The Sharing Economy Needs Less Policing, More Support

Posted on April 24, 2022April 22, 2022 by Web Master

Most African countries top the list when ranked on the prevalence of conflict, food insecurity, poverty or lack of essential services. Ethiopia is no exception to this. On the contrary, those same countries are at the bottom on lists that rank investments, ease of doing business, trade, industry, or even “happiness.” A rare outlier is a mobile money. Kenya shines as a role model even for societies in advanced economies.

It is astounding how far ahead of the rest of the world sub-Saharan Africa is adopting mobile money and the digital platforms stimulating what is now known as the “sharing economy”. GSM Association, an industry organisation representing mobile network operators, records over 600 million registered accounts in the continent, with the second-highest, East Asia and Pacific, standing at only 328 million. Sub-Saharan Africa accounts for over two-thirds of the world’s mobile transactions volume and makes up for 63 billion dollars of the 95 billion dollars in total value. It is an atypical lead in a technology front from a part of the world that attracts attention for the wrong reasons.

There are few rays of hope when it comes to Ethiopia’s economy. The construction industry is coming to its knees; manufacturing never took off; the mining sector has been quelled mainly due to conflicts; and the agriculture sector, where two-thirds of the labour force is tied up, is a generational source of disappointment, if not an embarrassment to successive leadership.

The information and communications technology (ICT) sector may have remained far less developed than regional peers such as Kenya. But it is having its day, with a glimmer of dynamism when it is direly needed. It is doing this while it continues to be hammered by the old habits of policing and protectionism thrown at it by the government. The shackles of regulations have put all their weight, holding its players back from unlocking their potential.

At the forefront of what, if done right, could be economically transformative is the telecom sector. There currently is only one player, Ethio telecom. But it is a testament to the power of competition that, even before Safaricom Ethiopia Plc began operations, the state-owned enterprise moved in ways it never did before. Its executives tried to charm subscribers with fees slashed, airtime credit introduced, a mobile payment platform launched, and was almost partially privatised. Perhaps for the first time in Ethio telecom’s existence for over a century, it acts as a business entity.

What competition – or the fear of it at the moment – induced in Ethio telecom could be a subject of academic literature to establish the thesis that “competition is consumer sovereignty.”

No less promising is the increasing availability of electronic payment platforms, from Ethio telecom’s Telebirr to Arifpay; and, efforts in expanding public services to the internet.

The impacts are perceptible.

It is no longer necessary to visit a ticket office to book a flight or conduct bank transactions at a branch (with limits). Ride-hailing companies have made transport services a great deal safer and more convenient, all the while bringing down costs. The most vital impact of the information technology sector, more than enhancing convenience, is its impact on financial inclusion and intermediation, primarily through mobile banking. Sub-Saharan Africa’s leadership in the mobile money scene is not because the region has better digital or financial infrastructure. It is because it does not.

The rest of the world, especially the advanced economies, have such well-developed payment systems such as internet banking and credit card systems that the pull factor of mobile payment options (which only matured over the past decade) is low. In sub-Saharan Africa, where there is virtually no alternative to cash payments, mobile money provides the most affordable alternative for leapfrogging. Unlike most other non-cash banking alternatives, mobile money can be used with feature phones, the predecessor to smartphones, and SMS messages when users are offline to facilitate transfers. For populations in rural areas, it can be transformative.

Facilitating transactions is only a piece of the puzzle on the value of mobile banking in revolutionising finance. The more transactions there are, the more data can be gathered on households and businesses. This allows for a credit-risk profile to be developed, which is critical for expanding access to credit – the driving force of modern economies.

Kenya and its journey with M-Pesa, a mobile payment system operated by Safaricom, is a testament to the power of digital. Research published in the academic journal Sciencediscovered access to M-Pesa has lifted two percent of Kenyan households out of poverty within seven years of its inception in the late 2000s. Women-headed homes were twice as likely to benefit. By the early 2010s, the impact of mobile banking had been evident.

Regrettably, Ethiopia is just beginning to pay attention.

Efforts over the past few years to bring it up to speed are encouraging, though, especially in building infrastructure and pushing for reforms, such as the liberalisation of the telecom sector. Unfortunately, the regulatory practice leaves a lot to be desired.

The information, communications and technology sector keeps facing obstacles that are entirely the making of policymakers’ regulatory indecisiveness and knee-jerk reactions. The dragging of feet to protect domestic players and disadvantage foreign investors is on one side. It has contributed to lower than expected bids for telecom licenses and might even have cost the sector a third player with the potential to enter Ethiopia’s market. M-Pesa will likely get to operate, but the protectionism on open display during the bid likely cost the country half a billion dollars, according to the Prime Minister.

It is better late than never to make the playing field for the mobile banking fair.

The other problem is the ad-hoc moves that create uncertainty and an opportunity cost. This was no less evident during the suspension of digital remittance platforms such as CashGo and MamaPays last month or the long controversy Ride, a taxi-hailing company, has had with transport authorities over designations. Obviously, vested interests are trying to shield their legacy privileges behind policymakers’ erratic and unhelpful behaviour.

Partly, these are regulatory gaps that need addressing, which can be forgiven, given that the technologies and the sector are on the new policy and legal frontiers. Policymakers’ apparent reluctance to move forward in the absence of insight on how they function should be understandable. But the authorities’ use of sticks and knee-jerk reactions threaten to smother a sector in its infancy that should otherwise be in a hurry to catch up with the rest of the world. The administration of Prime Minister Abiy Ahmed (PhD) should learn to police less, support more and open up the economy further as technology-driven sectors rarely progress in rigidity and closed ecosystem.

Holiday Markets Daze, Confuse Consumers

Posted on April 24, 2022April 22, 2022 by Web Master

Girum Kebede, 52, would have thought that a net monthly salary of 10,000 Br was sufficient to have a contented living in the not-too-distant past. His monthly earnings are the lifeline for his wife and child. The couple is expecting a second child.

The earning meant that a breadwinner providing for a family of four would not have had much to worry about when going to holiday markets. Such an income would have been enough to cover at least the essentials – butter, vegetables, spices, teff, a chicken, and eggs. Girum now thinks the prospect of buying all these items is akin to a daydream. He discovered this when shopping last Wednesday at Shola Market, one of the largest trade hubs in Addis Abeba. Near the Megenagna area, the market was packed with hundreds, if not thousands, of traders offering food items and consumer goods. Though many shoppers were inching their way across the market’s narrow paths to buy what they needed to prepare food for the Easter holiday, the scenes were more hushed than usual.

Girum was looking to buy a chicken, some onion, and butter. He was taken aback by the sudden and drastic price changes in the market. He decided to buy nothing but half a kilo of butter for 350 Br, preferring to wait until the market settles down before buying the other items on his holiday shopping list.

Girum’s dilemma illustrates the tragedy of what was once a middle-income urban group with purchasing power now eroding fast and alarmingly. While the cost of living hit the roof, the fixed income of many remains unchanged. They are terrified of seeing inflation and depreciation of the Birr eating up their living standard, edging to the margin.

Gauged by the Consumer Price Index (CPI), headline inflation measures the average change in prices consumers pay for a basket of goods and services. Reports from the Ethiopian Statistics Service highlight how rapid inflation continues to gallop. Month-on-month headline inflation in March registered at 34.7pc. Food inflation clocked in at a staggering 43.4pc, the highest recorded in over a decade.

The past two years have hardly been a walk in the park for policymakers grappling with the ballooning cost of living. The ripple effects of the COVID-19 pandemic linger, putting pressure on import-dependent economies such as Ethiopia. Pandemic-induced logistics disruptions take part of the blame for the galloping costs, along with the depreciation of the Birr against major foreign currencies.

Then there is the protracted civil war in the north, where the federal government has spent untold billions fighting armed forces based in the Tigray Regional State. Costs to repair the damage done to infrastructure in the conflict zones and the war’s overall impact on the economy are shouldered by the public. The militarised conflict has undermined external financial support, agricultural productivity and crippled local industries.

Federal officials had tried their hand at a few monetary policy measures to rein in the galloping inflation, such as a four-month freeze on collateralised loans. Neither do attempts to restrict and freeze property transactions seem to have done much good, however. The inflationary pressure has created a vicious cycle. Coupled with the cost of an expensive war, growing public expenditures are widening the budget deficit. It is expected to reach four percent of its GDP this year.

Another militarised conflict thousands of miles away could have disastrous consequences for the sputtering economy. Both Russia and Ukraine are major sources of iron products, wheat, cooking oil, and fertiliser. These are strategic commodities the federal government spend billions of dollars to import. Following Russia’s invasion of Ukraine, global prices for cooking oil rose by as much as 45pc. Local markets did not take long to respond to the changes. Consumers are expected to shell out 1,000 Br for a five-litre bottle of imported sunflower oil, nearly double what they had been paying a few months ago.

The pressure has pushed officials to take measures to cut down on expenditures. Federal subsidies were the primary targets, inevitably driving further costs for essential commodities. On the list of subsidy cuts are utilities, fuel and wheat. The federal government is preparing to entirely remove subsidies on petroleum products over a year, beginning July.

Last week, the International Monetary Fund (IMF) released an assessment of the Russian-Ukraine war’s impact on Ethiopia’s economy. It warns of higher transport costs feeding to increasing prices and food inflation. According to the IMF, higher global fuel prices will result in even higher price rises in the domestic market.

“If the government reverses its decision to remove the subsidy, higher global prices will be a bigger drag on the budget,” reads the assessment. “Urban consumers may be affected more.”

IMF warns Ethiopia’s policymakers that the main impacts would be higher inflation driven by food and fuel and worsened food insecurity.

The impact the IMF fears are here and now. The holiday season is making them even more pronounced.

During the last major holiday market (Christmas), a kilo of butter was sold for an average of 500 Br, 60pc lower than last week.

Prices for spices and herbs have also gone up. A spice mix often used for stews stands at 1,000 Br a kilo, 25pc higher than what markets offered for the New Year celebrations last September. Traders argue the upsurge is due to rising import costs as one of the ingredients is shipped from abroad.

Although the prices for onions have been steady for the past few months, since a record high of over 50 Br a kilo was reported last year, they remain relatively high. A kilo of red onion was sold for 40 Br, while a local variety preferred for use as an ingredient in doro wot (chicken stew) goes for 70 Br a kilo, 75pc higher than last year’s prices. The stew is the first meal served in households adhering to the Ethiopian Orthodox Church following two months of lent.

The high costs have undoubtedly terrified more than a few shoppers. However, the section of Shola Market where chickens are sold appeared more lively than the other quarters. Perhaps this is because chicken prices have not changed much since the Christmas holiday.

Martha Adane, a 25-year-old woman, strolled, scouting for a chicken she thought she could afford. Martha makes a living running a small eatery with two of her sisters. She had come from the CMC area with one task in mind that day: find and buy a chicken for the lowest possible price. Traders in her neighbourhood had offered her a chicken for 1,200 Br. It is an amount that claims a quarter of the combined income earned by Martha and her sisters. Factoring in the 2,000 Br they pay for rent, spending 1,200 Br for a chicken was unimaginable for her.

A small-sized chicken was going for 500 Br at Shola Market, while prices for larger fowl went up to 800 Br. These are prices about the same as observed last Christmas. However, Martha opted to leave in hopes of buying a crossbreed chicken from Elfora Agro Industries, a subsidiary of MIDROC Ethiopia Investment Group. In business since 1997, Elfora is reputed for supplying chickens and eggs at affordable prices.

Elsewhere in Addis Abeba, shoppers were out looking to buy cattle. Qera is a neighbourhood known for its cattle markets. Fewer buyers than usual were in the area last week. Some seemed to have dropped by only to scope out prices, leaving abruptly after hearing what dealers ask for. Prices for a sheep went from 5,000 Br to 9,000 Br depending on size, while a goat could fetch anywhere between 9,500 Br and 30,000 Br. Bulls were sold for as much as 120,000 Br a head.

Seyoum Shance has been trading cattle at Qera for over a decade. He is surprised by the exorbitant prices this year.

“I had sold some cattle for 30,000 Br last year,” Seyoum told Fortune.

Though the market attracts thousands ahead of the holiday, Seyoum says he does not expect a large crowd this time around. Rising transportation costs are partly to blame for the upsurge in prices. Seyoum paid 30,000 Br to ferry 30 oxen from Moret’na-Jeru Wereda in the North Shewa Zone of the Amhara Regional State.

Dealers say the upsurge in price is due to instability in areas where the cattle are sourced. A drought is plaguing the east and south of Ethiopia, where large portions of the population are pastoralists, which is not helping the situation.

The drought is “the worst in four decades”, and the United Nations estimates that 20 million people in Ethiopia, Somalia and Kenya could face starvation if response efforts are not beefed up in the coming weeks. Close to 1.5 million cattle in the Somali and Oromia regional states are estimated to have died due to the drought thus far.

Experts say the economy is undergoing an unusual beating and might not respond to by-the-book measures.

Macroeconomic management alone cannot address this issue, argues Adane Tuffa (PhD), an economist who is a member of the Agricultural Economics Society of Ethiopia. He observed that supply shortages are not the only factor behind galloping inflation.

“Especially during holiday seasons, intermediaries manipulate supply,” he said. “One of the policies that can help the government is regulating the agricultural value chain from the source.”

Officials of the Addis Abeba City Trade Bureau try to do precisely that. They have organised a task force determined to “control” the holiday market.

The Bureau recently approved a revolving fund of one billion Birr for the 11 cooperative unions operating in the capital. These cooperative unions have more than 150 consumers’ association shops under their wing. They have supplied 270,000qtl of teff and wheat, 1.5 million litres of cooking oil, and 120,000qtl of sugar across 11 districts in the lead up to the holiday.

Small-scale bazaars have also been organised in different parts of the city to distribute these products, says Mesfin Assefa, deputy head of the Addis Abeba Trade Bureau. Four months ago, the Bureau began a Sunday market scheme that connects consumers with producers.

The city administration has disbursed half a billion Birr in loans to 10 unions in the capital to facilitate the Sunday markets. They supply consumer cooperatives with commodities to sell at discount rates. The weekly markets have been well received by consumers, too.

Nonetheless, the cost of living continues to assault families in the city. Girum, the shopper in Shola Market, says all he can do is be grateful that he does not have to worry about rent.

Bill Sees Meat Exporters Face Jail Terms for Certification Non-compliance

Posted on April 24, 2022April 22, 2022 by Web Master

Abattoirs that process meat for export should hold international veterinary certifications when a bill ends the legislative cycle.

If passed, the law will criminalise meat export without the certification, punishable by up to five years imprisonment and a fine not exceeding 50,000 Br. The newly-established Agricultural Authority will issue the certificates based on the terrestrial animal health code introduced in 1968.

Experts at the Ministry of Agriculture (MoA) have been working on the draft proclamation for the last two years. It was sent to the Ministry of Justice last week for the last reading, disclosed Sisay Getachew, director of veterinary public health.

The Ministry is responsible for issuing export permits, which the abattoirs are required to renew every year. Though there are 12 registered export abattoirs in the country, only nine are actively involved in export.

Over the last decade, annual export revenues from meat have rarely surpassed the 100 million dollar mark. Last year, 16,625tn of meat were exported from Ethiopia, earning it 75.3 million dollars. An all-time high volume of meat, 20,547tn, was exported in 2018, generating 103.3 million dollars. Sheep and goat meat account for the largest share. The biggest buyers are the United Arab Emirates (UAE) and Saudi Arabia, which account for nearly 90pc.

Experts and industry players are not too keen on the bill’s proposed veterinary requirement.

With six branches, including Bishoftu and Dire Dawa, Elfora Agro Industries Plc processes 2,000 sheep and goats a day. The company exports chilled meat to the UAE, Saudi Arabia, and Yemen; and, frozen meat to Egypt.

Under the prevailing circumstances, exporting meat is not a profitable enterprise, according to Zekeria Muhammed, commercial manager of Elfora, a subsidiary of the MIDROC Investment Group.

“The floor price is much lower than the domestic market’s offer,” Zekeria told Fortune.

Exporters are required to charge at least 5.6 dollars for every kilogramme of meat they ship. The threshold export price, which has been the same for the last five years, is one of the factors discouraging exporters, says Abreha Negash, director of research for livestock and meat products at the Meat & Dairy Industry Development Institute.

“Most companies export to get foreign currency,” said Zekeria. “That motivation is thinning due to the government’s recent retention policy.”

In January, the central bank issued a directive compelling exporters to surrender 70pc of their earnings. Though officials say the motive behind the new requirement is to boost export revenues and expand market destinations, experts say there is much work to be done to make that happen.

Negassie Ameha (PhD) is an animal science lecturer at Haromaya University. He noted that geographic proximity is not why Ethiopian abattoirs prefer to export to the Middle East. According to him, requirements in Middle Eastern countries are more flexible than in European countries.

The European requirements start with the age of the slaughtered animal. European countries require goat and sheep meat under a year weighing between 10Kg and 25Kg.

“It is a tough bar to meet in a country like Ethiopia, where livestock is seen as assets and kept for a longer period,” said Negassie.

South Africa, Namibia and Botswana remain the only sub-Saharan African countries that export to the European market. The expert says exporters struggle to meet even the relatively lighter standards of Middle Eastern countries. In 2012, and again in 2015, meat exported from Ethiopia was banned by Gulf countries due to safety concerns.

Countries like Saudi Arabia and the UAE appointed the Oromia Islamic Affairs Supreme Council in 2016 to monitor abattoir operations and ensure animals are slaughtered in compliance with the Islamic faith. Fikadu Wondosen, secretary of the Ethiopian Meat Producer-Exporters Association, says most meat export companies are Halal-certified, equipped with livestock reception pens, automatic and semiautomatic mechanical slaughter, and processing equipment.

Established in 2003, the lobby group represent seven export abattoirs.

Meeting Halal requirements is mandatory to secure markets in the Middle East. Halal certification is growing in importance outside Islamic countries. The UK and France are examples of markets with increasing demand for Halal meat.

Eatsafe, a company incorporated in 2018, also issues Halal certificates. It was appointed as a local representative by the Gulf Cooperation Council, an entity tasked with Halal certification for Gulf countries, in 2020. Halal certification involves meeting three requirements – safety, quality and customer value, says Biruk Fikadu, director of Eatsafe for training and capacity building. Eatsafe conducts facility audits before issuing a Halal certificate, which could take up to six months and 300,000 Br.

Eatsafe has certified two abattoirs in Ethiopia thus far.

Incorporated in 2012, Al-Nujum Export Slaughterhouse Plc is one of the two. Located in Dukem town, 35Km southeast of Addis Abeba, it shipped up to 500tn of meat annually to the Middle East until 2020. However, export volumes have since fallen by half, according to Hannan Mohammed, deputy manager of the company. Over the past half-year, the company exported 130tn.

According to Hanan, the Halal certificate issued by Eatsafe has little importance to Al-Nujum. The Deputy Manager says the company relies mainly on the certificate issued by the Oromia Islamic Affairs Supreme Council. However, Hannan observed that Eatsafe’s certification would be instrumental when the company starts to export outside the Middle East.

“We’re planning to expand our export destinations to Indonesia and Malaysia,” Hannan told Fortune.

Exporters must also contend with a shortage in livestock supply and poor quality. The challenges mean meat processing facilities operate at less than 40pc of capacity.

Al-Nujum uses only five percent of its capacity, Hannan disclosed to Fortune.

City to Install Intelligent Transport System on Bole-British Embassy Corridor

Posted on April 24, 2022April 22, 2022 by Web Master

The road segment that connects Comoros St. (British Embassy) with Africa Avenue (Bole Road) will see the installation of 19 traffic signals, an intelligent transport system and cameras.

The project is part of a 300 million dollar programme financed by the World Bank. To be implemented at both city and federal levels, the programme aims to improve licensing systems, develop urban transport policies, and fund road projects.

The Addis Abeba City Roads Authority is to hire a firm to contract the 4.5Km road corridor upgrading, which passes through Medhanialem Cathedral, crossing the roundabout near Golagul Building and Togo Street, across the main entrance of the British Embassy. A bid to select the contractor was opened in February 2022. However, according to individuals familiar with the tendering, the selection process is still ongoing.

The Authority has budgeted 24.5 million dollars for the construction of the road.

City officials are to select a supplier to install traffic signals equipped with infrared sensors that can determine traffic flow and guide changes accordingly. A control centre under construction by the China Communication Construction Company (CCCC) around Megenagna area will be in charge of the traffic signals. The Chinese contractor is erecting the control centre for 835 million Br. It will be equipped with information processing, crime control units, accident registration offices and media outlets, disclose Meti Wedeneh, a director of road construction and design.

Construction began three years ago and was expected to be completed last year, but the control centre remains under construction. Yet, officials plan to buy hardware and software for the traffic management centre. However, a tender the Authority floated last month was extended by a month. The extension comes following requests from companies interested in the bid, sources told Fortune.

The design for the Africa Avenue-Comoros St. road is one of five done by Dorsch Gruppe GRE, a German firm, for six million dollars. The firm was also awarded the contract to supervise the construction of the five projects. The design proposes four major intersections along the road.

City officials also plan to construct four other road corridors equipped with similar installations to ease growing traffic congestion in the capital, where 70pc of the country’s registered 1.3 million vehicles are used. Close to 20,000 vehicles join the traffic flow each year, exacerbating congestion. Although Addis Abeba has close to 5,000Km asphalted, gravel and cobblestone roads, covering 24pc of the city’s geography, the roads hardly stem the growing transportation demand, particularly along the city’s main corridors.

The Addis Abeba City Traffic Management Agency has identified half of the 400 intersections have high traffic pressure. However, only 84 intersections are equipped with traffic signals.

“There needs to be an efficient traffic management system that corresponds with the city’s needs,” said Kebebew Mideksa, director-general of the Agency.

Agency officials are preparing to acquire 80 traffic lights (robots) to bridge the gap.

“But this will not be enough,” said Kebebew.

The 84 traffic signals installed at main intersections, which are not equipped with infrared sensors, require human intervention when incidents like power outages occur. According to Kebebew, the Agency is working to modernise the city’s traffic management systems, installing 10 radar systems to crack down on speeding, each costing 450,000 Br to set up. The Authority also dispatches 930 controllers to facilitate traffic flow.

The lack of coordination among institutions tasked with the city’s transport management alarms experts who urge traffic and road management officials to work together to smoothen the traffic flow.

Four city-level institutions are tasked with the management of the transport system in the capital, in addition to federal authorities. Engida Tadie, an urban planning lecturer at Kotebe Metropolitan University, says that the existing road infrastructures should be assessed before installing modern traffic management systems.

“The traffic problems can be solved by implementing a few key physical changes,” said Engida.

He urged city authorities to adopt a “complete streets” policy.

According to the expert, under-maintained roads, insufficient pedestrian sidewalks and unessential roundabouts are as crucial as the instalation of a modern management system.

Oromia Regional State Pioneers Decentralised Coal Concessions

Posted on April 24, 2022April 22, 2022 by Web Master

Prospective investors interested in exploring minerals in the Oromia Regional State can receive concessions for small-scale mining from the regional administration.

A pilot programme restructuring procedures, where concessions were exclusive to enterprises established by unemployed youth, brought a change of policy by the Oromia Mineral Development Authority. Close to 49 investors have received permits to mine for coal in 49 quarry sites located in Dedo, Sekoro, and Boto Tolay in the Jimma Zone, 400Km southwest of Addis Abeba. The concessions are valid for five years.

The Authority has finalised the pilot programme launched three months ago before moving into full implementation across all 21 zones in the regional state, according to Zewdu Tadesse, director of mining licensing. Re-established in 2019, the Authority is mandated with issuing small-scale and artisanal mining permits and competency certificates. It gives permits to enterprises established by unemployed youth, businesses, and investments in private-public partnerships.

Since 2019, the Authority has issued 3,700 permits.

The regional administration has conducted a feasibility study teaming with the regional revenues, land administration, environmental protection bureaus, and the Jimma Zone Mining Bureau. Previously, the administration had issued small-scale coal mining concessions valid for two years to enterprises set up by unemployed youth. However, prospective investors were seen as reluctant to involve owing to instability in the regional state.

Despite the uncertainty, a few investors chose to partner with local enterprises.

ATMS Coal Mining Plc has entered into a partnership with Wuka Gudina Enterprise, established by 101 members. The duo has been mining coal for over a year on one hectare of land in Doba Wereda. The venture produced 3,000tn of coal, disclosed Ahmed Tebik, general manager of ATMS Coal Mining.

Incorporated in 2014, Kuyu Cement was one of the buyers of coal mined by ATMS and the enterprise. Its plant in the Shewa Zone requires 300tn daily to produce 1,500tn of cement. The plant is operating at 30pc capacity, according to Berhanu Gebru, supply manager.

The plant paid 2,300 Br for a tonne of coal before it stopped sourcing the mineral from the partnership. Berhanu blamed “poor quality” for the decision.

Over the past six months, Kuyu Cement has been sourcing the coal from Tenkara Mining Plc for a higher price of 3,000 Br a tonne.

The Authority helps youth enterprises operating without partners to invest in providing machinery and equipment. But the issue of quality remains big.

Melaku Mekuria, an engineering geologist, observed that the main reason behind the low quality of locally-processed coal is the absence of coal washing and purifying plants.

“Granting investors concessions might fill this gap,” he said.

Unwashed coal has an average energy production capacity of 2,500 kilo-calories a kilogramme. Washed coal can generate 4,000 kilo-calories of power.

The authority is aware that cement plants complain about the poor quality of the coal supplied to them, according to Zewdu.

The primary coal users are cement plants and steel and metal companies that depend heavily on carbon-intensive fuels.

The Oromia Regional State, where vast coal reserves are believed to exist, is not alone in granting concessions to small-scale coal mining operations with a combined production capacity of half a million tonnes. Three regional states, including Benishangul-Gumuz, see the active involvement of such companies.

Despite the availability of enormous coal reserves, production remains small. In the Yayu coffee forest alone, 560Km southwest of the capital, 230 million tonnes of coal reserves have been discovered by China National Complete Plant Import & Export Corporation. Preliminary studies conducted by experts from the Ethiopia Geological Survey identified potential deposits of 600 million tonnes of coal, mainly in the Oromia, Benishangul-Gumuz and Amhara regional states.

Industrial-scale coal mining operations have yet to emerge.

Coal production by small-scale miners has been lingering at around half a million tonnes annually, representing over half of the 19 cement plants’ demand. They have an annual production capacity of 18 million tonnes of cement. The plants source the remaining coal from abroad, causing the country to spend 275 million dollars a year on coal imports.

Desperate to save the precious forex spent on coal imports, federal authorities granted concessions to eight companies two months ago. With a combined registered capital of six billion Birr, these companies are expected to produce 4.2 million tons of coal annually in the next decade. They have committed to start production by the end of the year.

While issuing concessions to large-scale coal mining is a mandate of the federal government, regional states are responsible for granting permits to small-scale coal extraction. Under the new scheme implemented by Oromia regional authorities, prospective developers have 70pc of the share in the business, while 30pc goes to residents where the concessions are found. Where the concession is farmlands, the owners receive 20pc, and 10pc of the revenues go to residents in the area.

However, developers are required to partner with enterprises established by the youth. They are required to meet criteria, including 30pc in working capital, acquiring machinery, feasibility studies and environmental impact assessments. Developers are also compelled to pay a licensing fee of 8,000 Br and 500 Br for land registration. The capital required can vary based on the findings of the feasibility studies but can go as high as 50 million Br.

Concessions sites are limited to five hectares. The previous arrangement had set the area ceiling at one hectare for youth enterprises.

Space Institute Takes First Steps in Sluggish Satellite Projects

Posted on April 24, 2022April 22, 2022 by Web Master

The Ethiopian Space Science & Technology Institute is moving forward with two of three planned space programmes following three years of delays. A satellite assembly construction, integration and testing (AIT) centre and the launch of the country’s second remote satellite, dubbed “EPRSS2″, are underway.

Its officials have the ambition to see the Institue develop and assemble six satellites.

The Institute is also pursuing the development of a communications satellite project. Its officials will select consultants next week, where close to 17 companies vie for the contract, including six interested in the assembly construction. The integration and testing centre building, proposed three years ago, was initially scheduled to start two years ago. It was projected to cost 50 million euros, of which half was to be sourced from the European Investment Bank (EIB), while 15 million euros was expected from France.

The federal government was to cover the balance, according to Yeshurun Alemayehu (PhD), deputy director-general.

A tripartite agreement had been reached between the EIB, the federal government, and the French space company, ArianeGroup. The latter made a deal with the Ethiopian government two years ago to proceed with the facility’s construction. According to people knowledgeable of the project, the Group had offered its services to conduct a feasibility study in partnership with the Institute at no cost.

The agreement with the EIB was dropped after the Bank questioned the funding that was to come from the French government, Yeshurun disclosed.

“The Bank requested a bid be floated to select potential candidates,” he said.

Established in 2016, the Institute is tasked with Ethiopia’s space programmes. It is led by Abdissa Yilma, a technology management graduate who previously worked as an advisor for the Minister of Innovation & Technology. He served as deputy director-general of the Institute for three years before assuming the top leadership.

Last year, the federal government apportioned a 28 million Br budget for the Institute. The budget jumped to 190 million Br this year, including the financing of the construction of an inspection centre, the development of a high-resolution satellite, and an earth observatory satellite project. It was spent paying for the feasibility study of the proposed projects and hiring a consultant, according to Yeshurun.

The Institute operates with a recurrent budget of 111 million Br this year.

Although Ethiopia dedicates a fraction of its federal budget to pay for space endeavours, it can pursue programmes by partnering with advanced countries, says Biruk Terefe, former deputy manager of the Ethiopian Space Science Society.

“The challenge is knowing which problems are to be addressed with the space programme,” he said.

The consultancy firms officials of the Institute select will develop project proposals and bid documents to hire contractors. They are also keen to open an aerospace workshop to train professionals to address the skill gap they anticipate after the centre’s construction is completed. The integration and testing centre was approved by the Ministry of Planning & Development last year, while a communications satellite launching awaits approval after submitting it earlier this year.

Although a feasibility study was conducted last year with funding from the federal government, it has faced delays.

Messay Woldehana, manager of the communications satellite project, attributed the delay to the “fast-changing nature of the technology” the Institute pursues.

Ethiopia launched its first imaging satellite from the Chinese Long March 4B rocket in December 2019. It is under the purview of the Ground Control Station at the Entoto Observatory & Research Center in Addis Abeba. It has an average lifespan of three years and is likely to be unfit for service by year-end.

“Institutions and regional governments are using various data collected by the satellite,” confirmed Melaku Muka, the Institute’s satellite research development and operation director.

The Ministry of Defense and the Ethiopian Sugar Corporation are the primary beneficiaries.

The development of the second satellite was designed to coincide with the expiration of the first satellite.

Used Car Importers Sigh as Finance Ministry Intervenes Stopping Auctions

Posted on April 24, 2022April 22, 2022 by Web Master

Officials of the Ministry of Finance have suspended the auctioning off of used vehicles under the custody of the Adama Customs Branch Office, giving a sigh of relief to the importers.

Over 630 vehicles were brought into the country but apprehended by tax authorities for allegedly evading paying duties. Eighty-three of them were put up for auction by the Office. The saga began in the wake of an adjustment to excise tax rates two years ago.

Excise tax – often described as “sin tax” – is imposed mainly on luxury items imported but affects health, such as alcohol and tobacco. In January 2020, the government set a hefty excise tax rate on used vehicles to discourage the import and sale of used cars. Vehicles aged between two to four years are subjected to the lower tariff rate of 105pc. Those who bring in cars over seven years since manufacturing and with an engine capacity of 1,300cc pay over 400pc of the car’s value. New and fully-assembled vehicles are subject to a 60pc excise tax, while electric vehicles are exempted from duty.

A six-month grace period was granted to importers bringing vehicles when the revised tariffs were introduced.

The COVID-19 pandemic broke a month after the directive was introduced, leading to major ports’ closure and supply chains disruption. Asrat Demelaw, secretary of the Vehicles Importers Association, says the closure of ports left importers unable to bring vehicles and fulfil customs requirements on time when the grace period ended in August 2020. The vehicles, shipped from the United Arab Emirates, South Korea and Europe, have been used for two to seven years. The lobby group says the complications led to 637 used cars being stranded in various locations, from ports in Djibouti to Modjo Dry Port and the Adama Customs Branch Office.

The auction was called off after leaders of the 1,000-strong Association held discussions with Eyob Tekalign (PhD), a state minister for Finance.

There are close to 4,000 vehicle importers in the country.

Half the vehicles had received offers when the Adama Customs Branch Office floated the auction last month. The highest offer made was 2.2 million Br, according to Mengistu Gelcha, Adama Customs Branch Office manager. However, the Office put the brakes on the auction process after the auctions began by order of the Finance Ministry. The Office has 155 vehicles under its custody, while dozens more are stranded at the Modjo and Gelan dry ports, the Addis Abeba Qality Customs Branch Office, and ports in Djibouti.

This is not the first time the Adama Customs Branch Office has tried to auction off the vehicles. In November 2020, it had floated an auction to sell half of the vehicles under its custody. However, a court order blocked the move, leading the Office and the importers spent the following year in litigation. Last October, the Lideta First Instance Court ruled in the Office’s favour.

“The Office has been preparing to auction the vehicles since the ruling,” said Wendwosen Abiyu, coordinator of seized property administration at the Office.

Tax officials cite a two-year-old law to justify their claims. The directive issued by the Finance Ministry in 2020 gives the Customs Commission the power to confiscate imported items without paying the necessary duties. Unlike other laws, tax laws are interpreted narrowly, according to Yehualashet Tamiru, a legal consultant and researcher. They are drafted in a largely pro-state manner.

The expert observed that the importers must fulfil two criteria to trigger force majeure provisions, which might be their only way out.

“Although COVID-19 is not ‘force majeure’ on its own, its consequence can be seen as so,” said Yehualashet.

They can also prove that the events had made carrying out imports materially impossible. Here, the effects of the pandemic, such as the lockdowns, are evaluated.

“Although the importers’ case fulfils the first criterion, it is doubtful when it comes to the second,” said Yehualashet.

The observations are troublesome for Abraham Lemma, a major shareholder of Geneve Car Import Plc. In business for the past 12 years, the company imported 60 of the vehicles seized by customs authorities. It bought the cars from Dubai for 20 million Br.

However, half of the vehicles were put on sale in the first auction held by the Adama Customs Branch Office in November 2020. Abraham struggled to cope with changes in the car import business since the excise tax rates were revised.

Vehicle imports, mainly used cars, have dropped significantly since. On average, 4,500 used vehicles would be brought in each month before the revised tax rate. It has since fallen to 3,100. Close to 85pc of imported vehicles are second-hand, and about 90pc are Toyota models, revealed a study by Deloitte Africa Automotive Insights. These vehicles are imported mainly from the United Arab Emirates.

Industry players saw fewer used vehicles, including Toyota models such as Vitz, Yaris, Platz, and Corolla, were imported over the past two years. Instead, brand-new Toyota and Suzuki models are growing more common.

Abraham is worried about himself and the 30 employees employed by the company.

“My money is still tied up, limiting us from importing new vehicles and surviving,” he told Fortune.

Officials seem determined to collect every penny they believe the state is owed. Mengistu, the customs manager, say that besides paying excise taxes based on the revised tariff rates, the importers would be required to pay demurrage fees. Around half of the vehicles are stranded at ports in Djibouti.

“We’ll continue pursuing every option to make importers pay the taxes or confiscate the properties,” said Mengistu.

Ministry Pins Hope Energy Policy Revision Stimulates Negligible Private Participation

Posted on April 24, 2022April 22, 2022 by Web Master

Ethiopia’s energy policy is under review, with federal authorities hoping to make room for the private sector to generate electric power. Officials say the prevailing energy policy introduced in 1994 no longer suffices to meet the country’s growing energy demands forecasted to grow by 30pc annually.

Boosting electric power generation capacity is a priority for a country where only half the geography has access to electricity. Though it is home to abundant energy resources, like wind, solar and geothermal, Ethiopia generates most of its electricity from hydropower. Close to 90pc of the 4,500mw generated power comes from hydropower sources, from dams built and operated by the state.

Despite the potential, the country continues to experience shortages and load shedding.

The federal government wants to increase power generation five-fold in a decade, with the private sector accounting for a quarter of this. However, the private sector’s involvement in energy production remains almost nonexistent. The exception is Tulu Moye Geothermal Operations Plc, which is developing geothermal power.

Jointly owned by the Paris-based investment firm Meridian SAS and the Icelandic geothermal development company, Reykjavik Geothermal, Tulu Moye’s project in the Arsi Zone of Oromia Regional State is scheduled for completion in two years. It will generate 50mw of power, covering 0.012pc of electric power entering the national grid. The company embarked on the project in 2018 with an investment outlay of 800 million dollars.

Experts at the Ministry of Water & Energy sent the draft policy to regional administrations two months ago, according to Sultan Woli, a state minister for Water & Energy.

“The private sector is expected to invest in large-scale projects and small energy technology modalities, like solar energy,” said Mesfin Dabi, a senior energy analyst at the Ministry of Water & Energy.

Since 2017, the federal government has pursued a policy shift to attract private capital to the energy sector. Five years ago, Parliament legislated the first law that governs energy production through public-private partnership (PPP) schemes. A directorate under the Ministry of Finance was created to supervise projects under these schemes. A board was also established comprising directors from the National Bank of Ethiopia (NBE), the Ethiopian Electric Power, and Water & Energy and Finance ministries.

“The government has limited capacity to finance energy projects,” said Tilahun Tadesse, director-general of the directorate.

The board has approved eight solar projects over the last four years.

Enel Power, an Italian company, invests in a solar project in Metehara, Oromia Regional State, expected to generate 100mw when completed. According to people close to the matter, it is also in tariff negotiations with the government.

Development organisations are also involved in energy projects.

The Netherlands Development Organisation (SNV) has supported a biogas programme initiated in 2009 with 22 million euros. Hiwote Teshome, energy sector leader at SNV, says the existing energy policy is incoherent and does not consider energy demand.

“The tariff doesn’t consider costs incurred by developers,” said Hiwote.

She observed that the government is preoccupied with sheltering end-users from high prices when it sets tariffs. But this excludes the private sector from the game, according to Hiwote.

Tariff negotiations between developers and the government are taking their toll on the viability of the projects, says Tigabu Atalo, an independent power consultant.

“Developers incur costs as the negotiations extend further,” he said.

Two solar projects the board had approved before have collapsed due to finance issues. ACWA Power, a Saudi-based energy developer, wanted to develop projects in the Afar and Somali regional states. The Afari-Dicheto and Somali-Gad projects were expected to have generation capacities of 125mw each, with a planned investment of 300 million dollars. ACWA had initially agreed to sell a kilowatt of energy to the government for 0.025 dollars, one of the lowest tariffs in Africa. The company abandoned the projects last year.

The shortage of foreign currency pushed the company away, according to an official at the Ethiopian Petroleum & Energy Authority.

The first batch of projects awarded contracts after ratifying the proclamation has mostly been unsuccessful.

“The policy should fix issues for the upcoming projects,” said Tigabu.

Federal officials now show a willingness to explore options that provide guarantees to the private sector to access foreign currency. The Ministry of Water & Energy is studying to revise the existing energy roadmap.

“The study is near completion,” said Sultan.

Insurance Firms Race to Acquire Core Systems to Meet Regulator’s Demand

Posted on April 24, 2022April 22, 2022 by Web Master

The insurance industry scrambles to acquire core insurance systems following a demand placed by the regulatory authorities that financial institutions fully automate their business operations.

The National Bank of Ethiopia (NBE) recently issued a compelling directive for banks, insurance firms and microfinance institutions (MFIs) to implement an automated financial management solution. Becoming enforceable this month, the directive outlines general information technology management requirements for financial institutions the national bank regulates.

The national bank has granted insurance firms two years to complete the transition. Acquiring a system requires buying the hardware and establishing a system environment, including a robust database.

Ethio-Life & General Insurance is about to complete the migration to automated services, signing a deal to acquire a financial system from an international supplier. The US-based Beyontec developed the firm’s system for 30 million Br, selected from a pool of five global system providers. Infusion, 3i-Infotech, Informatics International Ltd, and ASSECO Poland were the other contenders.

Capitalised with 200 million Br, Ethio-Life is Beyontec’s first client in Ethiopia. It has been providing services manually since it began operations in 2008 as one of the second-generation insurance firms. Its executives plan to implement the system in 10 selected branches and grow to include all the 28 branches in four months, according to Dagimawi Hailu, the project consultant at Ethio-Life.

The automated system allows all the departments to link one another and process workflows in real-time.

“We’ll be able to integrate all our branches, clients, authority [central bank], and re-insurers,” Dagmawi told Fortune.

Ethio-Life, owned by 1,300 shareholders, provides life and general insurance policies to 3,000 clients. The insurer has 1,300 shareholders.

Its executives expect the automated system to create ease for customers, allowing them simple access to information on premiums and policy renewal. Clients will also be able to make claim requests by logging into the system and following up on the process remotely, receiving updates through text messaging, according to Nebiyu Ephrem, IT department manager.

The banking industry has already transitioned into automated service provision, with all banks having adopted core banking technologies. A few insurers, such as Awash, United, Nib and Africa, have acquired core systems. United Insurance, an industry veteran incorporated in 1994, is the first to implement a core insurance system. It bought its first system, dubbed PREMIA, over a decade ago.

United is working on upgrading the existing system, according to Aliye Mohammed, IT manager.

“There’s no question of its importance,” said Aliye.

The upgraded system will incorporate end-user solutions such as mobile application functionality.

“It’ll also include IFRS reporting tools,” said Aliye.

These reporting solutions help in decision making and submissions of reports to the national bank. It is challenging to generate and submit frequent reports to the central bank using manual operations, says Aliye. Several companies find it challenging to implement these services due to the nature of the business and the high investment amount to acquire a system.

Awash Insurance, the most capitalised in the industry, on-boarded Infusion Software Development Plc, an Indian software supplier, in November 2014 to deploy its system. Bunna Insurance had started a bidding process to buy a core insurance system before the national bank issued the directive in early March. The bid is expected to close at the end of this month. Zemen Insurance, the youngest in the industry, called for an expression of interest earlier this month. It is scheduled to close next month.

Berhan Insurance is following suit, preparing to acquire a system. A bid will be floated soon, according to Yoftahe Mekonnen, manager of IT services. Last year, Berhan registered 45 million Br in gross profits from its operation with two dozen branches.

The absence of local technology providers is a significant setback. Access to foreign currency to buy, upgrade and cover maintenance fees keep troubling decision-makers in the financial sector.

Eskinder Mesfin, chief executive officer (CEO) of Asiibez Consulting, is an IT expert working in the sector for 13 years. He attributed the high investment to the sophisticatedness of banking system modules and the high-security risks. According to the expert, local IT firms with the capacity to provide specialised services are absent.

“Local capacity has to develop,” said Eskinder. “But it’ll take time.”

The central bank has issued similar requirements for all 38 microfinance institutions. They have been granted a three-year transition period to comply. Recently, two dozen have adopted a shared core banking system deployed by the Association of Ethiopian Microfinance for three million dollars. The system has been in the making for three years, supported by the International Fund for Agricultural Development (IFAD), which covered more than half of the development cost while the institutions paid for the balance.

Dire Microfinance Institution and Dynamic Saving & Credit are among the project’s beneficiaries.

Eskinder observed a gap in technology as a driver of business rather than orders by regulators.

“There’s a means to recover the initial investment, even though it is high,” he said.

Focus on Migrants, Families, UN Remittance Head Urges

Posted on April 24, 2022April 22, 2022 by Web Master

Fortune: – The remittance inflow to Ethiopia is around three, four billion dollars? This is against a population of a 100 million, and an annual GDP of 100 billion dollars. How do you see this in comparison with other countries at a similar level of economic development?

Amil: Remittances are a critical flow of foreign currency to Ethiopia. As for estimates, they are about three billion to five billion dollars, according to the National Bank of Ethiopia (NBE). It is about five percent of GDP. As per reports of multilateral agencies, almost 60-70pc of flows could be through informal channels. The government is very much aware of this, and certain reasons are acknowledged as causes. One of these is the exchange rate difference between the formal and the informal market. But there are other reasons for this as well. In the last couple years, there has been a focus on reform, which is gradually supporting the flow of remittances through the formal channels.

It is difficult to say how all of this compares to other developing economies. Each country has its own development journey, trade, growth prospects; a lot of indicators that a play an important role ensuring that foreign currency is flowing through the formal channels.

Ethiopia is gradually moving towards the best practices of other economies in remittance strategy. Tanzania, Kenya, Bangladesh and Philippines are the countries we have looked at compared to the Ethiopian policy and regulatory environment. In the past two or three years, major critical steps have been taken to ensure that the regulatory environment is at par with the other developing economies.

Q:Those countries you mentioned – Tanzania, Kenya – are they doing a better job in attracting remittances through formal channels?

There are local realities that do exist in each case. What is the banking, financial market, money infrastructure? What is the digital infrastructure? How liberalised is the economy? What sectors have a strong private sector?

It may not be fair to say that other countries are doing better. But from where Ethiopia is as compared to the others, each has their own journey towards development. Every country wants foreign currency flows through formal channels. Towards that goal, each government and central bank has to look at different aspects of the economy – like inflation and trade flows. They would want to take steps to ensure that certain policies support the flow of remittances through formal channels under these contexts.

To this extent there are encouraging signs in Ethiopia. We have seen opening up, especially in the telecom sector, and on foreign currency accounts. There are also recent statements to allow foreign banks into the country. We have also seen that the non-banking financial institutions have a more active role in ensuring remittances in formal channels, especially in the last mile. All of these deserve to be acknowledged.

Q: Are you saying that more opening up, especially liberalising the financial sector, has the potential to attract more remittances through formal channels?

There are different factors that ensure that an economy has the right set of skills, resources and investments to bring about financial product innovation. These could be financial market digital and last mile infrastructure. When there is a sector that has demonstrable openness because the government is moving in that direction, it does allow for a certain sort of investment that leads to innovation and better products and services.

Q: Can you elaborate more on that? How does developing the financial sector and building up the ecosystem transform remittance inflows? What does it offer that the current system does not?

Well, remittances are the touch point for migrants and their families to be part of the formal financial ecosystem. If me or my mom are not part of the formal banking infrastructure, and if I am in the US and I am sending money back home, I will have to use an identification system or document to transfer through a formal channel. If I want to ensure that my money reaches my mom, I have to use the formal channel. Otherwise, it is just based on trust. There will be no assurance given by a third-party that is obliged to a regulator to ensure that a transaction goes through and reaches the intended recipient in the receiving country. If my mother wants to receive the money, she also has to show an identification document. These are the touch points.

If there is enough investment in the financial market and digital infrastructure, what that transaction does is provide the information that this person is receiving this much money on a periodic basis. This almost acts as an income in the receiving end, giving an opportunity to the digital finance ecosystem to actually see my risk profile. Based on this, they can give me banking products that would otherwise not be available.

These are the incentives that a digital ecosystem and proactive financial system that looks after the needs of migrants and their family members can ensure. When family members are receiving, the private sector knows that if they were to focus on remittances there is a five billion dollar market available to them. We need to focus on where are the incentives of the government, the private sector and people converging and aligning so that the process is seamless all the way from the sender to the receiver.

If the telecom sector was to penetrate well in Ethiopia the way it has been in other countries in the region, it would create a credit-risk profile that, over time, gives information to the broader ecosystem that this receiver is bankable. If we were to focus on people, we would see that incentives will start aligning gradually. Right now, we only consider remittances as a transaction, as a forex instrument. This is important but we have to create demand from the receivers, and make it worthwhile for them to receive it from the formal channels so that they are not only worried about a better exchange rate.

We have to make them say, “maybe the 10 Br extra is not worth my time because if I were to receive through formal channels I will get access to a lot of products and services.”

Q: They are also getting it much faster, right?

Yes. And not to mention, assured. It is not that informal channels are necessarily untrustworthy; they have been working for a 100 years and may still be there a century later. But what we need to ensure is where we are creating the demand, which will only exist where the right incentives are located. And if we do not focus on creating those incentives, we will not be making the most of remittances.

Q: What about the cost of transferring through the formal channels, which could be as expensive as 10pc of the amount being sent? Why has there not been a breakthrough when such a barrier exists?

Remittance transaction cost is one of the sustainable development goals (SDGs). The target is for the average transaction cost in 2030 to be less than three percent. It will be helpful for us to focus more on why there are distortions in the market, or why there are high transactions costs, instead of particular providers. If there is enough competition in the market, if the volumes are high enough, if the regulatory ecosystem is conducive and the compliance costs are nominal, then we will see the transaction cost coming down by itself.

We need to ensure that there is a strong financial system infrastructure that allows for the digitisation of remittances, for the money to originate in a bank account and terminate in a bank account, so that the cost of operating cash goes down. When this happens, compliance expenses also come down as well the cost of maintaining agents and cash management also comes down.

If we were to ensure enough market competition and volume by allowing through a risk-based mechanism more non-financial and fin-tech players, the transaction costs will be written down. The private sector will make money whenever there is an opportunity for it to make money. We should strengthen the competition within the market with a range of products and services that are forcing the prices down in a manner that is not unsustainable for the private sector to maintain their profits.

Q: Where does this competition come from? Presently, there are the legacy money transfer companies, such as Western Union and MoneyGram. On the other hand, you have disrupters such as M-Pesa and Telebirr. Is this the type of competition you have in mind.

Absolutely. We also need to acknowledge that Western Union and MoneyGram are working with banks here, which are their agents. Banks all have a fee on those transactions. There is a lot more disruption and innovation that could come from the banks, because they have traditionally played a very significant role and will continue to in the future.

In partnership with banks, often times under the leadership of banks, we need to allow for that innovation to take place. We actually see the likes of Lion Bank are taking steps towards disrupting the market. The time to market for certain products is significantly down, the customer service and agent network is better, and they are coming up with products and services based on better data, analysis and customer profile.

Q: Somewhat off-topic from remittances but potentialy consequential in attracting foreign currency from the Diaspora community is bonds, specifically diaspora bonds. Some countries have done very well on this, such as Israel. What are your thoughts on it?

Let us step back and focus on why we are talking about diaspora bonds in the first place. As developing economies, we are always under pressure of debt repayments. We are also trying to increase exports, grow foreign currency reserves and invest in growth. Oftentimes, if we are not able to invest adequately, it has long-term implications on economic development.

In 2015, when the SDGs were adapted by the UN, everyone agreed that they will require financing. As developing economies, when we are unable to do that, then we start looking at measures that would help us raise financing at rates that are not steep and also does not create capital flight risk. As part of that equation, in countries that traditional receive high flow of remittances as a percentage of GDP, the idea of a diaspora bond has been floated. This is to finance economic development goals. But is that the right way?

For any sophisticated financial instrument to be successful, it has to go through certain steps that are not just about structuring the product but a process of marketing, issuance and adaption. Then, enough awareness has to be created to reach not just an elite diaspora but the mass migrant population usually sending remittances back home on a frequent basis.

For a developing economy where the financial market infrastructure and capital markets are not mature, the transaction cost of issuing such sophisticated products is too steep compared to the other mechanisms that could be available.

Diaspora bonds may or may not be a good product. But is it worth the cost compared to other products that are available? Ethiopia is still going through capital markets development. There are going to be a couple of years until it matures and for the right stakeholders to invest in and mobilise it in a manner so that products such as a diaspora bond will be comparatively more successful.

We ought to focus on what money is already flowing into the country, how can we ensure that it flows through the formal channel, because it is already reaching households, and how can we empower recipients to meet their own SDGs? How can we ensure more money in their hands and that they are not paying 10 dollars for every 100 dollars they receive? How can we ensure that when they have more money in their hands, that more financial products are being made available to them? How can they put that money back into the financial sector ecosystem and access financial products for their own businesses, education, livelihoods, consumption?

And how is this helping the economy? All of this is also mobilising resources within the market. If I am consuming more, there will be more demand, which generates more jobs.

There are different ways to approach the same problem, which is about financing development. We need to focus on empowering households as the country readies capital markets that can then allow for more sophisticated products to be successfully issued.

Q: What is that crucial thing you hope people understood about remittances?

Remittances oftentimes are looked at, or being addressed, through very circumscribed lenses, based on certain expertise that exist across multilaterals and the public and the private sectors. Either it would be seen as a macroeconomic, or regulatory, or financing, or even political issue. But what it requires is ensuring that at the heart of it are migrants and people.

When we are focusing on any policy or regulation on remittances, if we are coming up with a new business model or product we also have to ask, how is it going to help people and migrants? The more we ask this question, the more we realise that all of them are connected. Working on one should not leave the other one behind. It has to be a holistic approach. While working with the Finance Ministry, you have to work with the central bank, the telecom regulator, the banking regulator, the finance institutions, the mobile network operators and the fintech players. Unless you bring all of these stakeholders to the table, and help them acknowledge this issue from the lens of migrants and their families, it would be difficult for us to solve this issue.

The ‘Resident Evil’ in Ethiopia’s Banking Industry, Itself No better

Posted on April 24, 2022April 22, 2022 by Web Master

There is an ongoing debate on whether foreign financial institutions should be allowed to operate in Ethiopia. At the forefront of the argument are bank board members and executives. Financial liberalisations might increase financial fragility at face value, making the country prone to periodic financial and currency crises. The chances are that developing countries like Ethiopia could be on the receiving end of volatilities in opening up, though not always.

But a question remains largely unasked on the harm existing private commercial banks inflict on the economy. Domestic banks are no less detrimental when seen from financial stability and income distribution.

Take the 10-Year Perspective Development Plan recently introduced. Sustainable finance is considered a major enabler of growth. The plan singles out the government’s pursuit of empowering the private sector in significant public investments. In a way, the private financial institutions, banks in particular, could be on the receiving end of this generous consideration. The intention could be that they are to be expected to deliver what they promise to shareholders and the public – namely sustainability.

Sustainability is not about investing considerable sums in employing international consultants to conduct a strategic plan that comes up with irrational recommendations such as downplaying the role of employees and, in contrast, inflating top management salaries. Neither does it mean having a different logo. It must be about ensuring the long-term health of their respective companies by enhancing competitiveness and being responsive to regulatory and environmental demands.

If the government spends public money to create a sustainable financial sector before changes in the way these institutions behave, it will simply be nurturing irresponsible actors.

When I was a senior officer at a commercial bank, some time ago, my boss made a statement that I thought was a banker’s conviction of the market. We argued about the demand elasticity of interest rates.

“This is a suppliers’ market,” he said. “Whatever it is that you supply at your desired price, you can sell it. It is getting the loan that concerns them [borrowers]. As you can see, we have queues of requests to deliberate on and approve. They might not know the interest rate for that matter – even at the time of signing the contract.”

This highlighted how downright irresponsible it is to exercise monopolistic power in a financial sector in its infancy. More importantly, it ignored the very notion that having an informed customer helps grow the industry – where banks could compete on a more permanent engine of growth – instead of the pursuit of hit and run.

We might please shareholders with annual profits, but do we really increase shareholder value?

The shareholder might happen to be a customer of one of the hard-done clients of these banks that pays inflated interest on its loans and makes every effort at its disposal to pass down the costs to consumers.

What about corporate social responsibility – in the sense of its mere utterings – apart from its colourful presentation on websites?

Irresponsibility was extremely visible during the COVID-19 outbreak and the disaster responses of some of the institutions. Some institutions made public announcements of interest reduction in sectors where they barely do business or have the least portfolio. What a response it is! How responsible! Meanwhile, they make every effort to make sure they hold less provision to “increase” shareholder profit – by rescheduling, restructuring and extending non-performing loans under the pretext of COVID-19.

They are practically making their own cashflows unbearably challenging to manage. Waiving loan repayments and effecting dividend payouts on “artificial” profits on those ‘healthy’ loans could make a recovery near-impossible and a liquidity crisis imminent.

We should wonder, then, how bank executives get the courage to preach the dangers of opening up the financial sector to foreign players. The latter might have some downsides to bring, but it cannot be more significant and profound than the undesirable socio-economic effects of the local private banks. A bank cannot claim to be socially responsible if it lends savings at double the interest rate it pays to customers. All the while, some banks are paying more than 14pc for fixed time deposits.

Why the overtrading in the first place? What more damage can they bring to the nation than this? Does this not promote speculation than entrepreneurship?

A Bank cannot claim transparency when it literally “cheats” shareholders with questionable financial statements every June. A bank cannot claim to be a valuable player in the country’s economy when it lends public money to the few in the business community that have the right network or own collateral. Entrepreneurs with feasible business ideas are rejected outright for insufficient collateral, whereas those few businessmen are generously granted unsecured loans even for “loan settlement” and on relatively flexible terms.

A move to introduce a depositor insurance scheme to safeguard the public in times of crisis, such as liquidity issues, should be welcomed. But the National Bank of Ethiopia’s (NBE) failure to work on the possible root causes of the problem, and instead establishing a fire brigade, should be questioned. Unless they do not want to name it, many economic hardships have their inception at private commercial banks and the central bank cannot pretend it cannot see the problem.

Most banks maintain an outstanding loan portfolio that is 10-fold their paid-up capital. An overwhelming majority of whatever they lend to the selected few is neither their own capital nor asset. It is savings. It is our fund, our deposit. Yet, they do little to promote entrepreneurship or give back to the society they “exploit.” Inflation and market malfunctioning are brewed and enabled in what is a flawed and failed banking system.

I also welcome the move from the Ministry of Finance on the decision to keep public funds public. Let them work on financial literacy campaigns, float shares indiscriminately to the public, and raise the necessary funds to operate on their own. For good reasons, state-owned banks charge less interest than their private counterparts. It might sound that public banks are not accessible to credit for SMEs and that the fund might not serve the purpose it could had it been with private banks. The thing is, SMEs and entrepreneurs have no access here either. They reserve the funds for a selected few most of the time.

The private commercial banks are asking for too much – savings paying negative real interest rates, the autonomy to spread the funds of their own will, the liberty to higher service charges, and being shielded from foreign competition. The choice we are presented with now is between domestic or foreign bank exploitation. The name does not matter so long as we are being abused. We should not be afraid of financial liberalisation as we have been made less sensitive to exploitation. Obviously, the local “sharks” face an existential threat with market opening up. For us, it would only be a regime change that would not make a difference.

The False Promise of Democratic Peace

Posted on April 24, 2022April 22, 2022 by Web Master

Through persuasion, exhortation, legal processes, economic pressure, and sometimes military force, American foreign policy asserts the United States’ view about how the world should be run. Only two countries in recent history have had such world-transforming ambitions: Britain and the US. In the last 150 years, these are the only two countries whose power – hard and soft, formal and informal – has extended to all parts of the world, allowing them plausibly to aspire to the mantle of Rome.

When the US inherited Britain’s global position after 1945, it also inherited Britain’s sense of responsibility for the future of the international order. Embracing that role, America has been an evangelist of democracy, and a central US foreign-policy objective since the fall of communism has been to promote its spread – sometimes by regime change, when that is deemed necessary.

In fact, this playbook dates back to US President Woodrow Wilson’s time. As historian Nicholas Mulder writes as such in “The Economic Weapon: The Rise of Sanctions as a Tool of Modern War.”

“Wilson was the first statesman to cast the economic weapon as an instrument of democratisation. He thereby added an internal political rationale for economic sanctions – spreading democracy – to the external political goal that…European advocates of sanctions have aimed at: inter-state peace.”

The implication is that, where the opportunity offers, military and non-military measures should be used to topple “malign” regimes.

According to democratic peace theory, democracies do not start wars; only dictatorships do. A wholly democratic world thus would be a world without war. This was the hope that emerged in the 1990s. With the end of communism, the expectation, famously expressed by Francis Fukuyama’s 1989 article, “The End of History” was that the most important parts of the world would become democratic.

US supremacy was supposed to ensure that democracy became the universal political norm. But Russia and China, the leading communist states of the Cold War era, have not embraced it; nor have many other centres of world affairs, especially in the Middle East. Hence, Fukuyama has recently acknowledged that if Russia and China were driven together, “then you would really be living in a world that was being dominated by these non-democratic powers…[which] really is the end of the end of history.”

The argument that democracy is inherently “peaceful,” and dictatorship or autocracy “warlike,” is intuitively attractive. It does not deny that states pursue their own interests but it assumes that the interests of democratic states will reflect common values like human rights, and that those interests will be pursued in a less bellicose manner (since democratic processes require negotiation of differences). Democratic governments are accountable to their people, and the people have an interest in peace, not war.

By contrast, according to this view, rulers and elites in dictatorships are illegitimate and therefore insecure, which leads them to seek popular support by whipping up animosity toward foreigners. If democracy replaced dictatorship everywhere, world peace would follow automatically.

This belief rests on two propositions that have been extremely influential in international relations theory, even though they are poorly grounded theoretically and empirically. The first is the notion that a state’s external behaviour is determined by its domestic constitution – a view that ignores the influence the international system can have on a country’s domestic politics. As the American political scientist Kenneth N. Waltz argued in his 1979 book, “The Theory of International Politics,” “international anarchy” conditions the behaviour of states more than the behaviour of states creates international anarchy.

Waltz’s “world-systems theory” perspective is particularly useful in an age of globalisation. One must look to the structure of the international system to “predict” how individual states will behave, regardless of their domestic constitutions.

“If each state, being stable, strove only for security, and had no designs on its neighbours, all states would nevertheless remain insecure,” he observed, “for the means of security for one state are, in their very existence, the means by which other states are threatened.”

Waltz offered a bracing antidote to the facile assumption that democratic habits are easily transferable from one location to another. Rather than trying to spread democracy, he suggested that it would be better to try to reduce global insecurity.

Though there is undeniably some correlation between democratic institutions and peaceful habits, the direction of causation is disputable.

Was it democracy that made Europe peaceful after 1945? Or did the US nuclear umbrella, the fixing of borders by the victors, and Marshall Plan-fueled economic growth finally make it possible for non-communist Europe to accept democracy as its political norm?

The political scientist Mark E. Pietrzyk contends that, “Only states which are relatively secure – politically, militarily, economically – can afford to have free, pluralistic societies; in the absence of this security, states are much more likely to adopt, maintain, or revert to centralised, coercive authority structures.”

The second proposition is that democracy is the natural form of the state, which people everywhere will spontaneously adopt if allowed to. This dubious assumption makes regime change seem easy because the sanctioning powers can rely on the welcoming support of those whose freedom has been repressed and whose rights have been trampled underfoot.

By drawing superficial comparisons with postwar Germany and Japan, the apostles of democratisation grossly underestimate the difficulties of installing democracies in societies that lack Western constitutional traditions. The results of their handiwork can be seen in Iraq, Afghanistan, Libya, Syria, and many African countries.

Democratic peace theory is, above all, lazy. It provides an easy explanation for “warlike” behaviour without considering the location and history of the states involved. This shallowness lends itself to overconfidence that a quick dose of economic sanctions or bombing is all that is needed to cure a dictatorship of its unfortunate affliction.

In short, the idea that democracy is “portable” leads to a gross underestimation of the military, economic, and humanitarian costs of trying to spread democracy to troubled parts of the world. The West has paid a terrible price for such thinking – and it may be about to pay again.

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Month: April 2022