age of the Bank’s workforce of 4,310 is 31 years.

The Bank’s deteriorating asset quality is among the new President’s outstanding issues.

Total assets rose by a marginal 1.3pc to 32.2 billion Br last year. Loans and advances, which increased by 17pc, constitute over two-thirds of total assets. However, the quality of its assets measured by non-performing loans (NPLs) has dwindled recently. Last year, sick loans nearly quadrupled to 16.7pc.

A central bank directive classifies a loan as non-performing when 90 days pass without payments on the agreed schedule. It compels banks to set aside funds from gross profit as a provision with a ratio of one.

LIB maintained 623 million Br in provisions last year, a massive jump of 153pc. This has had a profound effect on asset quality. Reclaiming the unpaid loans is the other daunting task awaiting Daniel and his team. The Bank has set up a task force that will be responsible for enhancing asset quality and reclaiming the unpaid loans the Bank disbursed last year, according to the President.

Experts like Abdulmenan Mohammed, a financial analyst keeping a close eye on the banking industry, argue that Lion Bank needs to expand its presence in parts of the country that are not impacted by conflict and redirect resources from less-profitable ventures. He observes the lacklustre performance last year was partly due to a “damaged reputation.”

“The Bank needs to address these problems to regain its reputation,” Abdulmenan said.

Daniel acknowledges that restoring public confidence is perhaps the most significant challenge ahead. The Bank is committed to regaining its reputation through outlets such as engaging in corporate social responsibility, says Daniel. Last year, it donated 41 million Br to humanitarian and development initiatives.

“I’ve no doubt the Bank will reclaim its former standing in a relatively short period,” said Daniel.

Revitalise Liberal Internationalism to End COVID-19, Chaos

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Since 2020, COVID-19 has brought devastating socio-economic and political impacts. There are more than 410 million confirmed cases of COVID-19, while nearly six million have lost their lives, according to the World Health Organisation (WHO). Millions have become jobless and the global economy experienced its worst recession since the Great Depression, with a recovery that remains slow and uneven. The pandemic has increased poverty and further exacerbated inequality. Developing countries face deeper and longer crises due to the adverse impacts of the pandemic. Unfortunately, we are not yet out of this pandemic. Health experts warn that an even worse virus could hit the world at any time.

While the pandemic is an international crisis, a globally coordinated response remains weak, albeit better than two years ago. Though COVID-19 poses a serious international threat, there was almost no coordinated global response at the beginning of the crisis. The chaotic responses have stressed the liberal international order (LIO), which was already in serious trouble. For the LIO, which is anchored on addressing transnational challenges through universal partnership, the pandemic brings more doubts about its future. Unless we reform the global governance structures for cooperation, the pandemic will continue to create havoc, further weakening the liberal order.

In an inter-dependent world, multilateral cooperation through the UN and its agencies offers our best opportunity to address global challenges like COVID-19. Unfortunately, multilateralism, which has been under strain, has failed miserably when it was most needed. Transnational cooperation was required precisely for bad times like this.

Because the US and China have been in fierce rivalry, when the pandemic broke out, instead of leading a rapid and comprehensive international response, they were wrangling with each other. At the beginning of the pandemic, Group 7 failed to issue even a joint statement over a disagreement on naming the new pandemic. Instead of acting in unity against the pandemic, the UN Security Council was fighting on procedures while the WHO, which became a venue for global action, found itself as another arena for superpower competition.

What is deeply disturbing is after two years of the pandemic, the international community remains unable and unwilling to come together to face the common threat with a meaningful and concerted action commensurate with the spread and the devastating impacts of the disease. The poor have continued to pay the heaviest price. The UN reports confirm COVID-19 strikes the poor harder, threatening their hard-won development gains.

This is not to deny that, though delayed, there are signs of global cooperation in supporting developing countries to increase their testing and vaccinating capacities, including through the COVAX initiative. However, while global vaccination is vital to end the pandemic, what we see is vaccine nationalism, further undermining the spirit of international solidarity. Without ensuring vaccine equity, it is impossible to defeat the pandemic. Because of a lack of clear vision and decisive leadership, it is a tragedy that the global cooperative mechanisms are not adequately responding to the pandemic. That is why ending the pandemic requires reinvigorated and comprehensive global action.

The fundamental reason the world is not cooperating to end COVID-19 has to do with the weakened spirit of cooperation and a liberal international order under attack from within and outside. The international spirit of cooperation was weakened and multilateralism was under threat when the pandemic broke out; countries preferred to act alone.

It is undeniable the virus would inflict the world even if governments were cooperating, and the LIO was in much better shape. Nevertheless, the world would have been much more prepared and coordinated to respond in a much more coherent approach to minimise the devastating effects.

To end the pandemic and prepare for a post-COVID world, we have no other choice but to reinvigorate global institutions and multilateralism, with a strong spirit of genuine global partnership. After WWII, it was international liberalism that saved the world. We must repeat this to end the pandemic and ensure a sustainable exit out of the current crisis. This would require fully understanding why the liberal order is in crisis, what needs to be done to fix it and reinvigorating a cooperative model that fits the post-COVID world.

The LIO is in serious trouble. But concluding that it is dead is premature. Without underestimating the challenges, it has been resilient overcoming wars, economic crises and anti-liberal ideological rivals. For the highly interdependent world that faces an unprecedented crisis, it is an open, multilateral, inclusive, and participatory order that would enable it to address its common challenges.

The main features of LIO include an open market, international organisations, and cooperative spirit, including the rule of law. The current LIO was built mainly by America after World War II. With its partners, it was the principal architect in creating the open and rules-based institutions of the United Nations, the IMF, the World Bank, and later the World Trade Organisation. The main objective has been to facilitate cooperation and prevent war by promoting economic partnerships.

With the fall of the Berlin Wall, the unipolar moment arrived when the US was the single superpower. With the US leadership and cooperation of its partners in Europe, the idea of the free market, democracy, and globalisation were expanding. It indeed appeared to be “the end of history” and many thought it was the total victory of the liberal market democratic system over other forms of ideological rivals.

It was not. The US squandered the unipolar moment mainly due to domestic dysfunction and miscalculations in running its foreign policy, affecting the transatlantic alliance. Market fundamentalism brought multiple discontents, including unemployment and income inequality. The 2008 global economic recession and the euro crisis contributed to the erosion of confidence in a liberal international order. Doubts on its benefits and withdrawal from international agreements have undermined multilateralism. People felt threatened and angered by hyper-globalisation, migration, and technological advancement and they embraced populist and ultra-nationalist rulers.

The great power rivalry between America and China is back. Trade wars, military and diplomatic tensions, and dysfunctional multilateral systems seriously threaten the LIO. Failed states, climate change, poverty, conflicts, terrorism, cyber wars and disinformation put additional pressure on its effectiveness and sustainability.

These threats are real and they must be addressed so that the LIO could serve as a renewed order reflecting the new realities. It should not be forgotten that the liberal order contributed to one of the longest periods of global peace with the absence of war among major powers, the decline of poverty, and the unprecedented socio-economic improvements in human lives. As we face this pandemic, what has been achieved so far should inspire the international community to act together with a sense of vision and political commitment.

It is from these abilities of LIO that its solutions could also emerge for COVID-19 and for the broader challenges we face. Primarily, denying the benefits of LIO in a highly interdependent era is troubling as it could further empower populism and uncoordinated national responses. As it is about creating a cooperative system, the pandemic we face can only be addressed sustainably with more liberal principles that promote multilateral problem-solving. It is much better to find vaccines and cures by gathering our global scientific knowledge. Vaccinating every person is the best way to end the pandemic for all. Resuming global tourism would be more effective through coordination and harmonised approach. We have apparent health and economic reasons to foster international cooperation.

It is also imperative to address the economic malaise that created the current economic inequality that favoured the financial elite at the expense of the majority. Implementing people-centred economic reforms is urgent and essential. Eradicating poverty by implementing the Sustainable Development Goals (SDGs) remains one of the best policy options to win the global war against the COVID-19. The SDGs aim at eradicating poverty in all its forms. Before the pandemic, the world was not on track to meet the ambitious targets of the SDGs. Now, with the outbreak of COVID-19, it has almost been certain that SDGs would not be met by 2030 and millions would remain in poverty. Nonetheless, the world has a blueprint for fighting poverty, and implementing it is the right course of action to end COVID-19.

No less critical is to see the great power rivalry as a power transition process as LIO should accommodate the interest of re-emerging powers like China. The rising powers are seeking, among other things, “fair and equitable representation” at the various decision-making processes that reflect their current status. To regain full legitimacy and function effectively, it is vital to reform the existing multilateral decision-making structures to reflect the current power distribution, not the 1950s.

While competition between a status quo and rising superpowers is almost unavoidable, it should not be an obstacle for the US and China to cooperate on ending the pandemic. The US and USSR were in the Cold War rivalry; they still cooperated to control smallpox. The US and China united to fight Ebola in 2014. This is what we need now. What is required is a rejuvenated liberal international order that reflects the current power configuration with the ultimate objective of ending COVID-19 and effectively responding to long-term public demands for a peaceful, fair, sustainable, and prosperous world.

CSR’s More than Philanthropy, Tool for Socio-economic Advancement

Posted on by Web Master

Many of us have heard the word Corporate Social Responsibility (CSR) thrown around. The issue of how clearly we understand its exact meaning is questionable, nonetheless. Low levels of awareness by the society about this critical term have emerged from its connection with profit-making organisations and its novelty to Ethiopia, as well as lack of adequate information by media outlets.

Rarely is it observed that CSR programs are announced to the stakeholders through annual company reports on their own company day. Instead, it is a media event for government officials, local communities and customers. To their credit, some firms also disclosing their social activities through their own websites, magazines and broadcast media spots.

Complicating the problem further is the absence of clear legal frameworks established with a mandate to govern all the activities of CSR, perplexing its noticeable importance to the larger community.

It is agreed that the form and purpose of corporations carrying out their social responsibilities has a variety of definitions among the various disciplines. The World Business Council for Sustainable Development defines Corporate Social Responsibility as the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.

On the other hand, Michael Hopkins, a researcher on CSR, stated that the wider aim of social responsibility is to create higher standards of sustainable living while preserving the profitability of the corporation or the integrity of the institution, for people both within and outside these entities. It is related to improving the living standard of citizens by increasing their income, providing education, healthcare and job creation as well as being associated with economic growth.

Worldwide experience shows that big business firms and a large number of companies in developing countries have been implementing it for decades to improve the lives of millions of low-income households, minorities and vulnerable groups, and as a result remarkable benefits have been achieved among the society.

In the case of Ethiopia, there is no specific policy that guides the proper implementation of corporate social responsibility, while there is a lack of information and wide promotion. CSR is seen only as a form of philanthropy by for-profit organisations. Various companies are seen executing it based on will, rather than incorporating it into their annual plan for a systematic corporate social responsibility approach.

This, in turn, causes redundancy, consuming resources, and creates aimlessness in what the company wants to achieve. For instance, few companies, firms, factories and industries in Ethiopia are able to guide resources and discharge them during a time of emergency to assist the victims of conflict and natural disasters as a CSR. Their approach is not strategically guided to address the crisis properly and therefore fails to meet its desired intention comprehensively.

To alleviate the bottlenecks and challenges in the area of CSR, specific actions are needed. It can start by establishing a social protection fund and rules to regulate as a system in order to have the different supports, which were provided separately, to be continued in a coordinated manner. Adequate information about CSR should also be available to for-profits and nonprofits, making organisations accountable to society through legacy and social media outlets. Finally, robust regulation ought to be formulated and put in place to bring about transparency and accountability in CSR activities.