Frehiwot, Anwar Inch Closer to Infrastructure Deal

The public persona of Frehiwot Tamiru, CEO of the state owned Ethio telecom, may appear charming, cheerful and soothing. Behind closed doors in the boardrooms, she has proven to be a hard nut to crack. Both friends and foes acknowledge her competence in transforming a century-old public company to survive in the cut-throat competition of the 21st century.

Anwar Soussa, CEO of Safaricom Ethiopia Plc, has glimpsed the tough woman behind a tender appearance. His team has yet to launch a mobile service in April this year his parent company agreed after winning a licensing bid last year. Anwar pushes forward to meet government-set rollout plans for the first year of operations with progress in infrastructure sharing negotiations with Frehiwot.

The duo are set to strike a deal after months of back and forth over the financial aspects of sharing Ethio telecom’s towers. The Ethiopian Communications Authority (ECA), under Balcha Roba, has arranged a meeting between the two executives to settle disagreements over whether lease payments were to be made in foreign currency as Frehiwot demands. She offered to lease towers in densely populated markets for over 2,000 dollars a month for every tower. It is more than the ex-ante tariff set by the Authority at 1,700 dollars for Class I tower rental.

Anwar has requested access to one-seventh of the state-owned operator’s tower sites.

Established three years ago, the Authority is responsible for brokering a deal if disputes emerge between operators. It may intervene if its involvement is requested by at least one party.

Frehiwot and Anwar have made progress with the terms of the agreement and are expected to ink a deal soon, people close to the process told Fortune. The deal also includes an interconnection agreement, which involves the setting of interconnection fees subscribers pay when calls or texts are made over the two operators’ networks.

“We’re still in progress,” Tewedaj Eshetu, communications manager of Safaricom Ethiopia, told Fortune.

The executives of the incumbent Ethio telecom were reluctant to provide information.

“We’ll announce the details after signing the deal,” said Mesay Woubshet, head of communications at Ethio telecom.

Anwar and his team had initially planned to launch commercial operations in April after the operator was granted a 15-year license bidding 850 million dollars. It has yet to meet the deadline. People close to the matter expect the operator to launch services in September. Tewedaj declined to disclose the official launch date but said it would be before the end of the year.

Officials at the Authority say Safaricom Ethiopia will not face penalties due to the delays as long as the company manages to meet targets set for its first year of operation. Safaricom Ethiopia’s network is expected to reach a quarter of the population by next April and cover all special economic zones. Other commitments include reaching half of all airports and covering a third of major roads and highways.

“We haven’t received any requests for an extension of the commercial launch date,” Balcha, director general of the Authority, told Fortune.

Anwar is moving ahead with its infrastructure development project in addition to the pending deal with Frehiwot. Three months ago, he contracted Huawei and Nokia to facilitate the installation of infrastructure on building-tops, of which Nokia will carry out 60pc. A week ago, Safaricom Ethiopia invited companies to supply VSAT equipment and bandwidth for its planned satellite solution. The company plans to deploy the technology, which provides high-speed broadband satellite communications, to connect rural areas. Equipment valued at 350 dollars has been brought to the country, sources disclosed to Fortune.

A few months ago, Anwar and his chief technology officer, Pedro Rabacal, pledged to introduce video calls and multimedia messaging services. They plan to offer these services in five cities, including Addis Abeba, Hawassa and Dire Dawa. Safaricom Ethiopia is also set to benefit from a bill under preparation by regulators at the central bank, which would allow foreign investors and overseas companies unrestricted opportunities in digital financial services. It will likely be one of the frontrunner beneficiaries by introducing its successful M-Pesa mobile money platform to the Ethiopian market.

Ethio telecom has got a head start. Since it was introduced last year, its Telebirr mobile money platform has registered over 18 million subscribers and facilitated transactions valued at close to 10 billion Br. Last week, the central bank gave the operator the green light to begin offering micro-credit services on Telebirr. However, there are still details to be worked out before the launch.

“We’re awaiting clarification from the central bank,” said Mesay.

Frehiwot and her executives have been in a frenzy to roll out new services before getting their first taste of competition. Last month, she launched a pre-commercial 5G network, making Ethiopia one of only a handful of African countries to avail of the network.

Safaricom Ethiopia plans to begin operations with 4G network services. The path to that begins with charming the formidable lady at the helm of Ethio telecom.

Cheap Global Capital Era Over. Time to Reimagine Infrastructure Financing

There seem to be all types of wars these days. Civil wars, from Ethiopia to Myanmar; inter-state wars and geopolitical apprehensions, from the Russian invasion of Ukraine to China’s growing tension with Australia; and growing proxy confrontations between the United States and China over trade and Taiwan.

A new one is reverse currency wars, which further diminishes prospects for underdeveloped economies like Ethiopia.

The reverse currency wars are a perversion of a prevalent phenomenon in the last decades of the 20th Century. The currency wars arose as a response by countries’ central banks to interfere with exchange markets to depreciate or devalue their currencies. Mainly pushed through low-interest rates, it would make their goods and services competitive and help top narrow trade deficits. There were, of course, other reasons for near-zero interest rates, such as central banks’ struggle to meet inflation targets to boost demand. The problem was exacerbated in Europe and Japan, which saw negative interest rates to combat deflation.

These were better times for Ethiopia. Arguably.

The negative side of the currency wars, export competitiveness, was not as impactful given that the Birr was also devalued. The currency wars primarily targeted service and manufacturing sectors, which Ethiopia was never close to being reckoned with.

Cheap money created by low-interest (and negative in some cases) rates meant that there was capital in the global financial system desperate to find positive returns. Even high-risk economies and sectors get some taste of the pie. Add to this the emergence of a willing partner in China, happy to use the foreign currency stockpile it was building up thanks to a historic run in annual trade surplus. It needed to diversify its investments outside of US treasury securities. Several African countries seemed enthusiastic debtors starved for infrastructure financing.

Ethiopia took up this offer from China, racking up 13.7 billion dollars in debt in the decade beginning in 2000, the second-highest in Africa.

The age of cheap money is ending for reasons outside the control of underdeveloped countries. Inflation in the advanced economies is the driving reason, which was ushered in by unprecedented levels of COVID era fiscal and monetary stimulus packages. The world pumped over 15 trillion dollars in cash to shelter economies from the falling out of the pandemic, an amount the size of the United Kingdom, India, Germany and Japan’s economies together. The food and energy crisis triggered by the Russian invasion of Ukraine has made an alarming situation into a scary prospect.

Central banks have begun increasing borrowing costs to tighten the money supply and subdue a demand surge fueled by generous stimulus packages. The unintended consequence of such an expansive monetary policy pushed capital away from economies that have not also tightened or depreciated their currencies. Responding to this, a spiral of higher interest rates leads to reverse currency wars. Many countries are running out of options, losing room for manoeuvring on the fiscal and monetary policy fronts.

Ethiopia, and most other underdeveloped countries, cannot be a party to this back-and-forth. They have highly diminished foreign currency reserves they cannot afford to get exposed to the whims of hot money. Worse still, the other development partner, China, feels nervous about its investments in Africa. Chinese leaders are cutting back on the largesse witnessed in the two decades of the 2000s.

Ethiopia and the usual suspects of Chinese bilateral debt have not signed new agreements since 2020. Barely two billion dollars was secured by countries in the continent, although new Chinese loan commitments averaged eight billion dollars before that. The Chinese have not been shy about their cautionary approach to Africa. Chinese leaders were open about their intention during the Forum of China-Africa Cooperation that exposure to African countries is reduced. They want to see private investment flows and green projects prioritised over infrastructure financing.

This is a problem for Africa, with over 100 billion dollars in an annual infrastructure financing gap. Ethiopia is a good illustration of this gap between what is needed and available. It is all the more urgent, especially as the West is not a reliable partner for infrastructure financing, as rich countries prioritise paying for programmes on health, education and democratic institutions.

Rethinking the financing sources for economic development is imperative.

Developing capital markets and opening the financial sector to foreign capital could be the logical course of action. Even in the best of times, without wars and instability, government revenues never suffice to raise significant infrastructure financing. Fiscal deficits are the curse of modern-day states. These are not – neither were they ever – areas that can generate enough funds to pay for massive infrastructure projects that fuel economic growth.

Policymakers can take a page out of Kenya’s playbook and consider infrastructure bonds. This amounts to going out to the global capital market and buying debt. However, it requires fiscal discipline (which this administration is not praised for) and maturity, where investors are pitched the investment opportunities on offer. A thorough prospectus needs to be prepared on infrastructure projects and followed up closely because delays and wastage are several folds costly. It would ask the government for the same insight and skill in capital planning and expenditures asked of the private sector.

However, trying to market such projects using personalities (the usual American accented rent-pleaders who often wing it) would be desperate, if not naive, moves with no prospect for success.

Neither are diligent project planners and financing experts sufficient to advance the idea. Individual or institutional investors would first ask, “how can I exist?” It is a question the global capital that came to Ethiopia struggled to answer. A maturity period of 10 years and negative interest rates (as inflation is persistent) is not a good proposition. Very few are willing to lock away their money and give up the keys for an extended period, even for US treasuries. Ask the executives of Diageo, Heineken and Safaricom to understand how much they have underestimated the swamp.

Internationally, opening up the capital account can be a bold and courageous – and indeed historical – measure to take for an administration with no lack of reputation to be gutsy. There hardly is a meaningful forex reserve worthy of protection at this moment compared to the size of the economy. The misery of every businessperson – foreign or domestic – is directly related to access to forex, the most precious national asset left to the whims of unelected bureaucrats at the central bank. When policymakers will come to gain the wisdom of liberating the economy from the shackles of capital control remains the most baffling matter.

A secondary market for trading securities, including infrastructure bonds, could be another wise policy move. If there is a market for buying and selling securities and flexible interest rates that follow market logic, prospective investors would be more likely to fork over their capital. These investors could be state-owned enterprises, pension funds, private companies or even the central bank when it wants to conduct quantitative easing.

Infrastructure bonds are not revolutionary. This was partly done with the Grand Ethiopian Rennaissance Dam (GERD). Bonds were sold in government offices and the streets of Addis Abeba as if this was still the Middle Ages. Information symmetry was low, and without clear existing plans to make their bonds liquid when they needed it most, only the few that were “patriotic” and public service employees bought the bonds. In the end, institutional investors and individuals – a good chunk did so under duress – financed about 10pc of the entire project cost.

How much more would it have been if policymakers had liberated the financial system?

Anything But Numb

Scenes inside the emergency room of Addis Abeba’s Menelik II Referral Hospital were nothing short of chaotic last week. Frantic staff members were rushing about, struggling to care for a crowd of patients needing urgent medical attention. Stretchers were clogging the dimly lit hallways, which, though relatively hushed, echoed with the whispers of patients and the occasional grunts of discomfort. The air carried the smell of sanitary chemicals distinct to medical facilities, made slightly overwhelming by the heat the capital has been experiencing in recent weeks.

Near Jan Meda, on Russia Street, Menelik II Hospital is one of the oldest, opened in 1909. However, the prestigious history was overshadowed by the goings on in its wards. Nurses were shaking with pent-up anxiety and distress, checking on patients seated on long benches pushed up against the beige-coloured hallways. One of the nurses was visibly irritated when patients approached her, asking for accommodation.

Emergency departments (ER) are ideally meant to serve as brief ports in trouble, with patients staying just long enough before transferred to other sections or sent home with instructions to follow up with various maladies. But the ER section of Menelik II Referral Hospital has transformed into an overflow unit. Some of the patients seated in wheelchairs were hooked up to IVs, while others spoke quietly to medical staff.

The atmosphere was quite the opposite in a separate hospital section designated for admitting elective surgery patients.

Abebaw Molla, 30, sat in that section last week, supporting his weary head with his hands. A father of two, Abebaw had come to the hospital without an appointment. It was his third visit in the last couple of months.

Five months ago, he underwent a small bowel resection operation at the hospital – a surgery to remove part of his small intestine, which had been damaged. Doctors made an incision around his right kidney to connect a tube to a colostomy bag, where faeces would be passed until Abebaw’s bowels healed. The surgery was a success, and he was instructed to return after three months for another procedure to close the wound.

The past few months, however, were tumultuous at best for Abebaw. He was glued to a chair, unable to work. Before his surgery, he was the family’s breadwinner, working as a daily labourer at construction sites.

“The wellbeing of my family is in danger,” he told Fortune.

Abebaw thought of little else but the follow-up procedure that would allow him to regain a semblance of normalcy. However, the relief has not yet come to pass. He does not know when to get an appointment for the second surgery. A debilitating shortage of anaesthesia drugs hit hospitals across the city, forcing doctors to suspend surgery procedures. It has been a month since Menelik II Hospital has admitted scheduled patients for surgery. No elective surgery was conducted at the hospital for two weeks.

“We’re struggling to cope with the mounting need for surgeries in the ER section,” a doctor told Fortune.

With 800 beds and over 2,300 staff, Menelik II Hospital is one of five referral hospitals under the supervision of the Addis Abeba City Administration. It treats an average of 15,000 patients each day. Others include Tirunesh Beijing, Gandhi, Zewditu, and Yekatit 12 hospitals. The municipality also oversees a little more than 100 health centres in the capital.

A receptionist sitting behind a worn desk at Menelik II Hospital could not do much for Abebaw except put his name on the waiting list.

There are a dozen drugs necessary to perform surgery. Anaesthetic suxamethonium, a muscle relaxant drug, facilitates windpipe intubation and mechanical ventilation procedures. It is a fast-acting drug used in emergency surgery. It was unavailable in Menelik Hospital. Supplies of cisatracurium, ketamine, and atropine – also anaesthetics – fare no better.

The shortages were visible at other health centres.

St. Paul’s Hospital in the northwest of the capital used to stock 10 of the 12 drugs used for surgical procedures. It is the second-largest hospital after Tikur Anbessa (Black Lion), which houses 1,000 beds and employs over 3,400 people. The hospital’s administration ordered three months of medicine stock at a given time from the Ethiopian Pharmaceuticals Supply Agency, a federal agency importing and supplying medications and medical supplies to public health institutions.

The Hospital stocks around 1,200 types of medication. It requires at least 400 units of suxamethonium a month to conduct surgeries. Each unit carries 20mg of the substance.

“We’ve only two weeks’ stock of suxamethonium,” said Berhane Tsehay, a representative of St. Paul’s medical director.

The shortages have forced the medical team to stop surgery for non-emergency patients.

The dearth of vital medications has become increasingly common in the capital and elsewhere in the country, mainly due to foreign currency unavailability and disruptions in global supply chains. The predicament is in sharp contrast to the 10 billion Br spent importing medications over the first half of this year. It is not sufficient to cover the need. Prices are on the rise, too.

Type-1 diabetic patients have to pay 310 Br to get medicine to cover their needs for a few weeks, double what they were paying a year ago. It is estimated close to three million people live with diabetes in Ethiopia.

Public and private health institutions face acute shortages of morphine and pethidine, drugs used to relieve moderate and severe pain, especially after patients undergo surgeries. Patients are forced to buy these strong painkillers from the informal market, at higher prices.

Those in the medical field point their fingers at global logistics hurdles and increased shipping tariffs. The cost of shipping a 40ft container from ports in China has quadrupled to nearly 13,000 dollars over the past two years. It is an ill omen for a country whose economy is largely dependent on imports. Imports cover close to 90pc of Ethiopia’s annual pharmaceutical demand. Less than 10 of the 13 pharmaceutical manufacturers are currently active. The total import bill surpassed the 10 billion dollar mark in the first eight months of the financial year, fourfold the export revenues over the same period.

Nonetheless, almost all public hospitals are stretched to the limit as they struggle to respond to the demand, suffering from a lack of supplies, staffing and funding.

“There should be no greater priority than the wellbeing of citizens,” a urologist told Fortune. “The government should allocate sufficient forex to importers and the Agency.”

Although medicine is at the top of the central bank’s import priority list, the 200 importers and wholesalers are not spared the struggle to get their hands on foreign currency. They supply the healthcare system dominated by public institutions, made up of primary hospitals, health centres, and health posts. The government introduced a health sector development programme 25 years ago, identifying surgical and anaesthetic care as priority areas. However, the provision of anaesthetics remains limited to specialised teaching hospitals, medical facilities in large urban centres, and a handful of private hospitals.

Less than half of all health facilities provide essential surgical services, while no more than 300 general surgeons are deployed at 116 federal hospitals, serving a population of over 100 million. It is a depressing ratio exacerbated by a shortfall in medical professionals specialising in anaesthesiology. They number fewer than 100.

Little more than 200,000 surgical procedures are carried out annually, representing less than five percent of the estimated demand for surgical interventions. Last year 21,000 more surgeries were performed, with major surgeries accounting for half. A quarter of the procedures – similar to what Abebaw underwent – took place in public hospitals such as Menelik II and St. Paul’s. Close to a quarter of all hospital beds are allocated to patients who require surgery.

To meet the World Health Organisation’s (WHO) universal health coverage goal in 10 years, Ethiopia must attain 80pc coverage of emergency and essential surgical and anaesthesia services. It is a far cry from the present circumstance.

In 2016, officials at the Health Ministry launched a programme they hoped would help attain the minimum standards of surgical care. A second phase was introduced last year, aspiring to reduce delays for elective surgery to a month from 51 days. It envisions 5,000 surgeries for every 100,000 people by 2030. The ratio is 192 for every 100,000.

The chronic shortage of medicines is a significant barrier to these goals. Though the problem is not new, those in the medical industry observed that it had reached new peaks as the administrators of public hospitals raised alarms that stocks had run out months before the end of the budget year. Though public hospitals can procure essential medicines independently during shortfalls, their efforts prove futile more often than not.

“No one appears to be interested in tenders floated by hospitals,” said Berhane of St. Paul’s. “We’re dependent on medicine imported by the government.”

Established in 1947, the Ethiopian Pharmaceuticals Supply Agency has the mandate to provide over 1,000 types of medicines and medical equipment to over 5,000 public health institutions. Its expenditures have ballooned tremendously over the past few years. In 2019, its annual import bill hovered near 10 billion Br. It had grown to 17 billion Br last year, while the Agency has spent the equivalent over the first half of this year.

The Agency procures surgical and anaesthetic drugs mainly from India, China, and Indonesia.

Solomon Nigussie, deputy head of the Agency, acknowledged the shortages. He confirmed that the Agency does not have suxamethonium in stock. He blames an international supplier for failing to deliver a batch of the drugs the Agency had procured recently.

Still, officials say a batch is scheduled to arrive in the coming weeks.

United Pharma, an India-based company, has been contracted to supply a large stock of the drug.

“We’ll have ten months of stock,” Solomon told Fortune.

Distribution of suxamethonium procured from United Pharma to public hospitals will start this week, according to the Deputy Head.

Abebaw, who had to make his way home after his pleas for relief went unheeded last week, may rejoice at the news. However, he knows he still has a long way to go on the road to recovery.

“I don’t know when I’ll regain my health,” he said.

Mines Ministry Mulls Higher Premiums for Artisanal Miners to Fight Contraband

Small-scale gold miners will receive higher premiums for the bullion supplied to the central bank should regulators support findings on the feasibility of offering greater value to artisanal miners.

The National Bank of Ethiopia (NBE) pays these miners five percent above international gold prices. The premium goes up to 29pc for miners that supply over the five-kilogramme threshold.

The last two years have seen a marked rise in the central bank’s buying rate, as global prices shot up beginning in mid-2019. The central bank had offered a little over 1,200 Br for a gram of 23 karat gold with near complete purity. The rate has more than doubled since reaching 2,900 Br (not including premiums) last week. The buying rate for a gram of 14 karat gold with half the purity has seen a similar increase to 2,000 Br over the same period.

International prices hover near 60 dollars a gram.

Officials at the Ministry of Mines say the adjustments to the buying rate and premiums have curbed contraband trade, encouraging small-scale miners to sell directly to one of the nine gold transaction centres.

Five years ago, less than half of the gold extracted by the miners was marketed through the formal channel – sold to the central bank for export. Instead, most of the mineral made its way to neighbouring countries smuggled before reaching markets in the Middle East, particularly in the United Arab Emirates (UAE). Modern gold mining was first introduced to Ethiopia in the 1930s, discovering gold deposits in the Bedakesa Valley of the Adola area in the south.

Formal export revenues fell to 28 million dollars four years ago. Beginning last February, experts at the Ministry of Mines and regional mining bureaus have been conducting a study on the viability of offering higher premiums to small-scale miners targeting contraband trade, which is still valued in the millions of dollars.

The study proposed to extend the premiums to miners who supply over one kilo of gold. Close to two-thirds of the gold shipped abroad annually is sourced from artisanal miners.

“The study is in its final stages,” confirmed Takele Uma, minister of Mines.

Miners operating in three weredas of Benishangul-Gumuz Regional State, including Kurmuk and Sherkole, were covered under the study. It aims to boost productivity, incentivising miners, according to Nasiru Mohammed, head of Benishangul-Gumuz Mining Bureau.

The regional state trailed behind the Oromia Regional State in gold output last year, with miners there extracting over two tonnes of the precious metal. It contributed to the 672 million dollars earned from gold exports last year, a whopping 242pc jump from the previous year. The revenues stand at 458 million dollars over the first three quarters of this financial year.

Artisanal miners have extracted close to seven tonnes of gold over the same period. Close to 550 associations engaged in small-scale gold mining in Benishangul-Gumuz supplied a little less than a third of the volume to the central bank, earning over six billion Birr. It shows how important artisanal mining is for the gold extraction industry, which comprises 90pc of mineral exports from Ethiopia. The share of gold they produced jumped from 0.82 million grams in 2018 to 3.18 million grams two years later.

Sitina Adele, 43, had served as a public service employee over the past 15 years. Last year, the mother of three decided to cut short her career in the civil service and join an association mining for gold in Sherkole Wereda. Sitina works as a sales representative for a 14-member association, employing 10 daily labourers to extract gold using metal detectors, jackhammers, and a generator. The tools are a long way from traditional mining methods, which involve digging pits and panning soil.

Although mining is labour intensive with high overhead costs, most associations hold on to the gold they extract until they can meet the central bank’s premium thresholds before they cash in.

“However, some are forced to sell the small quantity of gold they extract to cover operational costs and support their families,” she told Fortune.

Sitina and her colleagues are among the 1.26 million people engaged in small-scale gold extraction. They support an estimated five to seven million livelihoods, with an aggregate output accounting for less than one percent of its gross domestic product (GDP).

Kefyalew Girma, general manager of Waki Engineering Plc, in geotechnical and geological studies, applauds the efforts to lower thresholds and up premiums. He observed that more needs to be done as artisanal miners hesitate to use formal channels over the contraband market considered lucrative.

“The minimum volume miners are allowed to sell should be reduced further to encourage small-scale producers,” said Kefyalew.

Last year, regulators at the central bank quintupled the minimum weight threshold to 250g.

Minister Takele told Parliamentarians last week the state-owned Commercial Bank of Ethiopia (CBE) will begin buying from mines in the Somali Regional State, a hub for the contraband gold trade. The CBE has been collecting gold on behalf of the central bank since 2011.

The study may require more time to complete before forwarded to the central bank for review, disclosed Nasiru of the Benishangul Mining Bureau.

Fed Vows to Fight Illicit Wheat Trade Eyeing Crop Tracking System

A new tracking device developed by a federal information network intelligence agency is where Feto Esimo (PhD) hinges all his hopes to see through the success of a program he has been working on for years. A Director General of the Ethiopian Institute of Agricultural Research (EIAR), he expects the devices to help battle a flourishing contraband trade in wheat, causing a growing concern to federal officials.

Feto fears it is impossible to meet domestic demand for wheat as long as contraband trade remains unabated. He turned to the Information Network Security Agency (INSA) to subdue a growing illicit wheat export trade with a crop tracking system a consortium of federal agencies to implement. The Geospatial Information Agency and the Federal Cooperative Agency will team up with the Institute fitting trucks transporting wheat harvested under off-season irrigation with tracking devices.

Prime Minister Abiy Ahmed’s (PhD) administration initiated the off-season farming programme two years ago, pledging to substitute wheat imports. This year, close to half a million hectares of land were farmed under cluster and off-season farming initiatives. Officials expect to see 16 million quintals of wheat harvested, facilitating agricultural inputs provision and equipment to smallholder farmers engaged in irrigation farming. A hefty 400 million Br budget has been apportioned to the programme this year.

However, the efforts are undermined by a growing practice of exporting wheat illegally, according to Feto.

“[The culprits] use the foreign currency to finance import businesses,” he said.

Feto, who previously lectured at Hawassa University, has led the programme since its inception while serving as director-general of the Oromia Agricultural Research Institute. The Oromia Regional State is home to nearly 260,000hct cultivated under the programme, while the participants in the Amhara Regional State grow crops on 28,000hct. Grains are among the major commodities sold through illicit cross-border trade. Others include livestock, fabric and electronics.

The past decade has seen large volumes of wheat imported to stabilise the market and provide welfare to low-income households. Imports have nearly tripled to 1.7 million tonnes annually over the last 10 years. Financing the procurements has put pressure on the federal budget. In the five years beginning 2012, the federal government spent 33.7 billion Br to ship in a little over 4.1 million tonnes of wheat. Expenditure in 2017 jumped to 10.4 billion Br.

Domestic wheat production is sufficient to cover two-thirds of demand. According to official data, farmers harvested close to 336 million tons of grain during the Meher season from off-season irrigated wheat, of which 16.2 million tons were from off-season irrigated wheat harvested on 405,000hct.

The government’s attempt to fill the gap by buying wheat from international suppliers has been rocky. Last year, two international suppliers saw their contracts cancelled due to defaults or contractual breaches. The troubles are likely to worsen because of the war in Eastern Europe. Russia and Ukraine account for nearly a third of global wheat exports. As the armed conflict evolves and trade sanctions set in, other countries have begun to ban the export of major grain crops. India, the world’s second-largest wheat producer, is among them.

“There’s a severe shortage of wheat in the international market,” said Feto. “We need to safeguard what we are producing.”

The tracking system is designed with the hope that it keeps an eye on the supply chain. Behailu Adugna, director of the cyber development division at INSA, says it keeps tabs on the type of crop cultivated, the size of the plot of land covered by crops, and the harvest to expect.

“Once the harvest is collected, the system monitors whether it passes through legal channels,” he said.

Close to 10 experts are involved in the project at the Agency.

The Geospatial Institute takes aerial photography to measure harvest size and volumes before passing the data along to the Institute. The Cooperative Agency informs about the system to smallholder farmers organised under the 80,000 cooperative unions.

The crop tracking system has been piloted in three weredas in the Oromia Regional State. Before going to market centres, trucks equipped with global positioning system (GPS) devices transport wheat from farmland to warehouses under cooperative unions. Feto and federal officials plan to use close to 300 trucks equipped with GPS. However, those involved in the GPS tracking business have doubts about the plans.

“Nearly all previous attempts failed to bring the desired outcome,” said Solomon Kassa, general manager of Kassa Software Tracking Plc. “I don’t think it’ll be any different.”

Solomon refers to a law introduced by the Customs Commission three years ago, compelling cargo truck owners to install GPS devices. Over 1,200 trucks have been fitted with the devices since. The federal government also introduced laws that mandated the installation of speed-limit devices on new vehicles in 2019.

Kassa Software Tracking, incorporated eight years ago with an initial capital of 1.2 million Br, has installed GPS integrated speed limits and GPS fleet management systems on close to 2,000 vehicles.

Although it is possible to monitor and manage fleets by installing GPS devices, Solomon argued the tracking system’s success depends on the availability of a centralised monitoring facility. According to Solomon, in the absence of such a facility, “GPS tracking is as good as frivolous.”

Export Promotion Agency Comeback on the Horizon

The pressing need to diversify exports and generate more foreign currency pushes the federal government to consider reviving an agency to promote exports. Officials expect the agency to begin work next year, following the approval of an export development strategy under preparation by experts at the Ministry of Trade & Regional Integration (MTRI).

The agency will be responsible for identifying potential markets and anchoring foreign investors to diversify export commodities, says Haimanot Tibebu, director of trade promotion at the Ministry.

It will not be a novel endeavour for the country. An export promotion agency was established in 1998 with the mandate to boost the competitiveness of exporting enterprises in international markets. It was dissolved six years ago, transferring its mandates to the Trade Ministry.

The value of Ethiopia’s exports remains lower than a 10th of the gross domestic product (GDP), less than half of the average for developing countries. The dominance of primary products and a few industries with value addition in the export portfolio have been bottlenecks. Ethiopia exported items valued at 3.6 billion dollars last year, with agricultural commodities accounting for over two-thirds. This year’s performance is on track for a repeat.

The export strategy is prepared based on the recommendations of a year-long study conducted by Dalberg, a consultancy firm headquartered in Switzerland. It outlines the key factors constraining exports and supports required to realise potential over the coming decade and a half. Although the agriculture and mining sectors are low hanging fruits, the study suggests that manufacturing and services are the better bet in the long run.

Ethiopia remains dependent on exporting unprocessed and semi-processed products to Europe, North America, and Asia, where the industry is light years ahead. The strategy in the making presages these markets continue to drive demand for commodities from Ethiopia in the coming decade but notes that African markets present opportunities. Less than a fifth of exports are destined for African markets.

This should be exploited as Ethiopia improves its industrial capabilities, says Haimanot.

Sewale Abate is an assistant professor of finance and investment at Addis Abeba University. He observed that fragmented value chains and a lack of traceability for export commodities have resulted in revenue leakage.

“Not much can be done without building an efficient logistics sector,” he said.

The strategy looks to introduce financing schemes to boost export competitiveness and curb incessant issues with limited access to finance.

Anbessa Shoe Factory is one of a small number of companies exporting manufacturing items in leather products. It generated 300,000 dollars last year, less than half it had brought in six years ago.

Its executives had planned to boost export revenues, growing the ratio of products shipped abroad to 70pc, according to Bamlaku Demissie, general manager. Anbessa acquired Habesha Tannery in Bahir Dar, Amhara Regional State, for 29 million Br in 2019. However, the acquisition did not bring the results the company had hoped for.

“We’re exporting a tenth of our products,” said Bamlaku.

The company plans to expand its operations by acquiring a Chinese-owned sole factory operating in Addis Abeba’s Akaki-Qality District. Two months ago, Anbessa applied for credit from the state-owned Development Bank of Ethiopia (DBE).

“We’re still awaiting a response,” said Bamlaku.

A month ago, the company requested a loan from the Commercial Bank of Ethiopia (CBE) to help cover operational costs. Exporters like Anbessa are often required to present collateral to secure credit from banks, which offer exporters two kinds of credit schemes. An export term loan is divided into three varieties depending on the length of the repayment period. A pre-shipment export credit scheme – a loan facility extended for the procurement of raw materials – is also available.

Banks disburse loans without collateral to those with excellent credit scores and good revenue generation records, according to Melkam Belete, director of small and medium loans at the CBE.

The strategy considers implementing three types of export-oriented financial schemes. A grant fund scheme for small- and medium-sized exporters, who will be required to match state grant funds with their own financing. Another is an export guarantee facility, which protects companies against risks of non-payment by international buyers.

The strategy will be sent to the Prime Minister’s Office following a final round of consultations, according to Mesfin Abebe, director of agricultural product export at the Trade Ministry.

Textile Industry Cautiously Optimistic over Cotton Surplus

Textile plants see an unexpected surplus in cotton supply after months of shortages, as federal authorities stumble in efforts to procure thousands of tonnes through international bidding.

Glut in supply is in sharp contrast to an assessment carried out by experts at the Ethiopian Textile Industry Development Institute at the beginning of the year. They had forecasted a supply gap of 16,000tn haunting the textile industry, which requires over three times this volume each year. The civil war in the north (Afar Regional State), which accounts for 80pc of domestic production, was seen as a severe roadblock to supply. Security issues in other cotton-producing areas, such as the Benishangul-Gumuz and Gambella regional states, as well as flooding in Afar, have contributed to a 60pc decline in farmland covered by cotton over the past five years.

Experts at the Institute recommended the Ethiopian Industrial Inputs Development Enterprise float a tender for the procurement of 10,000tn cotton. In January this year, it did so with medium-quality cotton covering 60pc of the volume. Only one of over a dozen suppliers who had bought the bid documents showed up on January 25. The Enterprise was forced to consider other options; a month later, it invited 30 suppliers for a rebid to open at the end of last month.

Although two suppliers came, they failed to meet the technical requirement, disclosed Endeshaw Legesse, director of inputs procurement at the Enterprise.

Those at the Enterprise were little prepared to see cotton flooding the domestic market, pushing prices for a kilo of processed cotton down to half of the 130 Br over the past few months. A kilo of raw cotton fetches 52 Br.

Endeshaw attributed the surplus to businesspeople “hoarding” who begin to sell off their stocks. Nonetheless, the Enterprise procured three tonnes of cotton from domestic suppliers.

It was welcome news to the 122 large-scale textile factories. Eight of these are stand-alone spinning plants that produce open-end, ring and combed yarn; the 19 semi-integrated and eight integrated mills are also spinning. Combined, these factories have a production capacity of 102,000tn of cotton yarn. However, the factories have little need for the Enterprise’s stock.

“They refused to buy, even on credit,” Endeshaw told Fortune.

The management of Adama Spinning Factory, with a daily need of 112qtl of cotton, has bought cotton to last it three months.

“We couldn’t buy from the Enterprise even if we wanted to,” said Yimer Yimam, CEO of Adama Spinning. “We’ve a shortage of working capital.”

Incorporated in 2008 with 160 million Br in registered capital, the factory has an annual production capacity of 3,650tn of yarn. However, it has been struggling to meet its potential due to a shortage of cotton supplies. It uses less than two-thirds of its capacity. Yimer disclosed the shortfalls forced it to cease production for three months beginning September 2021 while keeping 450 employees on the payroll.

“This hurt us,” he said. “We’re struggling to service our loans.”

A lack of warehouse space for storing cotton is also an issue.

Bahir Dar Textile Factory is the country’s largest plant, with the capacity to process 30,000tns of cotton a year. Its executives, too, say they have had their fill of the cash crop. They have stock sufficient for the next six months, according to Gebru Alemu, head of the procurement and supply department.

It had experienced similar turbulence to Adama Spinning. Shortages had forced Bahir Dar Textile to temporarily cease operations, though it kept paying salaries to 1,300 employees.

Yimer is cautious about the glut in supply.

“We’ve seen cotton suddenly disappearing from the market before,” he said.

Abera Rechi (PhD), an associate professor and director of the Ethiopian Institute of Textile & Fashion Technology under Bahir Dar University, agreed. The expert observed that the supply chain is poorly organised, exposing it to hoarding.

“The cotton supply chain is unpredictable, affecting cotton producers and textile plants,” he said.

Experts at the Institute say they will reassess their earlier conclusion.

City Admin Eases on Building Occupancy Rules

Proprietors in Addis Abeba are no longer required to hold occupancy permits to rent out part of their buildings to daycare centres, medical clinics, pharmacies, or schools. Officials at the city’s Construction Permit & Control Authority instructed all district and wereda offices last week to forego the rules enforced on four-storey buildings constructed with residential building permits.

The Authority issues and renews occupancy permits. It delegated wereda offices to grant construction permits for smaller buildings, while districts are responsible for properties up to seven storeys. Developers erecting more than 10 floors need to deal with the Authority under Setotaw Akale.

A civil engineer by training, Setotaw headed the Addis Abeba Transport Bureau before taking the helm at the Authority in October 2021. He had also served as a deputy manager of the administration of Dessie town, 400Km north of Addis Abeba in the Amhara Regional State.

His officials say they responded to growing complaints from proprietors over occupancy permit procedures.

“We identified loopholes that lead to corruption and inefficiency,” said Henok Regassa, director of occupancy permits at the Authority.

It takes three days on average to acquire an occupancy permit, renewable annually. It could take longer if officials deem the construction design to have defects. Applicants are required to present deeds, building designs, and construction permits. The working procedure compelled proprietors to alter their construction permits before applying for a commercial occupancy permit.

The new rules reduce the hustle applicants had to go through, according to Addis Aregawi, team leader of occupancy permits at Bole District.

His office issued eight occupancy permits over the last two months. Before authorities suspended land related services for eight months in mid-2021, alleging widespread illicit activities in the construction industry, the District would have hundreds of permits over a similar period. The services were resumed last February. Close to 5,100 permits were issued in the capital over 11 months in the year before the proscription, averaging over a dozen a day.

The latest rules circumvent the need to revise building designs to secure occupancy permits after the transfer or sale of properties.

Building designs are approved by specialists who ensure the drawing fulfils all criteria set by the Authority. A building design depicts the purpose and size of a building and the materials and method of construction used. It also includes architectural, structural, sanitary and electrical drawings of the building. Securing permits could take anywhere between a week to three weeks, depending on whether officials deem it necessary to ask developers to make design changes. It was also expensive, costing as much as 10,000 Br a square metre.

“The requirement was unnecessary and time-consuming,” said Henok.

However, people close to the matter say the new rules could expose the system to fraudulent practices.

Kifle Yohannes is a real estate broker with 20 years of experience. He observed that the building design revision process was necessary to identify whether the property had been constructed in compliance with standards set by the city administration.

Arba Beyene, a legal expert who worked at the Yeka District Land Management Bureau, concurred.

“The requirements were vital to ensure constructions meet the city’s plan,” he said.

Wedding Industry Rejoices Business Rebound

Matrimony is never a dull affair in Ethiopia. Contesting “My Big Fat Greek Wedding”, it is noisy, elaborate, extensive, expensive and joyous. Come wedding season, and the streets are bustling with long convoys, honking horns and flashing their turn signals.

Hana Berhanu, 30, envisioned such a wedding since her youth. She had been planning a picture-perfect wedding after graduating in electrical engineering from the Addis Abeba University and landing a job a decade ago. Over the past five years, Hana and her fiancé Alemayehu Gebremichael, now husband, had been saving for their big day. He works as a branch manager for a commercial bank.

Hana, the firstborn in her family, was keen to tie the knot. Her wedding was scheduled for a day at the end of 2020. Little did she know what had lay ahead. A Japanese citizen who had travelled to Ethiopia from West Africa tested positive for COVID-19 in March of that year. Restrictions on large gatherings, mandatory social distancing and face coverings quickly followed.

Hana and her fiancé had to defer their wedding. It was a downing moment for many like her.

The two years since the pandemic have been less than ideal for betrothal, as couples were forced to wait for their big day. Less than 24,000 couples tied the knot in 2019/20, half the wedlocks recorded the year before, data from the Addis Abeba Vital Events Registration Agency reveals.

The cancellations and the subsequent holds on wedding parties brought on by the pandemic were a blow to businesses in the hospitality industry. Hotel managers saw their halls sit empty, caterers had little use for their equipment, photographers had to do without lucrative wedding shoots, and decorators were left idle. It was a devastating turn of events, but the light at the end of the tunnel is near.

The wedding industry began to witness a revival last year. Nearly 14,000 more couples got hitched in the capital last year, a significant jump compared to the year before. In the months since last September, 35,000 have joined in matrimony. Hana and her husband were among these couples who finally walked down the aisle two months ago. It was festivity that left behind the festering memories of lockdowns, where 400 guests gathered at Bole Fana Park, near the Millennium Hall.

It came at a high cost. Like almost everything else, spending on weddings has ballooned since Hana and her husband had first planned for their big day. Their initial budget was around 600,000 Br.

Hana, expecting her first child, spent 165,000 Br on decorations, photography, and clothes. It was over three times more than what she had planned to spend. Another 143,000 Br went to renting the space. Then there was catering, drinks, and subsequent banquets and parties. All told, Hana and her husband spent around 750,000 Br.

It is a budget that pales compared to the lavish parties held at the grandiloquent hotels in the capital, taking millions of Birr.

The exorbitant costs may alarm couples looking to tie the knot, but they are welcome revenues to those providing services.

Hotels were among the hardest hit when the pandemic struck. Occupancy rates slumped to two percent in the wake of the ensuing restrictions in Ethiopia and lockdowns elsewhere, causing the industry an average loss of 35 million dollars a month in revenues. Capital Hotel & Spa, on Haile Gebresellasie Avenue, had seen no booking for its three halls during the pandemic. Opened in 2013 after construction took over 700 million Br, the hotel’s 114 rooms had been idle after international travellers were dried up. Capital Hotel had not used more than a quarter of its capacity for two years, according to Etaferaw Belay, senior sales executive.

“No large wedding was held at the hotel during the pandemic,” Etaferaw told Fortune.

Not even a 60pc discount lured clients.

This year has been a time to rebound for many in the industry. The sharp drop in COVID-19 cases and fatalities augurs well for them. The reports the Ministry of Health releases daily have shown almost no mortalities in the past month. On Saturday last week, no death was recorded, although 169 people tested positive. A little less than half a million people had acquired the virus in Ethiopia, and 7,513 have died of a pandemic that claimed the lives of 6.2 million people across the world. The number of people who died in Ethiopia represents a 1.6pc of the fatality rate, compared to Peru’s six percent, a country which has lost more people in a ratio of 100,000 to COVID-19.

With vaccination spreading and the death rate dropping, the world is plodding back to life. Hotel managers in Addis Abeba began to witness a rebound with the rescheduling of wedding parties. They have dropped discounts on offer as demand began to pick up. No less than 13 weddings were hosted in Capital Hotel over the past two months – the season for weddings following the end of eight weeks of lent for followers of the Ethiopian Orthodox Church and a month for Muslims. Ten wedding parties are booked with the hotel, disclosed Etaferaw.

Clients are required to deposit 40pc of the bill (1,650 Br for a person) at the time of booking.

Hotels that have been through a rough patch are also enjoying the rebound in the wedding industry.

Holiday Hotel, located on the same street as Capital, was among the establishments forced to close its doors a year ago after authorities blamed them for failure to renew licenses, breaching COVID-19 protocols, and failing to keep accurate records. A few were shuttered on charges of “disturbing the peace.” It had, however, served as a government-designated quarantine centre in the early days of the pandemic.

Opened in 1994, Holiday Hotel was incorporated with equity contributions from eight shareholders. A decade later, it was recapitalised with a 5.9 million Br, going through an expansion to upgrade to 84 rooms, although it remains to have a single hall that accommodates 250 people. Before the outbreak of COVID-19, the hotel used to rent its hall to as many as eight wedding ceremonies a month during peak season. It has hosted four since it resumed operations two months ago.

For Fikadu Abraham, the hotel manager, this happened without any promotion. Another eight couples have booked the hall for weddings in July.

Venues that were not around when the pandemic first struck are enjoying the comeback.

Located across from the Sheraton Addis Hotel, Friendship Park was opened a year after the pandemic hit Ethiopia. It was built by First Highway, a subsidiary of the state-owned China Construction Company, as part of a riverside development project launched by the municipality four years ago. It rests on a 27hct land along a 1.2Km long segment of Banteyiketu River.

Friendship Park features a waterfall belt, a central plaza, a lakeside fountain, a music square, and an artificial pond. A conference hall, restaurants, photo studios, and fitness centres are among the amenities offered. The second phase of construction on 16hct land traversing over 10Km of the riverside is underway for close to seven billion Birr.

Many find the Park’s ample outdoor space ideal for large events, such as weddings. Mekdelawit Sheferaw, customer relations officer for the Park, has observed a rise in the number of weddings organised there, particularly after Easter. More than a dozen weddings have been held there since last December. However, half of the events took place over the past few weeks.

The Park’s management charges between 25,000 Br and 350,000 Br in rent. The latter fee covers a space that can accommodate 5,000 guests, excluding catering and decor costs. Customers pay 35,000 Br a day for pre-wedding outdoor photo shoots, while video shoots cost around half.

Pure Decor is recovering from a slump in business as COVID-19 took hold. It had been impossible to maintain five wedding bookings a month in peak seasons following cancellations. Incorporated with half a million Birr capital in 2008, its main business is decorating weddings, which could cost couples between 80,000 Br and a quarter of a million Birr depending on the size of the events.

Samuel Sebsebe, the manager, sees business recovering lately. The company decorated venues for close to 60 weddings over the past six months, and another 35 have been booked for the rest of the year. Samuel plans to hire more workers to keep up with the demand, in addition to a workforce of 25.

Another company in the business, Ermi Decor, scraped through the worst days of the pandemic, targeting smaller gatherings, such as baby showers and birthday parties. The company was formed in 2011 with 25,000 in initial capital, offering packages ranging between 40,000 Br and 150,000 Br. The company has provided services to 20 wedding ceremonies thus far with seven employees. It has been booked for six more, disclosed Amelework Wendimu, the manager.

The momentum is likely to continue provided there are no more shocks to global trade, predicted Nahom Mesfin, an event organiser for a decade. But couples planning wedding ceremonies may have to make budget adjustments in light of the runaway prices.

“This may force couples to downsize their weddings,” he said.

Nonetheless, business is booming. It has become a rare phrase in recent years entrenched with distress. Though a number of these – from the armed conflict in the north, and the drought in the south and east, to global logistics disruptions – have yet to see resolutions, the revival of the wedding industry offers hope for many across the economy.

Fear Not Food Crisis but Lack of Action to Price Increases

The food price crisis of 2007-2008, COVID-19, the Russia-Ukraine War, and climate change have exposed the fragility of food systems. The greatest risk lies in refusing to learn from lessons of the past.

At the start of 2022, we were already facing the prospect of a food crisis. Even before the first Russian tank rolled across Ukraine’s borders on 24 February, food prices had tipped record highs as the world struggled to recover from COVID-19 to repair disrupted supply chains and soaring fuel and gas prices. But a conflict involving two of the world’s largest wheat exporters, and major producers of fertiliser, maize and vegetable oil, have inevitably driven prices even higher and, once again, pushed the issue of global food security into sharp focus.

Russia and Ukraine together account for roughly 30pc of the world’s wheat and barley exports, a fifth of its corn trade and almost 80pc of sunflower oil exports. Most of their wheat production is imported by countries in the Middle East and Africa, with some 50 countries depending on Russia and Ukraine. Warfare, port blockades and international sanctions have reduced these exports, and supply uncertainties have already pushed wheat prices to around 11 dollars a bushel, a level last seen in 2008. The FAO food price index soared last week to a record high.

The situation is further compounded by rising energy prices, and disruptions to the supply of fertilisers, the prices of which are already fluctuating at levels unseen since the global financial crisis because of higher gas prices. Russia and Belarus produce more than a third of global potash. Russia is also the world’s biggest exporter of fertilisers and the war with Ukraine has disrupted the export of fertilisers and driven up prices for natural gas, which is an important ingredient of nitrogen-based fertilisers. Fertiliser prices (DAP) are surging towards 1000 dollars a tonne, with a significant increase in the last six months, and a 40pc jump since the invasion. This will hurt rich and poor farmers alike, due to the clear link between rising costs and reduced production.

The US-based Center for Global Development estimates that higher food and fuel prices will push 40 million more people into extreme poverty. Lower income households, who were already spending between 60pc and 80pc of their earnings on food, face stark choices, including how many meals to eat in a day. In Tunisia, the fear of food shortages combined with the imminent arrival of Ramadan, caused panic buying and emptied supermarket shelves. Kenyans are protesting rising food prices on social media with the hashtag #lowerfoodprices. Thousands of maize farmers in Ethiopia have been protesting soaring fertiliser prices. And let us not forget that it was rising food prices that led to the 2019 Sudan coup and the Arab Spring rebellion of 2008.

The food crisis of 2007-8 suggests important lessons for us to mitigate a food crisis this year.

Primarily, remember that cooperation between countries matters, sending important signals to markets that governments and the private sector take the problem seriously.  Then, take concerted action to trade more, easier, faster. Allow food to be traded and attack non-tariff barriers that are the most serious limitations to trade. Africa has shown leadership in the creation of the African Continental Free Trade Area (AfCFTA) – these principles must be fast tracked to allow as friction-free trading system as possible.

Third, governments and development partners should urgently plan for the social and humanitarian consequences of a food crisis. Social safety nets should be strengthened at least temporarily, and humanitarian aid planned for the most vulnerable.

Last and perhaps most importantly, governments and partners must go back to basics: that African economies and livelihoods are built on agriculture. More than 70pc of the population is involved in farming, but the vast majority of these are smallholdings with significant exposure to environmental and economic shocks. These farmers and their contributions can be transformed by shorter value chains that share some of the value with farmers, a digital revolution that puts farmers, and strong government agenda and support.

African farmers, if given the opportunities that their European, Asian and North American counterparts have, can increase massively their productivity and grow their businesses. An emergency plan to build support for farmers now can send important signals to markets and increase production this year. Give farmers access to productive, climate smart seeds, the knowledge they need to become more productive, and innovative financial tools to invest. Then help them get their products to market. Proven models are already used by many partners – millions of farmers can be lifted quickly in this way.

At the same time, soaring fertiliser prices must be addressed with urgent action to increase efficiency. AGRA [of which the author is the president] has promoted technologies that can reduce cost to the farmer including the use of blended fertilisers, as we already see in Kenya, Uganda and Rwanda. The same is true in the use of micro-dosing. Both give much more ‘bang for the buck’ and can be much more environmentally friendly. This is also an opportunity to promote greater use of farmers’ traditional practices of regeneration and organic fertilization.

This is the time for African governments to give a strong signal of support to the agriculture sector. Start by reducing redundant regulation, and support SMEs and farmers’ cooperatives with credit guarantee programmes.

We learned from the last food crisis that we should not be afraid of a food crisis. What we should be worried about is lack of action once we understand the problem. Governments should lead and coordinate, private sector should target investment on proven solutions, and unlock African farmers’ potential.

Get Ready for Reverse Currency Wars

The US dollar is up 12pc against the euro over the past year and, at 0.93 euros, is approaching parity. If prices of oil and other commodities now seem high in dollar terms, they look even higher in euros. With the greenback surging and inflation in many countries currently at multi-decade highs, we may be entering so-called “reverse currency wars” – in which countries compete to strengthen their currencies’ foreign-exchange values.

The term “currency wars” was originally a colourful description of what international economists had long called “competitive devaluations” or, after exchange rates began to float in the early 1970s, “competitive depreciations.” In these situations, countries feel aggrieved that their trading partners are deliberately pursuing policies to weaken their own currencies in order to gain an unfair advantage in international trade. Competitive depreciation can arise when all countries’ main macroeconomic goals, in addition to maximising GDP growth and employment, include improving their trade balances. This generally describes the past few decades in the world economy.

A reverse currency war, on the other hand, involves competitive appreciation. Here, countries think their trading partners are deliberately trying to strengthen their currencies in order to rein in inflation. This could describe the period that began in 2021, when inflation returned as a serious problem in most countries.

In both cases, it is impossible for all countries to pursue such strategies, because they cannot all move their exchange rates in the same direction at the same time. Both competitive depreciation and competitive appreciation are often perceived as evidence of a lack of international cooperation to achieve exchange-rate stability, and sometimes lead to calls for a new Bretton Woods-type arrangement to promote greater policy coordination.

The United States has often been quick to allege that other countries’ currencies are unfairly undervalued. Since 1988, Congress has required the Department of the Treasury to submit semi-annual reports on whether America’s major trading partners are manipulating their currencies. China and other Asian countries are the most frequent targets. But Switzerland is also under suspicion, even though the Swiss franc is easily the most expensive major currency by other criteria.

In February 2013, the US Treasury spearheaded a sort of micro-Bretton Woods agreement whereby G7 countries would refrain from taking steps to depreciate their currencies. The 2013 pact is little known, but it has worked. Over the past decade, G7 members have not intervened to sell their own currencies on the foreign exchange market.

China, which is not a G7 member, does intervene in the currency market. Since 2014, however, it has done so to slow the renminbi’s depreciation, not to encourage it.

The phrase “currency war” was coined in 2010 by Brazilian leaders protesting the monetary policies of the US, Japan, and other countries. They did not accuse the US Federal Reserve and the Bank of Japan of explicitly devaluing the dollar or the yen, or of intervening in the foreign-exchange market to drive down these currencies, but rather of adopting excessively loose monetary policies. US and Japanese policymakers, their Brazilian counterparts argued, had cut interest rates to zero, and then gone further by introducing quantitative easing, with the deliberate intention of depreciating their countries’ currencies, boosting net exports, and exporting unemployment to their trading partners.

Similarly, nobody today accuses the US authorities of using foreign-exchange intervention to appreciate the dollar. The complaint is rather that the Fed’s current interest-rate increases attract capital inflows to the US and strengthen the greenback, forcing up interest rates internationally and thus keeping global growth below where it could be.

There is ample historical precedent for fears of competitive devaluation, most notably the 1930s, when major powers devalued their currencies against gold and thereby against each other. Is there also a precedent for competitive appreciation?

Some have argued that the early 1980s provided such an example. When the Paul Volcker-led Fed raised interest rates sharply to fight inflation, it knew that it would be aided in that task by the dollar’s appreciation. But the corresponding depreciation of US trading partners’ currencies worsened their inflation rates and forced them to raise interest rates as well.

Today, the most likely victims of a strengthening dollar are not other major rich countries, but rather emerging and developing economies. Many of them have substantial dollar-denominated debts, exacerbated by the fiscal spending required to fight the COVID-19 pandemic. When the dollar appreciates, their debt-servicing costs increase in local-currency terms. The combination of rising global interest rates and a stronger dollar can trigger debt crises, as it did in Mexico in 1982 and 1994.

But not all fears of competitive appreciation are justified or merit a reform of the international currency system. Unlike most central banks, the BoJ kept its monetary policy very loose over the last year, in a continuation of its long campaign to raise growth and inflation. So, while the Fed is raising interest rates in an effort to slow US price rises, Japanese rates are still at or below zero. As one would predict, the widening interest-rate differential has caused the yen to depreciate by about 15pc against the dollar over the past year.

Overall, this big change in the dollar-yen exchange rate is not really a problem. It has pushed up Japanese prices while exerting downward pressure on US inflation. That is what both countries wanted. Floating currencies allow each country to pursue the monetary policy that suits its own circumstances.

But with high global inflation likely to persist for some time, the prospect of reverse currency wars is looming larger. Instead of a race to the bottom in the foreign exchange market, we may see a scramble to the top – and poorer countries are likely to suffer the most.

Reforms Ought to be Cautious but Brave

Ethiopia’s economy ails from three fundamental and structural diseases that are self-inflicted. One is energy subsidies, aka fuel subsidies, which are bleeding federal budgets and distracting from pro-poor policies. It does not help stop inflation in the true sense because the government is deficit financing through central bank advances to support the subsidies. It does not help the poor because it is those in the higher income quantile that have the highest energy per capita consumption, and thus benefit the most.

The other self-inflicted ailment is the foreign exchange regime. It ensures that formal channels are starved of foreign currency while the black market has high levels of it. Recently, there were reports of shortages of raw materials for license plates. This is bizarre because it also means that there is enough foreign currency in the economy to import vehicles, which are much more expensive than license plates. It all makes sense, though, considering that license plates are funded using foreign currency from the formal channels while it is the black market that finances Addis Abebe’s burgeoning car import market. Ethiopia does not have a foreign currency problem. It has a black money market crisis.

Adding to these disasters is the long-held central bank stance that capital markets and foreign banks will have a negative impact. Equating capital markets to gambling platforms was ludicrous; much more of an ideological rhetoric than one grounded in economic fact. The decision to ban foreign competition is nonsensical when considering that local banks do not provide value to citizens in terms of helping the average Ethiopian access to credit but a few well-connected business types; why would such institutions be protected from the competition?

It is due time that this sad situation is addressed. Structural and regulatory reforms need to be enacted to ensure that the economy can wake from its slumber. But there is a response that comes up to such prescriptions these days; one that does not have to do with the rationale of such reforms.

But what about the timing? Are states of war and instability the right environments?

As an argument against following the highest possible caution, it is the proper response. For instance, lifting capital controls does require greater debate and reflection. But most other reforms are not just enactable. They are necessary.

Ethiopia’s political crisis did not start two years ago. It started six years ago. The current war may go on for 10 or more years. No one knows. Should we hold back necessary reforms to wait for the ideal time, then?

In fact, it could be improving the structural dilemmas in the economy that will help the political situation. No one said this would be easy. Development is always messy, and it is not a given (at least, it seems, in Africa’s case). Opening up, like in the telecom sector, needs to take place however bumpy the road may be or intimidating the challenge. Countries that opt to wait for the ideal time will never get there; the time to act is now.

The energy that the country should channel should be of one that has its fate in its hands, however hard things may seem when the going gets tough. Leaders should never be resigned to accepting their fate and hoping for the best, assuming the political situation will figure itself out. Ethiopia’s economic opening-up cannot wait, and neither can it be outsourced to political elites. We need to take our economic fate into our hands. If the political situation improves along the way, then great. If it does not, then we should work around it.