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Month: July 2022

Minister Gebremeskel Faces Cement Market Backlash

Posted on by Web Master

Trade authorities’ attempt to regulate the besieged cement supply chain faced a backlash last week, exacerbating long-standing issues in the market. It pushed retail prices for cement to an unprecedented 1,500 Br a quintal, creating apprehension in the broader economy, for, cement drives core inflation upward.

The price increase comes after a series of ordinances from Gebremeskel Chala, minister of Trade & Regional Integration. He ordered cement distribution through agents stopped and cement factories to sell directly to government entities and institutional buyers. Minister Gebremeskel urged regional administrations to set up depots for storage and distribution. The Minister also pushed factories to hand over 30pc of their products to youth associations, which retail to end users.

Last week, the Ministry reintroduced a price cap, compelling cement factories to sell a quintal to designated distributors for between 770 Br and 870 Br. Cement plants set specific prices for destinations considering transport and warehousing costs.

Gebremeskel’s move has backfired. It resulted in the highest retail prices the construction industry has ever seen.

A buyer, Daniel Getachew, was roaming around Megenagna, a hub for cement retail in Addis Abeba, last week. He is renovating a three-bedroom house. Two weeks ago, Daniel bought 20qtl of cement for 1,250 Br apiece. Retailers had almost nothing in stock when he came around the second time.

“The contractor urged me to buy cement quickly before retailers run out,” he told Fortune.

After hours of bargaining with retailers, Daniel bought 16qtl for 24,000 Br.

A salesperson at one of the retail stores in Megenagna, Abeba Alemayehu, says she had sold a quintal of cement at 1,200 Br until last week.

“Our warehouse is empty now,” she told Fortune.

Retailers depend on intermediaries, not allowed to buy from the factories.

“After authorities banned the involvement of intermediaries in the supply chain, we’re left with nothing,” she said.

Officials claim the market crisis forced them to take the measures. The Ministry chose to let the factories have the final say on retail prices, avoiding price caps, according to Kumneger Ewnetu, communications director.

It is the authorities’ second attempt to control the cement market through price caps in two years. The Trade Ministry had capped distribution costs to 20 Br a quintal and limited wholesale privileges to six authorised dealers. The Ministry was forced to remove the price cap two months later as the procedures had brought on a severe cement shortage and driven a spike in retail prices.

Kumneger says this week’s measure is temporary.

Getie Andualem (PhD), a lecturer at the Addis Abeba University College of Business & Economics, argues the government has no business interfering in the cement market.

“Officials should first determine whether cement is a strategic commodity that requires government involvement whenever the market fails to function properly,” he said.

The turbulence comes during a shortfall in production. The Ministry expects the 10 cement plants to supply a little more than 200,000tn of cement monthly. Derba Cement was expected to supply 37,000tn a month. However, Haile Asegede, general manager of the factory, disclosed to officials that the factory’s production dropped by 30pc due to a rise in fuel prices and a shortage of coal – a primary energy source for cement plants.

The same goes for National Cement, which supplies two types of cement products – ordinary portland and pozzolanic portland cement. Established by the Italians in 1936, National Cement’s plant is in Dire Dawa, around 500Km east of the capital. Owned by Bizuayehu Tadelle, a businessman running East Africa Holdings, the plant can produce up to 3,000tn of cement a day. However, according to Fitsum N. Demisse, chief executive officer (CEO) of National Cement, it is utilising only three-quarters of its capacity.

Officials expect National Cement to supply close to 42,000tn a month.

Fitsum attributed the decline in production to a shortage of coal. His factory sources coal from small-scale miners in Kamashi Zone, Benishangul-Gumuz Regional State. He disclosed security concerns have hampered efforts to secure coal.

“The quality of the coal in the local market is poor,” he said.

Ethiopia spends a quarter of a billion dollars annually to import coal, which has been more than halved in the last two years.

The Ethiopian Petroleum Supply Enterprise is tasked with importing and distributing coal. The Enterprise has not purchased coal from abroad in recent months due to a shortage of foreign currency, people familiar with the company disclosed to Fortune.

Mugher Cement supplies its product directly to public projects and state-owned enterprises. The factory is among the few companies utilising 80pc of their capacity, much higher than the industry average of 62pc. Established in 1984, the state-owned Mugher Cement can produce one million tonnes annually.

“We’re still supplying government projects,” said Gezahegn Dechasa, general manager of Mugher Cement.

The Ethiopian Industrial Inputs Development Enterprise and the Ethiopian Trading & Business Corporation distribute cement in Addis Abeba. The Enterprise distributes more than 60,000tn a month, three-quarters allocated to large public projects. The remaining is supplied to retailers through its six outlets in Addis Abeba.

“Anyone who presents a building permit can buy cement from one of our outlets,” said Solomon Girsha, deputy CEO.

Five cement factories, including Derba and Dangote, are made to supply to the Enterprise.

Solomon says the Enterprise will begin to sell cement based on the new rule starting this week.

“We’re still preparing,” he said.

What Do New Banks Offer Their Older Cousins Don’t?

Posted on by Web Master

Ethiopia’s banking industry is not merely underdeveloped. It has historically regressed. Calls for the financial sector to open for international capital, technology, network and skill remain dwarfed in the face of nationalistic disguise to shelter it from foreign competition. Perhaps the die-hard protectionists who have taken economic policy discourse hostage would be surprised to find out that the first bank established was a concession deal given to non-nationals.

The Bank of Abyssinia, as it was called, was established in 1906 with half a million pounds of authorised capital. Formed to process transactions and mint coins, it was managed by the National Bank of Egypt (owned by the British). Part of the equity financing for the bank was to be raised in stock exchanges in London and Paris. The Bank hung around until 1931. The first bank to be majority owned by nationals, the Bank of Ethiopia, was set up afterwards, following the Imperial government payout of 40,000 pounds as a breakup fee to the Egyptian bank.

Those remain the most revolutionary times for banking in Ethiopia. At its peak, the financial sector may have been highly underdeveloped, but it was open and thriving. A significant milestone was in 1963 when central banking was separated from commercial functions. Even then, as long as locals owned most of the shares, joint ventures with foreign banks were permitted. The first domestically owned private bank that came afterwards, Addis Ababa Bank, was 40pc owned by foreign institutions.

The nearly six decades that followed were unfortunate. There was a 17-year of nationalisation and expropriation of private wealth. Post-1991 has brought the resurrection of domestic private capital in the financial sector. But protectionism continued. And the debate rages.

Banking and insurance are saddled with one of the most underdeveloped financial sectors in the world. Ethiopia’s is a society largely unbanked. Credit is an undistributed risk, and access to it is limited to a fraction of its population. There remains strong resistance to shielding the industry from foreign capital.

What is the alternative to opening up?

There could be more of what came before – a wave of private banks mirroring those who had entered the market. Innovation in products or services is rare. Competition is good but does not always mean growth. Offering not much different from one another, it is a pitched battle for several banks over deposits, forex and labour. The banking industry is currently the poster child for this: deprived of innovation and bogged down in repetition.

The new ones are doing more of the same, bar their logos and corporate colours.

Several banks have commenced operations over the past few months, the latest being Tsehay, Ahadu and Amhara banks. The industry is seeing a wave of entrants beginning last year, when ZamZam and Hijira banks, which exclusively offer interest-free services, and Goh Betotch, a mortgage banker, began operations. A few more are expected to inaugurate their services, including microfinance institutions edging to graduate into retail banking. There would have been more had the central bank not increased the minimum required paid-up capital 10-fold to five billion Birr.

The latest entrants are the fourth generation to join the industry since the banking industry was opened to private capital in 1995. The first generation, with the likes of Awash, Abyssinia, Dashen, Hibret and Wegagen banks, waved into the industry only to bring little innovation and energy. The fourth generation of banks will likely not change this state of affairs.

The youngest banks will give the established ones a run for their money. The well-capitalised ones, Amhara Bank and former microfinance institutions, could be formidable. They will mobilise deposits aggressively and compete for clients that buy products. Smaller and weaker banks will eventually be challenged, making the industry leaner and more robust.

But will they go far enough?

Profit losses are rare in the industry, and no private bank has ever been bought out or merged. However, tough times are ahead if the declining return on share is any indication.

The financial sector cannot do much for the main economy that it did do two decades ago. While more people have bank accounts, the other frontiers such as digital banking, access to credit and product innovation remain weak. The banks are unspecialised (concentrated in retail banking) and face a significant skills gap. There is generally low awareness and investment in the financial sector (in the form of financial assets) by the public.

What will Tsehay, Ahadu or Amhara banks offer in products and services that Awash, Abyssinia, or Wegagen banks are not? What is their differentiation in value proposition?

They have yet to say much.

It would be unfair to hold the private banks responsible for all the inadequacies in the financial sector. They operate under the gaze of a constraining regulatory environment and difficult economic realities. They are merely responding to incentives. It could be unfair to hold private commercial banks and insurance firms responsible for the state of the sector. The role lies with central bankers and policymakers steering economic planning.

The whole ecosystem needs to change for the financial sector to grow and the economy to be financialised. What has elevated the banking sector in the world’s financial centres is reduced regulation, robust infrastructure, strong contract enforcement laws and ease of capital movement. A lesson can be taken and replicated in Ethiopia if there is a willingness to accept that meaningful competition may not be good for a few inefficient firms but creates a competitive economy as a whole.

It can start with a bit of house cleaning. It will go a long way if the central bank regulates consistently, formally and in predictable ways. This means not communicating important policy changes informally through text messages to bank presidents. The institution can also lead by example. It wants commercial banks to be transparent while it remains highly secretive and tight-lipped about macroeconomic policy directions, if its governors have one.

The central bank cannot bring the change needed in the finance sector by itself, nonetheless. The industry’s laws must be amended to open the sector to foreign capital, bringing meaningful competition. It will not otherwise be possible to leapfrog from a traditional banking system to the modern financial advances and innovations of the day.

Opening the banking sector for foreign capital does not in and of itself guarantee that incomers will gladly waltz into Ethiopia, knowing that profit repatriation is not allowed. Opening the banking industry thus needs to be followed with capital account liberalisation. It is give-and-take, and the government has to give in.

It is encouraging to see Ethiopia’s authorities preparing the roadway to establish capital markets. This will be essential for the financial sector to grow, widening the space for domestic and foreign newcomers to thrive. Managed well, it can open avenues for raising equity (both government and private sector), diversifying and distributing risks and opening alternative sources of investments for the general public.

This is a credit to the current policymakers. They should take the energy and apply it to opening up to global capital.

Electric Cars Turn Heads as Fuel Costs Climb

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The seats and ambience inside are expectedly comfortable, with typically clean minimalist touches. The cabin feels eerily silent, free from the roaring sounds of an engine and the whistling of a turbocharger. It may resemble a conventional vehicle, but its DNA is markedly different. It has no gearshift, no sound and no combustion engine.

This is no ordinary car. It is an electric car made in China.

In the driver’s seat was Kidem Tesfaye, chief executive officer (CEO) of Green Tech Africa. He was cruising the streets of Addis Abeba – confidently – in the four-seater automobile.

While internal combustion engines require multiple gears with different ratios for power output, electric motors produce a consistent amount of twists. Electric cars do not need gears and transmission, enabling a smoother, noise-free driving experience.

Kidem had been driving conventional petrol and diesel cars for 25 years. The latest model he drove was a Tucson, an SUV manufactured by the South Korean Hyundai. But nothing he has ever driven matches his experience in the electric car. Without an internal-combustion engine creating a four-stroke soundtrack of spinning belts, pistons pumping, exhaust tones, and forced induction, drivers and passengers are much more aware of every sound in the cockpit.

“Driving this car is unnervingly easy,” says Kidem.

The Ana 360 model electric car he now drives came with a price tag of 1.85 million Br. At full charge, it can be driven up to 360Km.

Kidem’s car is one of over 1,000 vehicles that Green Tech Africa, a company incorporated two years ago, recently imported from the Chinese car manufacturer Dongfeng Motor Corporation. Dongfeng has been one of China’s leading car brands in business since 1968. Its dump trucks are well-known in the Ethiopian construction industry.

Dongfeng supplied six electric car models to Green Tech, 380 of them this year. Many have been sold, according to Kidem.

The remaining are parked in the company’s showroom near the former Qality Metal Factory on the capital’s outskirts. Close to a dozen models are lined up outside the three-storey showroom. The inside comprises 30 electric vehicles, including 23-seater midi-buses, pickup trucks, and buses that require no fuel to drive. Several of the cars displayed in the showroom are the Ana 200, Jan 450, and Nangang models.

The former carries a price tag of 1.5 million Br and can travel up to 300Km on a single charge. The Jan 450 model runs for 450Km at full charge and costs up to 2.7 million Br.

A subsidiary of Shemu Group, a conglomerate comprising 15 companies, Green Tech Africa was incorporated with 1.2 billion Br capital. Founded in 2009 with Wolday Kahsay as a significant shareholder and 4.5 million Br capital, Shemu also owns an edible oil plant. Its plant in Dire Dawa can refine up to 950tn of palm oil a day.

Green Tech Africa, with a presence in Kenya, Rwanda, Tanzania and Uganda, plans to import 5,000 electric cars in the coming five years.

The arrival of the first electric vehicles spun heads during a launching ceremony Green Tech organised at Friendship Square two weeks ago. Sixty of the cars were displayed for visitors, including Dagmawit Moges, minister of Transport & Logistics. She took one of the cars for a test drive.

Green Tech Africa has been offering free transport services in the capital as part of a promotion. The buzz did not go unnoticed by Gulelat Mekonnen, who came to the capital from Hawassa on a business trip earlier this month. A dealer in the machinery rental business, he bought a Jan 450 model.

“It’s a present to my uncle,” Gulelat told Fortune.

Electric vehicles’ rechargeable batteries make them more efficient and less costly to operate than their gas-powered counterparts.

The expansion of electric cars is welcome news for the transport and logistics authorities, who find it challenging to cope with fuel subsidies. Initially planning to phase them out, federal authorities have adjusted gas station prices to their highest-ever levels. Retail prices for a litre of benzene climbed by close to 30pc to 47.83 Br. Diesel soared to 49.02 Br a litre, constituting a 40pc increase.

The benefits of the broader use of electric cars are hard to miss for a developing country like Ethiopia, whose government spends billions of dollars annually importing fuel. Ethiopia spends four billion dollars annually to import fuel through the state-owned Ethiopian Petroleum Supply Enterprise.

Oil prices have been rising globally after falling to record lows during the peak of the COVID-19 pandemic. Speculations and uncertainty from Russia’s war in Ukraine have pushed the price of crude oil to over 100 dollars a barrel.

Minister Dagmawit says electric vehicles are vital in the government’s ambitions to decarbonise the transport and logistics sector. The federal government has been experimenting with carbon-free mass transportation since introducing the capital’s light-rail service eight years ago.

When inaugurated in 2015, after three years of construction and 475 million dollars in investment, the rail was initially touted as the ultimate remedy for the city’s transportation crisis and hoped to ease traffic congestion. The 34Km rail line, stretching from Ayat to Tor Hailoch and Menelik II Square to Qality, was designed to serve 80,000 commuters a day. A month ago, transport authorities announced plans to launch an electric Bus Rapid Transit system for 15 corridors.

Commercial and passenger electric vehicles have been making their way into roads at an increasingly rapid pace. Last year, nearly 10,000 electric vehicles (including semi- and completely knocked down parts) were brought in for 44.3 billion Br. It was more than double what had been shipped the year before, for 15.9 billion Br. Nearly 90pc of these vehicles were imported from China, accounting for 60pc of global electric car production.

Global electric cars’ sales (including fully electric and plug-in hybrids) doubled in 2021 to a new record of 6.6 million, according to the latest edition of the annual Global Electric Vehicle Outlook. China shipped off nearly half a million that year, triple its export volume in 2020. However, the US-based Tesla remains the most recognised brand in the electric vehicle market.

Nonetheless, electric vehicles have a long way to go before supplanting their fossil-fuelled counterparts. They account for only 10pc of the global market. Experts estimate there will be 40 million electric vehicles on roads across the globe by 2030.

Dagmawit and her deputies plan to encourage the use of electric cars in Ethiopia, with ambitions to introduce 4,800 buses and 148,000 automobiles in the coming decade.

This is good news for Green Tech Africa, which is erecting a vehicle assembly plant on a 10,000sqm plot in Dire Dawa.

However, pioneers’ experience in the industry is anything but encouraging.

The road travelled by managers of Marathon Motors Engineering, the sole importer and assembler of Hyundai models, the future will not be without pitfalls.

Cofounded by Haile Gebreselassie, an Olympic medalist-cum-businessman, and two shareholders, Marathon Motor’s assembly plant was inaugurated in 2019. The assembly plant rests on 7,900sqm of land in the Nifas Silk District, southwest of the capital. It was erected for close to one billion Birr to churn out 10,000 vehicles a year. Two of the Hyundai models in its portfolio are electric cars.

Foreign currency shortages have limited its activities. Marathon has assembled 1,100 vehicles over the past three years. Of the 22 electric cars that left the assembly, the company bequeathed its first to Prime Minister Abiy Ahmed (PhD). Marathon had been operating at less than 10pc of its capacity before suspending operations last month. Haileleuel Tadesse, the plant’s manager, disclosed operations were halted due to a foreign currency crunch. Marathon Motors requires 40 million dollars a year to import parts.

Most of the 340 employees were nowhere to be seen in the plant last week despite the high demand the company receives for electric vehicles.

“We were producing way lower than our capacity,” said Haileleuel.

Another electric car assembler is Tom Electric Vehicles, which was incorporated four years ago. It has assembled 1,000 electric automobiles, three-wheelers, minibuses, and scooters. Its managers, however, say it is a fraction of the plant’s production capacity.

Kidem from Green Tech Africa shares their concerns.

“It deserves the government’s attention,” he said.

Federal officials concede government support for the fledging industry has been insignificant.

“The government has begun responding to investors’ demands,” said Tatek Negash, communications head of the Ministry of Transport & Logistics.

Federal transport authorities are working on an automotive policy that outlines government support for vehicle assemblers. Two years ago, officials at the Ministry of Finance lifted the excise tax imposed on imported electric vehicles and parts. However, Kidem says high duties push prices for electric vehicles. They retail for a little more than petrol models.

Daniel Girma, an automotive engineer who had worked at Mesfin Industrial Engineering, points out another issue. Parts for electric vehicles are hard to come by.

“Unlike conventional cars, you can’t find them,” he said.

These are issues that mean little to Gulelat. He ordered another electric car from Green Tech Africa before driving back to Hawassa in the model he bought for his uncle.

“My work requires me to move from place to place often,” he says. “With the rising fuel prices, I can’t continue to depend on a petrol car.”

Awash Bank Bridges Way to Underserved Through Microfinance

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Awash International Bank (AIB) has launched a program its senior executives christened as a “bridge” reaching out to the underserved segment of the market through microfinance institutions. It has made 5.5 billion Br available in credit for small enterprises and farmers to be disbursed through the microfinance institutions (MFIs) in the coming three years.

Managers of nine microfinance institutions have entered into deals to borrow from Awash Bank at a 13pc lending interest rate.

“Clean loan records, capital flow, and repayment capacity are the criteria we require,” said Tsehay Shiferaw, president of Awash Bank.

Awash Bank is not a pioneer in courting microfinance institutions to reach out to the underserved segment in the market. Dashen and Enat banks have previously offered similar loan products to micro and small enterprises that could not produce assets for collateral. Two years ago, Dashen Bank availed five billion Birr in credit to medium-sized enterprises where borrowers were required to raise half of the project cost. Enat Bank partnered last year with the Swedish International Development Cooperation Agency and Mercy Corps to avail 20 million dollars in credit to vulnerable women that do not have collateral.

Tsehay says Awash has disbursed 1.5 billion Br to the microfinance institutions through the “Bridges” programme, a five-year initiative launched by Mastercard Foundation in 2019. The programme looks to support up to 10 million people, providing credit through financial institutions until 2030. The Foundation has made 300 million dollars available to help the programme implemented by First Consult, a local consulting firm incorporated in 2005.

“We’re working with over 20 MFIs to expand access to financing,” said Henok Tenna, programme team leader at First Consult.

Last year, the banking industry disbursed 329 billion Br in loans, 21pc higher than the preceding year. The state-owned Commercial Bank of Ethiopia (CBE) and Development Bank of Ethiopia (DBE) accounted for a little over a third of the credit provided. The primary beneficiaries were close to 300,000 medium and large enterprises and individuals with high loan needs. Only less than five percent of small firms in Ethiopia enjoy access to credit.

Commercial banks do not have little appetite for lending without collateral. The value of the collateral decides if – or how much – can be borrowed. On average, banks demand collateral equivalent to 234pc of their approved loans.

However, five million people, mainly in rural areas, are served by 41 microfinance institutions. They had mobilised 52.5 billion Br in deposits by the end of last year, disbursing 69.3 billion Br in loans in the same period.

Wasasa Microfinance is among these that have partnered with Awash International Bank to expand its loan operations. Established 20 years ago with a paid-up capital of 200,000 Br, Wasasa operates 76 branches, mainly in the Oromia Regional State. Last year, it mobilised 450 million Br in savings and advanced 1.2 billion Br in credit. Wasasa sourced the additional fund by borrowing from banks, including the Cooperative Bank of Oromia (CBO).

Awash Bank had made 200 million Br in credit to Wasasa through the Bridges programme.

Wasasa thoroughly assesses the viability of projects before disbursing loans to individuals or groups, says Amsalu Alemayehu, chief executive officer (CEO).

Although microfinance institutions are better positioned to serve rural communities, borrowing costs are higher for them, observed Sewale Abate (PhD), lecturer of finance and investment at Addis Abeba University.

“Expanding access to finance is not only about availing funds to the disadvantaged,” he said. “It also entails the provision of credit with reasonable interest rates.”

Like most of its peers, Wasasa charges a lending rate between 18pc and 24pc.

Because farmers do not have bargaining power, they are forced to take loans at higher interest rates, Sewale argues.

Fikadu Negesse, 45, is among the farmers subjected to a higher credit cost. The father of six lives in the North Shewa Zone of Oromia Regional State. He borrowed 17,000 Br from Vision Fund Microfinance Institution after agreeing to pay back the loan in five months. He took out the loan on a 23pc interest rate to cover the increased fertiliser cost.

Established in 2006 with 300,000 Br in paid-up capital, Vision Fund has partnered with Awash Bank.

“There’s always a mismatch between demand and supply,” said Taye Chimdessa, CEO of Vision Fund.

The microfinance institution has thus far advanced 4.8 billion Br in credit, mobilising 1.9 billion Br in deposits. With 100 branches in Addis Abeba and six regional states, VisionFund has taken 550 million Br in credit from Awash Bank. Close to 75pc of the credit Vision Fund offers is through group lending schemes, disclosed Taye. The approach has its flaws, he revealed.

“Individual farmers might be forced to repay the loans in case others default,” he said.

Although they are few, farmers have other ways to access financing. They can access loans from commercial banks against movable assets like machinery after the central bank issued a directive two years ago. Banks are compelled to disburse at least five percent of their loans to businesses in the agricultural sector. Failure would subject them to double their agricultural portfolio the following year.

Education Ministry to Introduce Undergraduate Exit Exams

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Education Minister Berhanu Nega (Prof.) has introduced a directive compelling university students to sit for exit examinations before completing undergraduate studies. It is a decision that brings apprehension in the high learning community as many are reluctant to respond.

Berhanu hopes to see the new requirement raising the quality of education and improving the effectiveness of higher learning institutions. Students will have three opportunities to sit for the exit exams beginning in October this year.

Berhanu is one of three opposition leaders appointed to Prime Minister Abiy Ahmed’s (PhD) cabinet last year. Last month, he was re-elected as the head of the Ethiopian Citizens for Social Justice (Ezema) party. He is responsible for a federal agency with a 64.7 billion Br budget this fiscal year, claiming 13pc. The education sector takes the largest share of this year’s federal budget after debt servicing, defence, and roads.

Tertiary education has come a long way since the opening of the University College of Addis Abeba (later Haile Selassie I University and then Addis Abeba University) in 1950.

In the past two decades, close to 30 state-run higher learning institutions were established, boosting the total number of public universities to 42. These institutions enrol over 350,000 students, most of whom are undergraduate students.

Although officials have been trying to accommodate the rapid expansion in the number of public universities and the surging number of students, doubts over quality, particularly in the newly-opened public universities, loom over. Many private colleges and universities that have sprung up over the past two decades share a similar reputation. Private schools have repeatedly been subject to rebukes from the federal agency overseeing higher education quality.

Both public and private colleges are accountable to the Education Ministry’s new rule. Close to 100,000 students graduate from higher learning institutions each year. Undergraduate students will sit for the exit exams in their final semester, held twice a year.

Emebet Mulgeta (PhD), academic vice president at Addis Abeba University, told Fortune that the University’s administrators are discussing the matter but declined to comment further.

Representatives of other higher learning institutions seemed reluctant to accept the new rules. Several declined to comment.

A federal agency run by Dilamo Oteri, the National Educational Assessment & Examination Agency, will be tasked with administering the exit exams – from registering students to preparing the tests and certifying results. Established 64 years ago, the Agency conducts nationwide educational assessments for students matriculating from the eighth and 12th grades. Close to 1.5 million of these students sat for the exams last year.

The directive’s authors believe the exams will measure students’ cognitive content and aptitude, administered in person or virtually. Students sit for these exams more than once, and those attending private colleges will pay fees.

The Ethiopian Education & Research Network (EthERNet) conducts the exams virtually. Zelalem Assefa (PhD) was appointed in 2018 to serve as the Network’s director, established in 2009 to oversee programmes such as SchoolNet and WoredaNet.

Education officials push for tougher academic standards, but many prospective graduates see “fairness” during periods of uncertainties, causing a series of academic interruptions. Recent years have seen the closure of nearly all public universities due to the pandemic, which wreaked havoc on educational cycles from primary school to university. The civil war battering the country’s north for over a year and a half and growing insurgency in other regions have also taken their toll on students.

Kaleb Zelealem, 23, is an electrical engineering student at Metu University. He recalled that instability often interrupted the first and second years of his stay at the University.

“Classes were disrupted often due to the pandemic and unrest,” he told Fortune.

Although Kaleb has a 3.87 cumulative grade point average (GPA), he says he feels unprepared to sit for the exit exam.

Nonetheless, officials say they have decided whether to leave prospective graduates on the hook. Although there were disturbances, students are still attending classes, according to Eba Mijena (PhD), a state minister for Education.

“As long as students want to get their degree, they must take the exit exam.”

Experts say the exit exam could offer several advantages if designed appropriately.

“It can uplift graduates’ confidence when they join the labour market,” said Tirussew Teferra (Prof.), an education expert and project leader of a team at the Ethiopian Education Roadmap Development. “It can also help employers recruit competent graduates.”

Yet expert foresees the exit exam might have its downsides. Tirussew argues that introducing the exams before making essential structural improvements to educational quality could have adverse effects. The country’s tertiary education system remains challenging, from scarce funding to poor facilities and overcrowded classrooms to inadequately qualified faculty.

Eba says the basic facilities are in place.

“Although it isn’t luxurious, universities are equipped with the necessary infrastructure,” he told Fortune.

Tirussew warns that the exit exams may lead to a graduate pile-up if many students fail to score above the cutoff point. According to the latest survey by the Ethiopian Statistics Service, nearly a fifth of the population is unemployed.

Labour Market Mismatch Pushes Fed Reform Vocational Training

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The federal government is to overhaul the technical and vocational education policy, adopting a market-driven scheme, where the labour market drives the demand for specialisations and fields of studies. The Ministry of Labour & Skills has grouped dozens of vocational education and training (TVET) institutions into eight categories, each specialising in specific fields based on demand in the labour market.

Under Muferihat Kamil, the Ministry’s primary mandate is to align the TVET system with the government’s labour policy. It inherited the regime from the former Ministry of Science & Higher Education. Muferihat had previously served as Minister of Peace and a speaker of Parliament. Her deputies plan to implement the labour-driven scheme at 90 TVET schools across the country in the coming academic year.

The prevailing curricular programme is flawed, says Habtamu Mulugeta, director of research and community services. He observes that the labour force graduating from vocational schools is either under or over-qualified for the jobs available in the market. Studies show that many graduates remain unemployed in fields with high demand for a skilled workforce.

Heran Shimelis graduated from an ICT programme at the Addis Abeba Tegbareid Polytechnic College three years ago. She has yet to find a job despite finishing the four-year course.

“I consider it a complete waste of my time,” she told Fortune.

The TVET regime rapidly expanded following legislation governing vocational education in 2004. The number of TVET institutes has tripled to 723 over the past two decades. The student population enrolled in vocational schools increased from 190,000 to nearly 400,000 over the same period.

Addis Abeba hosts 40pc of vocational schools, followed by Oromia and Amhara regionals states.

The proliferation of TVET schools has contrasted the system’s inefficiencies. The government determines the curriculum, specialisations offered at the schools, and the placement of students. Although massive financial resources were directed towards vocational education, most of the funding was spent on physical infrastructure. The programmes on offer remain “inadequate” to address the need for skilled labour.

The revised plan proposes to group vocational schools into eight zones based on the availability of resources and job opportunities. Officials say the goal is to balance demand and supply in the labour market. The programme applies to all but the vocational schools in conflict-torn Tigray Regional State, which hosts 55 government-run TVET institutions.

Six schools in Addis Abeba will implement the new scheme, specialising in priority sectors such as hospitality, manufacturing, and urban agriculture.

The polytechnic college in Addis Abeba is among the schools chosen for piloting the programmes. Established in 1934, the College offers 12 programmes in eight fields, including manufacturing and textile design, to over 3,300 students. They will be downsized to three beginning October 2022, disclosed Anteneh Mulu, vice dean of trainee development.

Programmes related to automotive, biomedical, and electrical engineering will also be available.

Officials observe the arrangement will be crucial in efficiently utilising the limited workforce and resources at their disposal. TVET institutions suffer from a lack of skilled instructors and resource constraints. The bottlenecks contribute to low-quality, theory-driven education.

“Instructors with thorough knowledge of the sectors or those with relatable training will be able to continue in that area,” said Habtamu.

Kombolcha Polytechnic College, 380Km north of the capital, is among the 20 institutions selected in Amhara Regional State. Established in 2001, it offers seven programmes, enrolling 430 students.

“Most of the programmes are similar in content,” said Solomon Negash, vice dean of the College.

The College will lower the number of programmes to three.

Nearly 80pc of the programs offered by TVETs across the country are similar, with automotive technology and construction management taught by 93 vocational colleges. The overlap affects industries that require a skilled workforce trained in different fields.

Established in 1986, Kombolcha Textile Factory has been affected by the lack of a trained and skilled workforce. The company employs 1,500 and regularly hires TVET graduates.

“However, we provide mandatory practical training,” said Abdu Ali, factory branch manager for Addis Abeba. “Graduates are not well trained. They require further training to accomplish specific tasks competently.”

Andualem Zewde, a former Tegbaried trainer, advises the German Agency for International Cooperation (GIZ) on policies.

He believes the new scheme should be time bound and subjected to revision whenever there is a shift in demand.

“The curriculum should also be standardised to make it applicable in all regions,” he said.

GIZ has been a frontline partner for Ethiopia, supporting its reform efforts in vocational and technical education since the mid-2000s.

Muferihat and her deputies plan to scale up the pilot programme to include state-run vocational schools in three years.

“A complete turnover of all TVETs is expected to occur by 2025,” said Habtamu.

Cash Strapped Pharma to Charge Interest on Drugs Supplied on Credit

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The Ethiopian Pharmaceuticals Supply Agency (EPSA) will charge a three percent interest rate on supplies made in credit to public health institutions. The Agency’s decision comes after debts owed to it had mounted. Close to 800 million Br remained unpaid by 170 health institutions operating across the country by the end of the fiscal year ended earlier this month.

The EPSA is a federal agency supplying drugs and medical equipment to public health institutions on credit. Health centres settle arrears within two months of receiving the medical inventory. However, officials at the Agency say their clients are reluctant to pay their debts in time.

The Agency provides over 1,000 medicines and medical equipment to over 5,000 public health institutions. Last year, it supplied pharmaceuticals valued at over 25 billion Br. Health centres owed the Agency 1.6 billion Br as of last year. They settled nearly half of the debts over the past year, disclosed Solomon Nigussie, deputy director.

Established in 1976, Zewditu Memorial Hospital is the largest antiretroviral treatment centre in the county. Its antiretroviral therapy ward treats 14,000 patients each month. Its administrators say that the Hospital’s drug demand has shot up in recent years due to the COVID-19 pandemic.

Last year, Zewditu apportioned a 39 million Br budget for the procurement of drugs against the 71 million Br it spent by the end of the budget year. The Hospital’s administrators say mounting costs are a burden.

The cost of drugs has increased by 316pc in the last two years, according to Hanna Lekata, director of pharmacy.

Zewditu Memorial Hospital provides free medical services and drug support to children and senior citizens valued at 10 million Br annually. The Hospital paid off three-quarters of its debts to the Agency last year from its sources and with financial support from the Ministry of Health. Nonetheless, the Hospital owes the Agency 16 million Br.

Ambo University Referral Hospital in the Oromia Regional State has 13 million Br in arrears.

Demisew Gezahegn is the director of pharmacy at Tikur Anbessa (Black Lion) General Hospital. He says the debt pileups do not stem from reluctance on hospital administrators’ part to pay for the drugs they receive.

“We’re unable to pay due to budget constraints,” he said.

Black Lion is one of the 11 hospitals that operate in the capital. Last year, it paid 15 million Br to the Agency after securing funds from the Health Ministry. The federal government had allocated a 70 million Br budget to the Hospital to cover the cost of drugs. It bought 170 million Br worth of drugs during the same period, disclosed Demisew.

Finance officials are adamant about cutting public expenditures this year because of declining external loan disbursements and increasing global prices for commodities such as fuel, fertiliser, and wheat. The public health institutions under the Ministry’s supervision had requested a 13.2 billion Br budget for the year. However, the Ministry of Finance officials have only greenlit 70pc.

Thrifty Finance authorities advised the Health Ministry’s representatives at a budget hearing two months ago that they cover part of the proposed budget by generating revenues through increased medical bills. Hospitals raised service fees by an average of 10pc two years ago.

Daniel Gebremichael (MD), an advisor at the Health Ministry, says it requires the approval of the Council of Ministers to raise service fees again.

“The revenues hospitals collect covers less than 10pc of their expenditures,” he said. “The only way out is allocating a sufficient budget for health services.”

Demisew agrees. He argues that budget allocation should be based on demand.

“In the end, it is the public that will be affected by this,” he said.

Despite the deficit, Agency officials plan to compel public health institutions to pay for drugs and medical equipment in advance.

Unlike Zewditu and Black Lion, the Agency receives no budget from the federal government. It depends on a revolving drug fund financed from donors’ contributions and the revenues it generates. The Agency takes from the health centres it supplies a 10pc service fee.

Abdulkadir Gelgelo (MD), director general of the Agency, and his deputies are trying to revive the revolving drug fund by broadening its sources of revenue.

Their legal experts are drafting a bill allowing the Agency to borrow from domestic financial institutions and set profit margins on the sale of drugs. Officials hope the move will help the Agency to maintain constant and adequate drug supplies.

Mekuria Haile Offers Inflation-hit Public Chauffeurs Overtime Pay Raise

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The federal government has doubled overtime pays for thousands of drivers employed in the public sector as inflation eats into their salaries.

Mekuria Haile (PhD), head of the Civil Service Commission, told the administrators of 185 federal agencies last week about the adjustment made on overtime pays.

Mekuria was appointed to head the Commission last year, replacing the veteran Bezabih Gebreyes. He had previously served as a minister of Urban Development and Executive Director of the Ethiopian Policy Studies Institute. Studied his doctoral degree in South Korea, Mekuria also served as a general manager of the Addis Abeba city administration.

Mekuria’s recent decision to pay drivers more comes three years after the Council of Ministers issued a regulation granting his office the authority to adjust the overtime compensation rate. Chauffeurs assigned to senior officials have seen overtime pay increase to 1,500 Br a month, while compensation for other drivers is 200 Br less. An estimated five percent of Ethiopia’s 1.3 million civil servants are employed as drivers.

The federal government spends one percent of its budget on public service wages. However, drivers are among the least paid civil servants. First entry salaries stand at nearly 2,300 Br, and chauffeurs are entitled to 600 Br a month in per diem payments.

Alemu Deribe, 54, has worked as a driver for three federal agencies over the past three decades. A father of four, who earns a 4,600 Br monthly gross salary, Alemu is assigned to chauffeur a senior advisor at the Ministry of Culture & Sports, under Kejella Merdassa.

Paying overtime compensation to the civil service, including drivers, is uncommon in most public institutions. Forty-one of the 767 employees working for the Ministry of Justice are drivers. They rarely receive overtime pays, according to Nigussie Tenkolu, director of human resources.

“The recurrent budget allocated to the Ministry is limited,” said Nigussie.

The federal government has earmarked 615 million Br for the Ministry’s recurrent expenditure this year, accounting for over a third of the budget.

Gideon Befekadu, finance director at the Ministry of Water & Energy, tells the same story. Only chauffeurs assigned to senior officials receive overtime pay, Gideon told Fortune.

“We should be paid overtime just like any other civil servant,” said Alemu.

Alemayehu Mengistu, head of the commissioner’s office, concedes overtime pays for public service employees is inadequate to cover the runaway cost of living. It is also subject to income tax.

“It’s better than nothing,” he said.

The Civil Service Commission has also raised the ceiling for overtime hours civil service employees are allowed to work by more than a quarter to 80 hours a month. A workweek is set at 39 hours – any work performed beyond this limit is considered overtime. Unlike drivers, other civil service employees receive overtime pay for extra work hours.

Civil service staff who work overtime are entitled to receive 125pc of their regular hourly rate for overtime work between 6am and 10pm. The compensation rate increases to 150pc for overtime work between 10pm and 6am. They will be paid double the standard on weekends, while the rate is 250pc on public holidays.

Despite the increased hours, Gideon says the budget allocated to the Ministry is insufficient to cover compensation for employees other than drivers. The Ministry of Water & Energy has a recurrent budget of 423 million Br for this fiscal year. It has been allocated 8.3 billion Br for capital spending.

Chala Abdessa, a public administration lecturer at Addis Abeba University, observes a strong relationship between incentives and productivity. He says the lack of funding for overtime pay could be a discouraging factor.

“Despite a high proportion of money spent through state channels, there are limited incentives for civil servants,” said Chala.

It has been eight years since civil servants enjoyed a salary raise. Wage stagnation is in sharp contrast to the skyrocketing cost of living. Headline inflation in last month’s consumer price index registered 34pc, marking 11 consecutive months above the 30pc threshold.

The double-digit inflationary pressure in the economy hits civil service workers and their families the hardest. Average inflation over the past 12 months reached 20pc. Half of all civil service workers receive salaries between 1,500 Br and 3,000 Br.

Officials say they are working to adjust per diem pay to help them cope with the cost of living.

However, the expert argues this measure is meaningless in the face of galloping inflation.

“Although the government has introduced a range of civil service reforms to raise productivity, a lack of motivation persists in the public sector,” said Chala.

City Slashes Interest Payments on Leased Residential, Investment Plots

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The Addis Abeba City Administration cabinet has reduced interest on the annual lease payment rates for plots leased for residential and investment purposes.

The 45-member cabinet chaired by Mayor Adanech Abiebie decided to apply interest on the annual instalments instead of the lease payment arrangement, which imposed interest on the remaining balance. The decision comes after city experts conducted a study to assess the effect and viability of the new lease payment arrangement, according to Biniam Mikiru, head of cabinet affairs.

The Administration collected 4.3 billion Br from lease payments, including interest, in the concluded fiscal year. The revenue was a 7.5pc jump compared with last year.

Regional states and city municipalities interpret a law passed in 2011 governing urban land lease holding differently. Advance payments should be 10pc of the value of the lease, with the balance paid in annual instalments. Interests must be paid on the remaining balance. The phrase “remaining payment” has created confusion among regional states and city administrators.

The Addis Abeba City Administration officials have been interpreting the phrase as the residual balance after the down payment. Regional administrations such as Oromia, Tigray, and Southern states interpret the phrase as annual payments and apply interest on the yearly instalments.

Abubeker Mohammed, lecturer of land administration at Ambo University, says the previous interpretation of the law has discouraged investments and put pressure on the low-income segment of the population.

“Investors were required to pay 10pc of the lease amount upfront in addition to resuming construction within 18 months,” he said. “This has discouraged many developers from investing in the city.”

A month ago, the city’s cabinet instructed the Addis Abeba Land Development & Management Bureau to adjust.

Desta Mergia, director of land transfer and administration, confirmed his office received the cabinet’s decision. However, the Bureau awaits detailed instructions on how to apply the new payment arrangement.

“We’ll proceed as soon as we receive documents that explain the decision in detail,” said Desta.

Last year, the cabinet took similar measures to a little more than 33,000 housing properties built on unlawfully occupied land. City administrations have the authority to adjust the payment modalities to ensure low-income families have access to leased land at affordable prices. In 2010, the city administration granted entitlement to 60,000 households occupying undocumented plots acquired before 1996. Four years later, the Administration started processing the title deeds of undocumented homesteads. By 2017, half of them had completed the registration after paying a down payment of 10pc of the lease value.

“The administration implemented the new lease payment arrangement on the undocumented properties,” Biniam told Fortune. “It was an issue that required an urgent response.”

Many homesteads that occupied land illegally pay the annual instalments based on the new payment modality, according to Abubeker Mussa, land management and transfer officer in the Akaki-Qality District.

However, property owners argue that the new payment system should be applied to the original lease price instead of the outstanding balance.

“We’ve asked the Bureau for further clarification on the matter,” said Abubaker.

Regulatory Reforms Turn the Page on Ethiopia’s Illusive Remittances

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An estimated 1.3 million Ethiopian migrants globally send about five billion dollars back to Ethiopia every year, accounting for more than five percent of the country’s GDP and about one-quarter of its foreign exchange earnings. At the household level, remittances are a vital source of income for recipients, and their size and scale provide productive investment opportunities contributing to Ethiopia’s long-term development.

Transfers made by individuals for altruistic motives – mainly to support family members or charitable purposes – are what traditionally make up the remittances in Ethiopia’s balance of payments. This altruism may include the desire to support not only individuals but also Ethiopia’s socio-economic development – survey results indicate that this is a significant motivating factor for diaspora investors. There are, however, other motives. An increasing share of remittances to developing countries are for investment purposes, motivated by higher returns than those available to migrants in the countries they reside in, and a desire to return eventually to their countries of origin. The plan to return home may be facilitated by the direct purchase of housing, investment to ensure income streams on their return, and maintaining ties through investments that will ease reintegration.

This unique combination of altruism and investment calls for the careful design of products that cater to motives and policies that address the challenges faced by the diaspora. Significant barriers to migrants realising their dreams back home include bureaucratic hurdles, the high cost of transfers to Ethiopia, a lack of reliable investment information, poor business infrastructure, insecure property rights, currency risks and an underdeveloped financial sector. These issues need to be addressed by policy efforts to optimise remittances and in close consultation with the diaspora.

The remittance industry, like any other, is likely to flourish best when the regulatory framework is sound, predictable, non-discriminatory and proportionate. A conducive and enabling regulatory framework is the foundation for competitive market conditions for non-bank financial service providers, including supporting access to domestic payment infrastructures. Such a framework should lead to lower remittance costs, increased cross-border remittance flows through formal channels, and expanded use of digital financial services.

A new directive is opening up the remittance market. The National Bank of Ethiopia (NBE) has continued to implement regulatory reforms to facilitate the transition of remittances from cash-based to digital channels and from informal to formal ones, all of which create opportunities for a broader suite of migrant-centred financial products that can be linked to remittances.

To improve formal remittances, a directive issued by the NBE came into effect on October 1, 2021. It aims to improve the operations of the formal remittance transfer system in Ethiopia by reducing remittance costs and improving access to cost-effective, reliable, fast and safe services that benefit migrants. It also aims to set a conducive and transparent legal framework and use the innovative mechanisms and infrastructures by payment instrument issuers to facilitate inbound remittances through formal channels.

Under the previous directive, remittance service providers could partner only with commercial banks. This kind of bank-dependent arrangement where the regulator does not directly recognise remittance service providers can stifle innovation. Banks typically focus on providing traditional services and do not usually consider the demand-side perspectives in remittance product developments that could cater to the financial needs of migrants.

Under the new directive, payment instrument issuers can now provide remittance services in partnership with international remittance service providers. The directive also permits using application programming interfaces (APIs) so that services can operate between international and local remittance service providers and prohibits exclusive conditions in these agreements.

Enabling international remittance service providers to partner with in-country non-bank financial service providers and allowing the use of APIs could help address the bank-dependent model’s limitations. Disintermediating the remittance value chain helps reduce the remittance transaction costs and incentivises digital remittance service providers to innovate and develop migrant-centred products and services.

Despite these supportive developments, the NBE appears to be gradually opening up the remittance business to non-bank financial service providers. The directive enables only those payment instrument issuers licensed under another directive, posing challenges for start-ups. Firstly, the minimum paid-up capital of 50 million Br (around a million dollars), contributed in cash and deposited in a blocked account with a bank, could be a barrier for these companies. Secondly, the scope of eligible institutions is limited by the new directive (only banks, the Ethiopia Postal Service, payment instrument issuers and any other financial institution determined by NBE). However, the NBE may consider expanding this scope in the future.

The NBE has also amended the directive on foreign currency accounts for non-resident Ethiopians. The central bank says this amendment will incentivise the Ethiopian diaspora to maintain foreign currency accounts at home, encouraging domestic investments. The amendment should also support the foreign exchange reserve and ease the country’s balance of payments, encouraging foreign direct investment. It allows three types of accounts (whereas only savings accounts were permitted under the previous directive): fixed or time deposit accounts, which take the form of deposit certificates issued in the name of the depositors with a minimum maturity period of three months; current accounts, from which withdrawals may be made at any time; and non-repatriable Birr accounts, which are savings deposit accounts that can be used for local payments only. Importantly, no income tax is payable on any interest earned on foreign currency in fixed deposit accounts. These savings can be used as collateral to receive credit from domestic banks in the local currency.

The amended directive also introduces the entity of “diaspora international remittance service provider” authorised to provide inward remittance services in agreement with a bank, the Ethiopian Postal Service or any other financial institution to be determined by the NBE. This enables any business registered and licensed in a foreign country and owned by non-resident foreign nationals of Ethiopian origin or non-resident Ethiopians to provide money transfer services. Diaspora international remittance service providers will also have the right to retain and use 45pc of the foreign currency inflows.

This amended directive is a positive move towards building more opportunities for migrants and their families to save and invest in their home country by securing their savings separately from the money they remit home. It also incentivises the newly allowed diaspora international remittance service providers to partner with in-country remittance service providers. Since the directive came into operation in November 2020, 23 banks are now offering services, and almost 30,000 accounts have been opened, with more than 86 million dollars deposited by the end of June 2022.

Ethiopia is taking many steps to implement crucial reforms that will benefit remittance flows, migrants and communities, and inward investment. Multilateral institutions such as the UNCDF are supporting NBE in these efforts and believe that the Ethiopian experience holds valuable lessons for other nations as the policy agenda on remittances takes on heightened urgency.

Ethiopia’s Inflation: Need to Trash Done-to-Death Script

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As the world recovers from COVID-19, the pattern of economic growth appears to inject more pain into the global population, pushing more and more people into poverty. The World Bank estimated that the pandemic would push an additional 88 million to 115 million people into extreme poverty in 2020 and as many as 150 million in 2021.

Post-2021, the world’s leading economies are struggling with rampant inflation as it takes a toll on growth prospects the world over. Inflation rates have doubled in 37 of the 44 advanced countries, with Turkey leading the pack, according to a recent Pew Research Centre report. Economies such as the United States and India are edging towards double-digit inflation. China and Japan are the only exceptions. One of Africa’s fastest-growing economies, Ethiopia faces an annual inflation rate in the 30pc-40pc range, taking it closer to hyperinflation.

Inflation is a concern to a wide cross-section of the public. While the rich can bear the rise in prices with an increase in income due to a rise in savings, for the poor and middle class, it is a double whammy – dwindling their disposable income and increasing their interest payments. The world poverty count is expected to surge due to rampant inflation. It is crucial to understand where it is coming from and why.

The headache started with the pandemic and economic lockdowns, which disturbed global supply chains. Effects of the Trump administration’s restrictive trade policies and Brexit, India’s inclusive growth model and resultant protective policies, the West’s sanctions on Russia and the continuing pandemic-like situation in China have all contributed to supply chain disruptions. The flow of goods and services from a place of manufacture to consumers stands disturbed, leading to scarcity and inflation. Unfortunately, economists worldwide did not anticipate that such disruptions would lead to sustained inflation.

For Ethiopia, inflation is not new. The economy has had some of the most impressive GDP growth rates, but high annual inflation rates have complicated development. Historically, supply has never matched the local demand for a population of 118 million, growing at over 2.5pc annually. Restrictive trade policies and aversion to opening the financial sector are offering minimum opportunities to a growing population. Government policies are not seen as adequate to attract foreign investment.

The net effect of these policies and the continuing effect of global value chains is a toxic combination for Ethiopia’s economy. Globalisation has so far created immense wealth. It is of paramount importance that policymakers allow this wealth to reach their societies through global value chains. Ethiopia’s challenge is opening up, even when the global economy looks choppy, and delivering inclusive prosperity.

Inclusive growth is fairly distributed across society and creates opportunities for all. World Bank research suggests that key inclusive measures are one where the income of the poorest 40pc of the population grows faster than the rest. In a country where capital formation is low and economic inequalities are high, inclusive growth policies are central to economic development and such policies have to be created on three interrelated fronts: economic, social, and political.

The important analysis is whether national development policies have produced opportunities that can enable the local economy to reap the benefits of globalisation and global value chains and why the scarcity of basic commodities and capital continues. Ethiopia’s labour market is far from being integrated with the rest of the world, hence service sector opportunities are not as available as they are in the Philippines, India and, lately, Indonesia and Bangladesh.

Another side of the inflation coin is that rising interest rates make debt payment difficult, leading to debt defaults. A host of developing countries, from Laos to Argentina, are at risk. Some, like Sri Lanka, have already seen their economies collapse. Fortunately, Ethiopia has thus far managed its public debt well, taming it to about half of GDP. External debt is about a third of the total.

However, for capital-thirsty Ethiopia, public debt is the best option to increase development and support additional borrowing. If it can improve foreign currency reserves, Ethiopia can stretch its total public debt to 65 percent of GDP from the current standing by raising foreign funds and deploying them in basic industries and infrastructure building, thus going closer to global value chains.

Today’s economic growth of nations like China and India depends on global supply chain linkages that create opportunities for the burgeoning population. There is no reason why these experiences cannot be replicated in Ethiopia. Opening borders, attracting investment, and encouraging the private sector into the world is an overdue task. Such policies and programs will gradually increase domestic productivity and competitiveness. The government needs to have a clear vision and mandate to improve trade policy, regulation of business services, investment, business taxation and industrial development in conformity with international standards.

The Shareholder Base Spectrum: Amhara Bank Vs Tsehay

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It seems that there is a new bank opening its doors every week. The latest was Tsehay Bank, which commenced its operations with a ceremony as its headquarters last week. A week before that was Ahadu Bank, and Amhara Bank about a month earlier. Over the past year, ZamZam and Hijira banks, full-fledged interest-free banks, have entered the financial sector.

The banks are similar. Most will primarily focus on retail banking, racing to mobilise deposits, lend to very few of their clients (especially in the export business) and conduct business through brick-and-mortar outlets. They do not bring much new to the table; if they will, it is yet to be seen.

But there is one element that is interesting about them: shareholder base. Ahadu, ZamZam and Hijira are somewhat similar. They all have about 10,000 shareholders raising subscribed capital in the low billions of Birr, except for Ahadu’s 702 million Br. Nothing much out of the ordinary. Tsehay and Amhara banks are another story.

Tsehay has only 373 shareholders, who have contributed 734 million Br in paid-up capital, and signed up for 2.9 billion Br in total. When all the subscribed capital has been fully paid up, around eight million Birr would have been raised on average from an individual shareholder, owning about 0.27pc of the shareholder equity. This makes Tsehay’s shareholders one of the least diluted in the banking industry.

On the other end of the spectrum is Amhara Bank. Its website puts the number of shareholders at 169,000, the highest among any bank in Ethiopia. Its subscribed capital is 6.5 billion Br, which puts the average individual contribution at a little over 38,000 Br when fully paid. The average ownership stake in the bank is highly diluted.

Is there a point to all of this, especially to the bank? Too many shareholders or too few, which is better?

There are both good and bad in either equity financing strategy. In the case of Amhara Bank, its large number of shareholders give it an edge in mobilising deposits. Say that each shareholder chooses to save at the Bank 1,000 Br on average; this is 169 million Br. If five more of their friends, family or relatives save just as much on average, this is 845 million Br in deposits mobilised using the shareholder network alone.

Being Tsehay Bank has its advantage as well. A low shareholder base means stakeholders whose interests can be reconciled and can easily agree on strategies and business models. It helps management be more flexible in manoeuvring within the market. Most shareholders are also likely high net worth (again, going by averages). Thus, dividend distribution would not be as salient as overall shareholder wealth maximisation. Profits can be reinvested without too much worry.

All of this will become more important as a stock exchange is introduced and banks are listed. Companies have specific shareholder management policies based on financing requirements, capital structure and current market price. Some want to have many and others less.

Take a recent example. Amazon, listed in the US, split its stocks 20-to-1, from about 2,000 dollars a pop to around 125 dollars (the discrepancy in the numbers is due to other facts that affect stock price). Why? Stock splits are carried out mainly to increase shareholder numbers, especially the share of retail investors. People who cannot afford 2,000 dollars have a chance to own an Amazon stock for a bit over 100 dollars. It is also to reflect the real price of a stock better. The more investors there are trading a share, the better the price discovery.

Others go in the opposite direction. Warren Buffett’s Berkshire Hathaway, a holding company, has an individual share trading at half a million dollars. It has much fewer shares outstanding for a publicly traded company its size. Only high-net-worth individuals (like Warren Buffet himself) and institutions (like the Bill & Melinda Gates Foundation) have the financial capacity to trade in Berkshire’s stock.

It is also not a surprise that the holding company does not pay dividends, despite sitting on a 144 billion dollar cash pile, according to its 2021 report. All dividends are reinvested. Berkshire Hathaway’s shareholder base is not retail investors, who need liquidity from investments for non-discretionary spending, but investors that seek long-term capital growth.

Neither Amhara nor Tsehay bank’s strategy is wrong. All that matters is that there is a well-developed game plan behind it.