The amount in Birr recorded as federal government revenue loss due to a “decline in economic activities” because of the civil war in Ethiopia.
Month: May 2022
“Driest … since 1981.”
World Food Programme (WFP) said of the unanticipated drought situation in the southern part of the country.
Hundreds of Khat Exporters See Licenses Revoked
Officials at the Ministry of Trade & Regional Integration have revoked the licenses of 830 khat exporters.
They claim they took the measure following an assessment that uncovered illicit trading activity.
Khat cultivation and distribution have increased rapidly despite official reluctance to promote marketing and consumption. Over the past decade, annual harvests increased three-fold, registering a little more than three million quintals last year.
The cash crop has been one of the top-five revenue-generating export commodities since the early 2000s. Earnings from khat exports accounted for 11pc (402.5 million dollars) of the total 3.6 billion dollars generated last year, representing 24pc higher than khat export revenues recorded in the previous year
Close to a quarter of khat produced last year was exported to major markets such as Djibouti and Somalia. Consumers in these countries bought 710,000qtl of khat last year, close to 80pc going to the latter.
Last month, officials at the Trade Ministry doubled the price threshold for khat exports to Somalia to 10 dollars for a kilo.
Pandemic Pushes 55m Africans into Poverty; Ethiopia, Nigeria Top List: UN
The COVID-19 pandemic has pushed an estimated 55 million Africans into poverty, with Ethiopia and Nigeria the major sources for the “new poor” created over the past two years, according to the annual economic report on Africa published by the UN.
The report reveals that African governments spent 2.2 billion dollars on fiscal stimulus in 2020, with overall fiscal spending doubling to 3.3pc of gross domestic product (GDP). It warns the continent’s debt-to-GDP ratio will remain above the 60pc threshold the IMF considers sustainable.
Three African countries – Ethiopia, Chad and Zambia – have applied for debt relief under the G-20 common framework. There has yet to be a concrete decision on Ethiopia’s request. Data obtained from the World Bank reveals interest and principal payments on external debt of 2.2 billion dollars are due in 2022.
The situation is more daunting in the face of a costly war in the north, which the federal government says has caused 40 billion Br in losses due to a “decline in economic activity.” The war in Ukraine is exacerbating challenges, with global prices for wheat, petroleum, cooking oil, and fertiliser spiking to record highs since fighting broke out in Eastern Europe earlier this year.
Capital Market Launch Unlikely Before Two Years
Efforts to form the country’s first-ever capital market took a meaningful step last week, but there is a long way to realise an initiative floating around since the Imperial Era.
A trading floor of the Ethiopian Securities Exchange will likely not be opened for another two years. Despite lawmakers legislating a bill that proposed its establishment last year, a federal agency overseeing the capital market has yet to be formed. Financial institutions, such as commercial banks and insurance firms, are expected to be among the pioneers to be listed when the Exchange eventually goes operational. Their executives are keen to exploit the opportunities offered by the capital market.
Girum Tsegaye, president of Berhan Bank, sees the way banks offer shares to the public as unstructured and costly.
“Even the transfer of shares from shareholders to buyers is not easy,” he told Fortune.
Last week, a signing ceremony at the Hyatt Regency Hotel may have come as good news to executives like Girum. Representatives of the Ethiopian Investment Holdings, led by its Chief Executive Officer (CEO), Mamo Mihretu, and Ahmed Shide, minister of Finance, inked an agreement with Financial Sector Deepening (FSD) Africa, a UK Aid-affiliated NGO based in Kenya. The tripartite agreement forms a project team that will pave the way for establishing the Ethiopian Securities Exchange (ESE). The team will report to Mamo, Prime Minister Abiy Ahmed’s (PhD) policy advisor and Ethiopia’s chief trade negotiator.
The Prime Minister appointed Mamo three months ago to lead Ethiopia’s first sovereign wealth fund. It was established with an authorised capital of 100 billion Br, of which one-fourth is to be paid up. The Fund has been mandated with seeing through the formation and establishment of the capital market, a responsibility that regulators had previously shouldered at the central bank.
“The project team is tasked with preparing the business plan, drafting the rules of engagement and identifying partners,” said Mamo.
To be established as a share company with equity contributions from the federal government and the private sector, the Exchange serves as a capital market where equities, derivative instruments, financial and debt securities, and currency exchange contracts will be traded. Financial institutions are expected to be the first to join as founding shareholders. No less than a quarter and no more than 55pc of shares will be allocated to corporations, capital market intermediaries, and international securities exchange operators. The government’s stake will not exceed a quarter of the Exchange’s capital.
Officials say they have yet to decide on the Exchange’s initial capital. Once it is established, trading will be overseen and managed by a board of directors elected by shareholders.
The platform will be for-profit, earning commissions and markups from listed companies and market transactions.
A Capital Market Authority will supervise the Exchange. Last November, a team of 14 experts chaired by Meles Minale, a senior macroeconomic advisor at the central bank, was formed to explore the establishment of the Authority. The team reports to Yinager Dessie (PhD), governor of the National Bank of Ethiopia (NBE).
A bill to legislate the Authority, which will regulate the primary and secondary markets and supervise the listing and delisting of securities, was tabled to Parliament and approved last year. The Authority will be established as a federal agency accountable to Parliament once the Prime Minister appoints a director and a deputy director. Candidates for appointment will be required to have 10 years of experience in finance, economics, management or law at a senior management level. They will be tasked with safeguarding investors and overseeing the integrity of the capital market. Securities brokers, investment advisers, collective investment scheme operators, investment bankers and securities dealers will be under the supervision of the Authority.
It will, however, take up to two years to launch the Exchange, Meles disclosed to Fortune.
Though the Exchange will be the first capital market, similar initiatives have existed in the past.
In 1965, a quasi-stock exchange dubbed the Addis Abeba Share Dealing Group was established with the listing of 15 companies, including the Addis Abeba Bank, Ethiopia Abattoirs and the Bottling Company of Ethiopia. Attempts to form a full-fledged capital market crumbled with the coming of a socialist government in 1974, which nationalised all the major companies. Even after the fall of the Dergue regime, efforts to open a capital market have remained in vain.
The federal government blocked attempts to launch a quasi stock market in 1999.
“The government had no intention of even entertaining the idea,” said Zemedeneh Negatu, a consultant and board chairperson of Fairfax Global, one of the people involved in the attempt.
The Addis Abeba Chamber of Commerce & Sectoral Associations had also tried its hand under its auxiliary, the Private Sector Development Hub. In 2011, the Hub, with financial support from the Swedish Agency for International Development Cooperation, conducted research on the market potential. After Sufian Ahmed, then minister of Finance, wrote a letter compelling the Chamber to stop in its tracks, the initiative went nowhere.
The previous administration was reluctant to embrace the idea, says Yohannes Woldegebriel, director of the Arbitration Institute at the Chamber.
The Exchange will be the sole securities market in the country, except for the central bank’s treasury bills.
“The government has launched the sale of corporate and saving bonds to the public,” said Zemedeneh. “There again is a need for a secondary market,” said Zemedeneh.
He observes that Ethiopia is the only African country with a relatively large economy with no stock market. Twenty-nine exchanges operate in Africa.
Promoters of financial institutions under formation are hoping the Exchange will provide new options for raising equity from the public. This includes Zemedeneh, one of the promoters of Selam Bank, an aspirant mortgage bank that began selling equity a year ago.
He warns that the experiences of other African countries indicate the road ahead will not be smooth.
“It’ll be even more challenging in the absence of investment advisors and stockbrokers,” said Zemedeneh.
Mamo, the CEO, disclosed the federal government plans to list some state-owned enterprises on the Exchange to speed up privatisation efforts.
Capital Market Does Little to Help Crowded Out Private Sector
There was a great deal of handshaking and patting each other on the back at the Hyatt Regency, near Mesqel Square, where the bigwigs of the new economic policymaking team gathered. Ahmed Shidie, Finance minister, and Yinager Dessie (PhD), central bank governor, were joined by not-for-profit advocacy for financialisation, FSD Ethiopia. The main topic was capital markets, a subject that has remained elusive for its aspirants since the mid-2000s.
Some sort of money market is not new for Ethiopia. In the decade beginning 1964, the central bank ran what was the Addis Abeba Share Dealing Group. Addis Abeba Abattoirs and Tendaho Plantation were a few of the 11 companies listed with the Group that ceased to exist in 1974 when the revolution brought private ownership of capital to an end. The ambition to restart a capital market was reborn in the 2000s, spearheaded by the Addis Abeba Chamber of Commerce. It was an ill-fated initiative.
Likened by the EPRDFites to a casino, a daring move to resurrect a share-dealing group was quelled with a stroke of a pen. Sufian Ahmed, then minister of Finance, wrote the chamber leaders a reprimand letter. It was in response to an official invitation for him to launch the share-dealing group. The private sector went hushed, recognising the limits to its ambition. Last week’s event at the Hyatt Regency could be seen as the start of healing from this trauma.
A partnership was also signed with FSD Ethiopia to support the long overdue Exchange and strengthen the financial sector. FSD-Ethiopia is an outfit the British government finances and run by Ermias Eshetu, once the CEO of the Ethiopian Commodities Exchange (ECX).
One of the most exciting projects of the Prosperitians is setting up a capital market, which could add dynamism to the economy, offer alternative options for investors and expand the source of funding for businesses. Unfortunately, all the talk of bringing the private sector to the forefront has been moving at a snail’s pace. The Prosperitians appear to be determined to see the exchange market, the Ethiopian Securities Exchange (ESX), fall under the Ethiopian Investment Holdings, the recently formed sovereign wealth fund. Mamo Miheretu, one of the technocrats Prime Minister Abiy Ahmed (PhD) has onboarded, heads this outfit whose take is to mobilise capital from domestic and international markets for investment.
Mamo and his league may argue that a great deal of work has already been done. They may point to liberalisation efforts in the telecom sector, which saw the entry of a new operator that has yet to begin commercial services and development in the financial sector. The latter is worthy of measured optimism. Private banks have expanded in assets, capital, revenues, and market share. The past three years have seen a burst of new products and players, reaching nearly two dozen and perhaps, even more had it not been for the central bank’s decision to raise paid-up capital 10-fold.
The leverage the private sector commands is more considerable by the year. Almost the entirety of their loan portfolio is to the private sector.
But these are emblematic of the private sector’s enthusiasm more than the government’s efforts. The chief criteria for measuring how much space the public sector is willing to cede and allow private sector competition is to pay attention to where the money goes. The results are not as promising; the administration is not putting its money where its mouth is, to the economy’s detriment.
Admittedly, public enterprises are now getting less credit than the private sector. They are no longer sucking excessive amounts of credit out of the financial system – a problem that has exasperated public debt. Nonetheless, their debt has continued to grow, at 613 billion, just 29 billion Br shy of loans and advances to the private sector in the previous fiscal year.
Such figures hide an uncomfortable truth. It does not show that the nature of loanable funds flowing to the public sector has changed. Public sector borrowing has gone from crowding out by state-owned enterprises (SOEs) to credit being sucked out of the system through government securities.
Over the past few years, the federal government has developed a thirst for deficit financing using treasury bills. It is not an entirely new phenomenon. Previous administrations did not just print money but sold debt as well. The main buyers were non-banking institutions, especially the Public Servants Social Security Agency, which bought at near-zero interest yields for most types of T-bills. Banks’ share of this was barely half a percent in 2018/19.
Although social security agencies continue to be milked at negative interest rates, the tables have turned. From 239 billion Br in T-bills sold last year, a little less than half of the outstanding amount was held by banks by the end of the period. Like the administrations before, this is in addition to direct central bank advances.
In a healthier economy with an autonomous central bank concerned about inflation, this problem would self-correct. As public sector-driven demand for debt increases, the amount of loanable funds in the economy is exhausted, and borrowing costs increase, following the classic logic of supply and demand. Unfortunately, the central bank bullies banks into buying government debt and is too willing to maintain a negative interest rate environment that reduces alternatives for investment.
Excessive government borrowing, combined with a central bank that has surrendered its duty, is crowding out the private sector. The T-bill market could have been a force for good, helping the government finance its deficit without necessarily printing with exorbitance. But neither has direct advances ceased, nor is the liberalised securities market responsibly utilised.
It is within the power of policymakers to create a sustainable credit market. It all comes down to reducing deficit spending. The logic behind ensuring that credit flows to the private sector more than the government is that the former use it more efficiently.
In the best of times, borrowing is concentrated with large and wasteful public enterprises that are rarely made accountable. Reports from the Office of the Auditor General are an indictment of how much wealth is wasted through either larceny or inefficiency. In the worst of times, as in the past two years, borrowing has risen because of growing defence spending, an unproductive activity. Such drawbacks to misusing government securities are without factoring in that, in the end, it is debt and has to be paid back through revenues. It cannot be rolled over forever.
The administration started out promising to ease the state’s hold over the economy. All it has done is rearrange the means through which the public sector exerts its influence. When it comes to tangible results, policymakers have yet to prove themselves.
Education and Safety: Parents’ Dilemma, Students’ Anxiety
Hundreds of thousands of high school students prepare for matriculation exams, as Nahom Taye, 19, did. A native of Shashemene town, 260Km south of Addis Abeba, he has gone through the stress and anxiety associated with the tests, officially dubbed the Ethiopian Higher Education Entrance Certificate Examination.
Nahom was among over half a million high school seniors to sit for the national exams six months ago. Scoring passing scores is key to enrolling into one of the 46 public universities. Recent years saw the closure of almost all, first compounded by the COVID-19 pandemic, which wreaked havoc on educational cycles, from primary school to university. The pandemic has not been the only source of distress for students like Nahom and their families.
Many parents remain wary of sending their children away in times of profound insecurities.
The armed conflict battering the country’s north for a year and a half and growing insurgency in other regions have taken their toll. Last week, the UN reported that nearly 1.4 million children in the Tigray Regional State are likely to go into their third school year without education, disrupted by war. Security concerns in the Afar, Benishangul-Gumuz and Oromia regional states forced close to 60,000 students to wait two months to take the tests.
An undisclosed number of students in Tigray have yet to sit for the national exams.
Despite this glaring absence, the number of examinees is double the figure from last year, mainly due to a policy shift that scrapped national exams for 10th-grade students two years ago. It meant more students had the chance to progress to their senior year and sit for the exams. The Ministry of Education announced university entrance threshold points last month. Over a quarter of examinees, almost half female students, are eligible to join public universities.
Nahom, aspiring to study medicine, has fortunate. His parents were determined to pay tuition fees of over 1,000 Br a month to see their son could attend a private school.
Their sacrifice and Nahom’s hard work paid off – he scored a little over 500 points out of 700. Though it is shy of the 530 and above designated as the highest-scoring category, it was a promising result. Around 4,000 students met the threshold, gaining instant acceptance to Addis Abeba University, the pick of the litter from public higher learning institutions.
“I was halfway there,” said Nahom.
He was enrolled at the Adama Science & Technology University (ASTU). His dreams of becoming a physician were shattered, though.
Placements to all regular undergraduate programmes are processed under the supervision of the Education Ministry. It is headed by Berhanu Nega (Prof.), one of the three opposition leaders appointed into Prime Minister Abiy Ahmed’s (PhD) cabinet following the sixth national elections last year. They lost the race to enter parliament.
Public university admission offices then direct enrollment to various programmes based on students’ results.
The dilemma had Nahom reassess his future. He decided to study engineering, one of 19 undergraduate programmes offered by the university. Despite concerns about his placement, Nahom packed his bags and headed to the campus in Adama, nearly 100Km southeast of Addis Abeba.
He was not welcomed as he had thought. University administrators refused to accept students assigned there by the Ministry. The science and technology universities in Adama and Addis Abeba are the only public universities administering their own entrance examinations to prospective students. Nahom was one of 600 students who found themselves in a desperate situation in Adama. He was forced to return home after a short one-day stay.
Nahom told Fortune he and his peers were escorted from the university premises by police officers.
“They wouldn’t even let us spend the night,” he said.
He spent the night at a hotel, paying 400 Br, before heading back to his hometown.
Less than a week after he arrived in Shashemene, Nahom was reassigned to Madda Walabu University in the Bale Zone of the Oromia Regional State. It is among the dozens of public universities opened over the past two decades. Nahom’s experience is not an outlier, as thousands of students are faced with similar predicaments.
The enrolment process, comprising everything from validating exam results to placements, is carried out electronically. Universities have been requesting the Ministry to assign additional students to their campuses, as many of those previously assigned have declined to enrol. Parents were frantic and desperate to reach out to the Ministry’s officials to ensure their children were assigned to universities in the capital or nearby. Close to 1,500 students have filed complaints before the Ministry about their placements. Nearly two-thirds were found to have legitimate concerns.
There is also a communications gap between the universities and the Ministry, according to Edossa Terfassa, director of higher education affairs.
A lack of coordination, coupled with the ongoing unrest and instability, is casting a shadow on public universities’ already questionable quality of education.
Higher education has come a long way since its humble beginnings with the University College of Addis Abeba (later Haile Selassie I University and then Addis Abeba University) opened in 1950. Two more public universities opened in the mid-1980s, enrolling less than 5,000 students. The past two decades saw rapid expansion, with dozens of higher learning institutions established, enrolling over 350,000 students annually.
Nonetheless, five public universities in the north – Meqelle, Axum, Adigrat, Raya, and Woldiya – have been closed for over a year due to the civil war that erupted in November 2020. Over 14,000 students have abandoned campuses. It is a considerable disruption with serious implications for students’ mental health and wellbeing, says Tirussew Teferra (Prof.), an education expert and project leader of a team at the Ethiopian Education Roadmap Development. According to the expert, it can raise the chances of developing psychological problems, which could take a long time to heal.
“Psychosocial wellbeing is a superordinate construct that requires social and collective wellbeing,” said Tirussew. “It’s doubtful they can continue under the circumstances.”
Over the past three years, security concerns have impacted close to one million students attending undergraduate programmes. The concerns have only grown more threatening as persistent unrest leaves families worried about sending their children to public universities far away from the capital.
Khadija Muktar, 45, is one such parent. She is the mother of seven, raising a family in the capital. Her third child, Ekram Yusuf, has been enrolled this year to study natural sciences at Debre Markos University in the Amhara Regional State. Khadija, however, decided to keep her daughter around. Neither is Ekram too enthused about the prospect.
“I’ve no plans to send her anywhere but Addis Abeba,” Kedija told Fortune.
Safety concerns are not the only factor behind the growing parents’ reluctance to send their children to public universities outside the capital. Apprehension over the quality of higher education and rising unemployment rates among university graduates are driving factors. The Ethiopian Statistics Service’s survey two years ago put the unemployment rate at nearly a fifth of the population. It is 26pc for females. An estimated three million youth enter the labour market each year, almost double the number federal authorities claim the economy generated this year.
Apart from the 45,000 people who received employment overseas (including nursing), the largest employment provider was the service sector, followed by agriculture and industry. It is consistent with other data that showed over half of this employment was created in urban areas, with Addis Abeba claiming the biggest hub for employment.
Officials have been struggling to accommodate the rapid expansion in the number of public universities and the surging number of students. The questions over quality come despite huge budgetary allocations to education, amounting to 70.5 billion Br last year, comprising 13pc of the federal budget.
The building of new universities consumes a large portion of the budget, leaving little behind for structural improvements in areas critical to educational quality. Inadequate funding, poor facilities, overcrowded classrooms, and a shortage of qualified faculty remain challenges. Less than a fifth of university instructors hold doctoral degrees.
Though the gross higher education enrolment ratio of 8.1pc exceeds the rates in other East African countries such as Tanzania or Uganda, curricula and teaching methods are considered ill-suited for demands from employers. None of the institutions is included in standard world university rankings.
Tirussew urges policymakers to focus on enhancing educational management and leadership skills. However, according to him, this can be done only in a stable and conflict-free environment.
Doubts over quality, particularly in the newly opened public universities, led Nahom to forego attending Madda Walabu University, which was established in 2006.
“How could I depend on the school after what happened to me in Adama?” Nahom asked.
His parents are willing to foot the bill for an education at one of the 329 private colleges. Nahom recently paid 3,500 Br to register in an accounting programme at Admas University in Addis Abeba. The same cannot be said for most of the 600,000 students who sat for matriculation exams this school year.
High tuition fees do not guarantee quality education provision. Several private colleges that sprang up over the past 15 years lack a reputation for quality education; they are not much different from their public counterparts. They have been subject to a repeated regulatory rebuke from the federal agency that oversees higher education quality. Under Andualem Admassie (PhD), the office formerly known as the Higher Education Relevance & Quality Agency is a federal agency supervising the private higher education sector.
A Chief Executive Officer (CEO) of the Ethio telecom in the 2000s, Andualem’s agency was re-established as an Authority in 2019, with mandates to ensure facilities (such as libraries), curricula, and faculty meet the standards before granting permits. Andualem declined to renew the accreditations of 120 private colleges for at least one programme on offer, while 50 others were found enrolling students in unaccredited courses or moving campuses without informing his office. Last week, the Authority punished private colleges in the capital for operating without proper accreditations.
Those on the receiving end believe the measures were “unfair.”
An inspection team visited a college a few weeks ago, checked on documents, and left after giving the academic staff minor comments, according to a Vice President of one of the private colleges reprimanded by the Authority. He claims the college did not receive a notice before the media announced the decision.
Eleven task forces conducted inspections for two days, uncovering the colleges’ violations the authorities admonished. The Authority alleges the college opened a new campus without notifying its officials.
“We’ll continue to conduct the inspections,” said Tarekegn Gorius, communications director.
Khadija says she is aware of the problems with the private colleges. This does little to stop her from pushing her daughter, Ekram, to enrol with the National Aviation College to study aviation management. She will pay over 5,000 Br a semester in tuition fees.
Ekram and Nahom reflect an inadequate higher education system unable to cater to the needs of a population heavily skewed towards the youth. Opening new universities and apportioning enormous budgets struggle to meet the challenge. Officials at the Education Ministry recently announced that all graduates from public colleges would be compelled to sit for exit exams upon finalising their studies. They hope this will improve the quality of entrants into the workforce. How that will materialise in the face of insufficient facilities and ill-suited teaching methods remains unaddressed.
Exporters Face Ship or Lose Ultimatum, Again
Trade regulators have warned exporters to immediately ship oilseeds and cash crops they claim to have discovered stored at warehouses in Addis Abeba and other states.
The authorities are pushing for the export of 235,000tns of cash crops, which they say were found in warehouses belonging to 162 traders and exporters. It is not the first time for them to issue stern warnings. In March this year, they announced discovering 60,000tn of cash crops at warehouses owned by 105 exporters following investigations in Addis Abeba and Adama.
Oilseeds account for two-thirds of the latest batch found in storage. The discovery has pushed the Ministry to amend directives that regulate the trade and export of oilseeds. Signed by Gebremeskel Chala, minister of Trade and Regional Integration (MTRI), the amendments compel exporters to ship their crops within a month.
“The government will confiscate the stock unless they export before the deadline,” Mesfin Abebe, director of agricultural product export at the Ministry, told Fortune.
Officials’ reasoning for the ultimatum is the perceived losses in foreign currency from a shortage of exports. Oilseeds place high on the list of top forex earning commodities, accounting for nearly 12pc of the 3.6 billion dollars in export revenues last year.
Total export revenues over the three quarters of the year were recorded at 2.95 billion dollars, with agricultural commodities accounting for over two-thirds. The value of coffee export exceeded the one billion dollar mark, almost doubling what the authorities had planned earlier the year. Earning close to a quarter of a billion dollars, the export of oilseeds almost reach the target.
However, the total revenues from exported items were 16pc short of what Gebremeskel and his colleagues at the Trade Ministry had planned. Replacing Melaku Alebel, now minister of Industry, Gebremeskel had previously served as director-general of the Micro & Small Enterprises Development Agency.
Gebremeskel’s officers found 7,000qtl of soy bean two weeks ago at a warehouse in Adama town, nearly 100Km southeast of the capital. It is owned by Jemal Seid Adem General Import & Export.
Incorporated 14 years ago, the company exports 50,000tn of agricultural commodities such as oilseeds, pulses and spices each year, mainly to India and Pakistan, earning close to two million dollars. Jemal Seid, the general manager, contends a third of the crops belong to other exporters, which bring their commodities to his company for processing. The warehouse is equipped with cleaners, stoners and gravity separators that process the crops before shipment.
“We’ve no problem with exporting our stock,” said Jemal. “But it needs time to process agricultural commodities before shipping.”
He disclosed his company is facing supply shortages, particularly when it comes to oilseeds such as sesame. Other exporters have recently echoed similar concerns.
The militarised conflict in the country’s north, where 90pc of sesame production comes from, has had a devastating effect on supply. Most of the 369,000hct of land covered by oilseeds is located in the western regions of the Tigray Regional State, including Humera and Welqayit, and central and west Gonder of the Amhara Regional State. Close to 300,000 small-scale farmers harvested 3.6 million quintals of sesame annually. However, productivity is falling though it is difficult to come by figures to show the extent of the decline. Earlier this year, regional authorities reported that 300,000hct of land in the Amhara Regional State remains unploughed due to the war.
Based in Adama, Hufsan General Trading, a company incorporated a decade ago, was “caught” with 6,000qtl of sesame at its warehouse. Hufsan ships 200 containers of the cash crop each year. Through contract farming agreements, the company started with 10 million Br capital and sources sesame. It had prefered to buy agricultural commodities directly from local markets or through the Ethiopian Commodity Exchange (ECX), according to the General Manager, Selim Muktar.
“The poor quality forced us to turn to contract farming,” he told Fortune.
To Selim’s disappointment, neither is the global market as lucrative as it once was.
“Exporting sesame for more than the minimum threshold set by the government is becoming difficult,” he said.
The threshold he referred to is 1,685 dollars a tonne. Since 2020, domestic prices for sesame have increased, while the cash crop fetches lower values in overseas markets. Exporters say they have been buying the oilseed for 5,000 Br a quintal and selling it for 4,000 Br.
Experts warn the problems will persist as long as a surplus in production does not drive the export of agricultural commodities. They also urge the authorities to focus on more urgent issues, such as curbing illicit and contraband trade.
“The need to generate foreign currency is the major pushing factor,” says Atlaw Alemu (PhD), an economist lecturing at the Addis Abeba University.
Federal Warehouse Receipt Credit Scheme Ramps Up
Federal officials are moving forward with a belated initiative to form a regulatory body tasked with supervising a national credit scheme that facilitates loans for farmers, unions, and agro-processors using receipts for commodities they keep at warehouses.
It has been 17 years since laws were introduced to regulate a warehouse receipt system and nearly two years since a bill that governs the scheme’s implementation was legislated. Nonetheless, the initiative has remained on the back burner.
Two months ago, a team from the Ministry of Trade & Regional Integration (MTRI) launched a pilot programme to supervise the warehouse scheme. It will continue until a federal regulatory body is established in August, according to Tarekegn Shibeshi, who heads the team at the Ministry. A committee comprising seven officials of the Ministry has been formed to hire staff for the proposed agency, including a director.
The regulator will have an advisory board composed of representatives from the ministries of Trade, Industry, and Agriculture; the central bank; the Ethiopian Standards Agency; the Ethiopian Bankers’ Association, an industry lobby group chaired by Abie Sano, president of the Commercial Bank of Ethiopia. The process to establish the agency is expected to wrap up in three months, at which time officials hope to scale up the warehouse scheme, Tarekegn told Fortune. It would allow smallholder farmers, unions, and agro-processors to access loans up to 70pc of the value of the commodities they store at warehouses.
Only four crops, including teff, are eligible for use as collateral.
Last year, eight commercial banks inked agreements with the Trade Ministry to facilitate the credit scheme. However, only three – the state-owned Commercial Bank of Ethiopia (CBE), Awash Bank, and the Cooperative Bank of Oromia – are actively engaged. The Ministry plans to disburse 325 million Br in loans during the pilot period, according to Tarekegn.
Two unions and four agro-processors have thus far received 75 million Br in short-term loans against collateral of 41,000qtl of grain.
Incorporated nine years ago, Abas & Mahari Flour Factory was the first to receive credit under the warehouse scheme. The factory, which has an annual turnover of 100 million Br, operates with a workforce of 84 in Debre Markos town, the Amhara Regional State. It received 12 million Br in loans against collateral of 14,000qtl of wheat.
“We needed the money to cover operating costs,” said Mahari Adane, general manager.
The factory is eligible for 31 million Br in credit using the wheat it stored at one of 600 authorised warehouses in the country. The CBE offers a 14pc interest rate on the loans. Other unions and agro-processors are accessing credit, disclosed Melkam Belete, director of small and medium loans at the Bank.
The regulatory body will be in charge of issuing certificates of competency to agricultural product inspectors, who will be entrusted with assessing the quality and quantity of commodities stored at the warehouses. Experts at the Trade Ministry are conducting the certification work.
The Ethiopian Commodity Exchange (ECX) introduced a similar warehouse receipt scheme last year. Unions and farmers have begun to access collateralised credit against commodities stored at one of 62 warehouses operated by the Exchange. Four months ago, Abay Bank became the first financial institution to advance 50 million Br in short-term loans to Merkeb and Damot cooperative unions under the ECX scheme.
Although 13 commodities are traded on the ECX floor, soybean, chickpeas, and maise remain the only crops eligible for use as collateral.
Experts observe that although the initiatives are a step in the right direction, the government’s inability to implement the scheme at full scale and the disorganised nature of unions and cooperatives remain barriers. Limited capacity and the absence of a skilled workforce deter unions and cooperatives from borrowing using agricultural produce as collateral, argues Arega Shumetie (PhD), a senior researcher at the Ethiopian Economics Association (EEA).
“They’re not audited properly either,” he said.
Arega, who has previously researched the performances of various unions and cooperatives, observed those operating in the Oromia Regional State are better prepared to benefit from the scheme.
“Some have even started to export on their own,” he said.
Agrochemical Importers Plead for Credit Extensions, Blame Logistics Disruptions
A consortium of agrochemical importers has pleaded with central bank authorities for an extension of waivers on commission fees paid to prolong letters of credit (LCs) and cash against documents (CAD) agreements for the third time in a year. The pleas come following months of uncertainty due to a global shortage of shipping containers. Lockdowns and travel restrictions have caused a slowdown in loading and unloading processes, creating disruptive shortfalls.
CropLife Ethiopia Agrochemical Association, formed in 1998 by six pesticide importers, represents multinational manufacturers and two dozen domestic importers. Its leaders have successfully petitioned the National Bank of Ethiopia (NBE) for waivers twice over the past year. Both requests were approved by Fikadu Digafe, vice governor and chief economist at the central bank.
“We’re awaiting a response,” Fasil Tadesse, general manager of the Association, told Fortune.
Commercial banks had agreed to extend the waivers on both occasions, but executives have pulled the plug in recent months. The last extension was valid until the end of January this year.
A further extension requires approval from the central bank, according to Tadelech Shiferaw, director of international banking at Enat Bank.
A refusal from regulators would leave the importers to face penalties from their respective banks due to the expiration of letters of credit and CAD deadlines. The industry lobby group has also been pleading its case to officials at the Ministry of Agriculture over the past couple of months. Two weeks ago, the Ministry showed its solidarity with a supporting letter addressed to the central bank. Sofia Kassa (PhD), a state minister for Agriculture, argued that the extension is necessary to supply agrochemicals to farmers at reasonable prices.
Representatives of the National Bank of Ethiopia were unavailable for comment.
Fasil says the issues are not limited to the members of the Association.
“Most agrochemical importers are in a similar predicament,” he said.
Close to 110 registered importers bring 40,000tn of agrochemicals annually.
Adami Tulu Chemical Company, the lone domestic manufacturer incorporated in 1998 with a capital of 40.5 million Br, produces 440tn of chemicals annually. It is nowhere near the demand from half of the 18 million smallholder farmers who used agrochemicals last Mehir season. Pesticides were used on less than a quarter of 22.8 million hectares of farmland.
BNYSE General Trading Plc is an importer that had opened a letter of credit with the state-owned Commercial Bank of Ethiopia (CBE) after depositing 750,000 Br. Two containers of chemicals the company ordered were scheduled to arrive three months ago. They have yet to arrive; the company’s management attributes the delays to a shortage of shipping containers. Bayou Belayneh, the manager, blames increasing congestion at ports in Shanghai.
Ports in the coastal Chinese city have been running at half capacity as Chinese officials have imposed a citywide lockdown due to a resurgence in COVID-19 cases. The restrictions have created shortages in trucking services and labour.
To experts like Matiwos Ensermu (PhD), a logistics and supply chain management lecturer at Addis Abeba University, the problems arise partly as importers have to utilise the state-owned Ethiopian Shipping & Logistics Services Enterprise (ESLSE) to transport goods. The expert does, however, encourage importers to seek waivers that would allow them to use other shipping lines as a solution.
The Ethiopian Maritime Authority and the Ministry of Transport & Logistics can issue these waivers.
The Enterprise’s executives have been hard pressed by impediments to the logistics sector brought on by the pandemic over the past two years.
Last year, the Enterprise acquired close to 6,000 shipping containers, increasing total stock to around 10,000 units. However, the shortfalls continue to haunt the Enterprise, run by Chief Executive Officer (CEO) Roba Megersa. He offered waivers to importers to use other shipping companies. However, the wavier applied only to ports where the Enterprise’s ships do not call, or it has no agents present.
Importers claim costs are on the rise due to surging fees for shipment. Blaming the shortage of containers, the Enterprise increased cargo tariffs by 40pc in February this year, the second adjustment since 2020. Shipping tariffs for 40ft containers cost 16,000 dollars, while importers pay around half for 20ft containers.
The ballooning shipping and inland transport costs are inevitably transferred on to consumers. Smallholder farmers are left carrying the burden of buying agrochemicals.
Abebaw Abebe is the general manager of Farmers Cooperative Federation operating in the Southwestern Regional State. The Federation represents over 400,000 farmers organised under 989 cooperatives.
Abebaw noted prices for agrochemicals have jumped by half over the last year, farmers pay 4,000 Br for a litre of pesticide.
License Plate Shortage Haunts Car Owners, Dealerships
Car buyers face a shortage of license plates as the federal agency responsible for manufacturing the plates ran out of raw materials earlier this month. The shortage of private (Code-2) plates is due to a lack of hot stamping foil used to paint the embossed plate numbers.
Productions of the plates were discontinued two weeks ago, confirmed Solomon Ambachew, director of communications at the Public Transport Service Agency.
The Agency took over the job of license plate manufacturing from the Federal Transport Authority last October after the latter was dissolved as part of a shuffling under the administration of Prime Minister Abiy Ahmed (PhD). It has minted out nearly 5,000 plates in the months since. However, the declining stock of stamping foil has been a serious concern for its officials.
They have prompted the Ministry of Transport & Logistics to facilitate access to foreign exchange from the Commercial Bank of Ethiopia (CBE) to import raw materials.
“We’ve yet to receive a response,” Solomon told Fortune.
This is a development that surfaced amid a surge in the number of vehicles imported. New cars, particularly Suzuki models, have mushroomed on the roads of Addis Abeba in recent months. An average of 3,100 cars are brought in a month, added to the more than 1.3 million vehicles registered. Over two-thirds of these vehicles are in the capital.
Regional and city administrations are responsible for assigning and distributing license plates to vehicle owners. The Addis Abeba Driver & Vehicle Licensing Authority distributes plates in the capital’s 11 districts through its branch offices. Vehicle owners are required to present title certificates, proof of third-party insurance, and annual vehicle inspection certificates to receive plates. They are charged close to 2,500 Br for the service.
Most of the plates the Authority hands out are for private vehicles or vehicles registered to businesses (Code-3). It had requested 10,000 “Code-2” license plates from the Agency three months ago. Its officials say declining stocks forced them to seek additional plates before the end of the budget year.
“We’re told only ‘Code-3’ license plates are available for delivery,” said Taye Dibaba, director of license accreditation at the Authority.
The Authority used to allocate plates to district offices upon demand. However, its officials have begun to divvy up licenses equally as stocks ran low. The Kirkos, Nifas Silk Laphto, and Bole districts have the highest demands for plates. The branch office in Kirkos District issues close to 400 private vehicle plates a month. As supply ran out, officials there had started to register applicants in hopes of serving them when plates arrived.
“We stopped this procedure because it was vulnerable to corruption,” said Yitawes Teshome, vehicle licensing service team leader.
The supply disruptions have been an inconvenience to vehicle importers.
Sara General Import Plc sells Suzuki and Toyota models with zero miles. Many of its customers buy cars, taking loans from commercial banks. It had sold 30 vehicles over the past month but could not collect payments due to the license plate shortage, Eyasu Gizaw, general manager of the car dealership, told Fortune. Commercial banks disburse loans to dealerships after vehicles are fitted with plates. Vehicles must be fitted with plates before they make their way onto the roads. Owners are permitted to drive with temporary plates for three days.
A similar shortage had transpired last year. It was solved after the Transport Ministry facilitated forex access to import raw materials its officials claim was sufficient to produce around 1.5 million license plates. Last November, the federal government announced plans to outsource license plate production and distribution to the private sector. Little has transpired since.
Manufacturer Leases Shed at Adama Park for Novel Recycling Venture
Plastic waste can be recycled into construction materials when a manufacturer starts production in Adama Industrial Park. A US-based plastic manufacturer has leased a shed in the park, planning to recycle 10,000tn of plastic waste annually.
Cubic Ethiopia Plastic Manufacturing Plc began talks three months ago with executives of the Industrial Parks Development Corporation (IPDC), under the management of Sandokan Debebe, chief executive officer (CEO) since 2020. Sandokan, previously a liaison officer at the Ministry of Science & Technology, signed a memorandum of understanding for the lease of a 5,500sqm shed in Adama Industrial Park, 100Km southeast of Addis Abeba.
The park rests on 120hct of land and houses 19 sheds with sizes between 3,500sqm and 11,000sqm. It is the third-largest, after Hawassa and Bole Lemi parks.
Cubic Ethiopia will be the latest entrant. It was incorporated last year with Kidus Fesseha and Penba Marre, a Senegalese businesswoman, as co-founders. Marre has experience as a production manager in a similar plastic recycling firm. Kidus is one of five children of Fesseha Asfaw (Col.), a retired medical doctor in the army. His brother, Kagnew, works for the Ethiopian Airlines Group in a senior position. Kidus, a father of two, has previously served as head of innovation at the UNICEF for six years.
The founders have raised five million dollars in equity from nearly two dozen international investors. Their project requires 4.5tn of plastic waste each day to manufacture interlocking bricks and plastic door and window frames. According to project documents, its annual output can be sufficient to supply construction materials for 5,000 villas. The company plans to work with as many as 10,000 garbage collectors to source the raw materials, said Kidus.
The Co-founder says the recycling plant will employ 300 people when it begins operation at full capacity.
“The project is expected to resume operations within the next six months,” Sandokan told Fortune.
Addis Abeba generates a daily average of 3,000tn waste, with plastic waste such as water and soda bottles composed of polyethylene terephthalate (PET), accounting for 15pc. It is almost 10 times the volume required by Cubic Ethiopia.
Cheaper and lighter than conventional building materials, the interlocking bricks made from plastics require no cement. A study conducted by Conscious Designs, an architectural firm based in the Netherlands, found that using plastic interlocking bricks can reduce costs by nearly two-thirds.
Bricks made from plastic are twice as sturdy as concrete, according to Imam Muhammad, chair of housing at the Ethiopian Institute of Architecture, Building Construction & City Development. The Institute has been broaching the idea of low-cost construction materials in recent years. The manufacturing process involves mixing the plastic with sand and heating it at a very high temperature before compressing the product into bricks.
Similar ventures have proved successful in other African countries.
Incorporated in 2010, Conceptos Plasticos, a Colombian company, has been manufacturing bricks using plastic waste in the Ivory Coast since 2019. Its products are used as input for constructing 500 classrooms in the West African country under a project funded by UNICEF.
Imam believes the innovative product could provide relief to domestic contractors grappling with surging prices in construction materials. Retail cement prices, a crucial input, have more than doubled in recent years, surpassing the 700 Br a quintal.
Officials at the Ministry of Urban Construction & Infrastructure also have their eye on a new approach to reduce reliance on cement – interlocking and compress-stabilised blocks that can slot together easily without mortar.
Gedlu Mulugeta, a contractor experimenting with the new technology for the past four years, owns the invention. A year ago, he received a patent for his interlocking blocks from the Ethiopian Intellectual Property Office. Three researchers from Bahir Dar University have also created compress-stabilised blocks made from dry, inorganic subsoil, non-expansive clay, aggregates and Portland cement.
The Ethiopian Standards Agency is preparing standards for the novel construction materials based on recommendations from the Ministry.
Sandokan disclosed the Corporation is in negotiations with managers of the Chinese Export–Import Bank to secure funding for the second phase of construction at Adama Industrial Park.
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