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Month: August 2022

CERTIFIED FOSSILS

Posted on by Web Master

Takele Uma (right), minister of Mines, gave a tour of the Ethiopian Mineral Gallery, inaugurated last June, to showcase the potential and ambition to develop the mineral industry. It was a side ritual to a fossil fuel minerals certification event his Ministry held in the presence of guests such as Birtukan Ayano (second from left), a state minister for Foreign Affairs, and Fiona Addis (right), US deputy chief of mission.

Netherland Sewell & Associates, an energy consulting firm based in the United States, conducted natural gas reserve assessments in the Ogaden Basin of the Somali Regional State. Last Friday, the firm handed over certification that the volume of reserves stood at seven trillion cubic feet. The assessment took a few months to complete and was supported by data gathered over the last decades on seismic activity, well logs and pressure-volume-temperature (PVT) analysis. The certification report helps secure financing for hydrocarbon projects and documents Ethiopia’s potential to meet its domestic gas and oil needs, according to Joseph Wolfe, vice president of the firm.

“This is just a piece of paper,” Wolfe said, emphasising the long-term commitment, capital and infrastructure required to build a fossil fuel industry. “Now the hard work begins.”

The natural gas potential of the Ogaden basin has long been touted. Still, the proven amount is not significant relative to countries such as Russia, Iran and the United States, or even Egypt and Tanzania, the latter of which has a project in the works with an oil major. Although not a single drop of liquified natural gas (LNG) or oil has been extracted in Ethiopia, exploration projects have been a source of conflict. The most deadly, in 2007, led to the deaths of dozens of Ethiopian and Chinese nationals in Abole of the Somali Regional State. If the government intends to develop the energy potential in the region, it will be a race against time. McKinsey & Company, a management consulting firm, estimates fossil fuel demand will peak in 2030, while renewables, such as hydropower, solar and wind, will triple by 2050.

This Time Must be the Charm for Capital Markets

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Review history; a developed capital market in Ethiopia in this age and era would have seemed settled. It was not.

A courtship with the money market dated as far back as over a century ago, when part of the financing for the Ethio-Djibouti Railway was mobilised, selling securities in Europe. The first bank, the Bank of Abyssinia, was established after the Imperial government raised equity in Europe.

And then there was the Addis Abeba Share Dealing Group in the 1960s, where 11 companies were listed. It was a pioneering private sector initiative yet to be replicated in Ethiopia’s paper-thin history of capital markets. The Group was more like an over-the-counter market than a stock exchange. It was not a platform where companies could list but a trading business that facilitated share and bond auctions.

It was not the only game in town, though. The Addis Abeba Bank and the Commercial Bank of Ethiopia (CBE) provided over-the-counter services to buyers. The traded shares had so much more variety than just commercial banks. It included Bottling Company of Ethiopia and Ethiopia Abattoirs.

All these were shut down in 1974 after rational economic theories were thrown out the window in the name of collectivism. The post-1991 order brought a brand of developmentalism that opened up the economy. But to a point. The idea of stock exchanges and capital markets was too close to full-blown capitalism for the leaders who had their roots in the leftist movements.

A few brave souls tried to bring back the share dealing Group from the dead. The attempt to form the Ethiopia Share Dealing Group was bouched. It did not go anywhere. The Ethiopian Commodities Exchange (ECX) was the only other notable development established to reduce transaction risks and ensure price transparency. Mandated by the state, it is restricted to agriculture sector players and a few wealthy individuals that can afford to buy membership seats.

Hopefully, this time around, the charm will come.

There is a renewed enthusiasm for establishing capital markets, which would modernise and financialise the economy. It makes raising capital for businesses and start-ups easier, provides alternative sources of finance and distributes risk through innovative financial products. It should be recognized as a vital step toward creating a robust private sector and competitive companies – facilitating the flow of capital from parties with surplus to those with a dearth.

Parliament has legislated the legal frameworks for governing capital markets. A federal agency mandated to regulate stock exchanges and bond markets is under establishment. The law is comprehensive and opens up the financial sector for trading, not just shares and bonds but also derivatives and debt securities. It also allows foreign investors to participate in financial assets’ trading, “whether that investor meets the minimum requirements for foreign investors stipulated under the country’s investment law.”

The face of it will be the Ethiopian Securities Exchange, which will be established as a share company. Other securities exchanges and over-the-counter markets could be set up, provided they fulfil the criteria. The would-be Ethiopian Capital Market Authority will have yet to set the minimum capital required.

Other reforms facilitating the development of financial markets have also passed unnoticed, like the open market operations and standing facilities directive by the National Bank of Ethiopia (NBE). It facilitates money market trading between the central bank and financial institutions with instruments such as repurchase agreements (repo) and central bank certificates.

But not so fast!

It is essential to ask why many African countries have established capital markets yet are barely relevant to the main economy. Take Rwanda. It has had a stock exchange for over a decade, with only about 10 companies participating. Kenya, Zimbabwe and Cameroon have gone for half a decade without initial public offerings (IPO). Such drought occurred during one of the greatest stock markets runs on record, when money was cheap, interest rates were low, and venture capital firms threw cash around like it was confetti.

The lesson is that developing the legal framework and the physical infrastructure for capital markets alone may not be sufficient. Not much can change. Neither will a federal agency regulating them nor a legal framework allowing them to exist will determine success on their own. There needs to be a permissive and enabling environment that should go along with it.

Financial Sector Deepening (FSD) Africa, a UK development agency, identifies three stages of capital markets on the continent: frontier, emerging, maturing and regional leaders. With its well-financialised economy, South Africa is considered a regional leader. Kenya, Nigeria and Ghana have emerging capital markets. Ethiopia is a frontier country, lacking a capital market. No developed money market (such as a secondary T-bill market) exists either.

The major obstacles to efficient capital markets are a lack of projects and issuers with high corporate and reporting standards. The absence of smooth market data flow, robust financial intermediaries and a diversified investor base undermine a functioning capital market meaningful to the broader economy. Put simply: capital markets require a conducive ecosystem to succeed.

It should start at the National Bank of Ethiopia (NBE), notorious for its leaders’ aversion to transparency. They hardly publish central bank minutes or even provide up-to-date macroeconomic data. Capital markets cannot thrive in a restricted market information flow. For instance, it would be sheer speculation to invest in infrastructure bonds without having access to data on factors that make financing construction possible, such as foreign currency reserves.

There is also a need for professional services and financial sector development to help capital markets grow. For companies to list or bonds of projects to be issued, reports on the financial health and performance need to be available and reported quarterly. This would not happen when accounting and auditing services are nascent, mainly because the authorities appear hesitant to hold executives of major firms controlling the economy’s commanding heights.

Just as crucially, a financial market cannot mature without well-capitalised and sophisticated intermediaries, such as market makers, investment banks and brokers. It is welcome that the capital markets establishment proclamation allows access to non-nationals. But, this will not mean much as long as the financial sector is sheltered from the global capital and capital accounts remain closed.

For capital markets, the past half a century has been lost decades. It should be no more.

Banking Industry Battles Festering Fraud as Clients Swindled Savings

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A three-storey building on Mozambique Street, around Mexico Square, was packed with appeared aggrieved. A taller man was navigating through the congested hallway on the first floor, appearing nervous and constantly glancing at his watch. Sisay Tegenu seemed like he was racing against time.

Sisay had good reason for his anxiety. Several who jammed the building last week were prey to financial scammers. The building houses a department of the Federal Police Crime Investigation Bureau.

The day before, Sisay was the victim of a scam. Someone called him pretending they were an employee of the Commercial Bank of Ethiopia (CBE). The scammer told Sisay he was trying to integrate his CBE account with another account he holds at the Bank of Abyssinia (BoA).

Sisay followed instructions and changed his password using his smartphone. Two hours later, he received a notification from the CBE that he had transferred 85,000 Br.

“I couldn’t believe my eyes,” he told Fortune. “I’m left with only 3,000 Br.”

The father of four suspects the scammer could be someone close to him, who should know he holds accounts at both the banks.

Berhanu Abate, head of the Bureau, was not surprised. He recently came close to falling victim to a scam perpetrated by individuals claiming to work for the CBE. Neither were the requisitions he received a novelty. The scene is an everyday occurrence for him. At least 10 people visit the Bureau each day.

“Financial fraud is spreading like wildfire,” said Berhanu.

A recent Ministry of Justice (MoJ) study revealed that the banking industry lost close to two billion Birr to fraud in the past four years. Half of these were incurred by the state-owned CBE. The Bank of Abyssinia accounted for 17pc of the loss. Published two months ago, the study was conducted on 155 cases filed in courts. It discovered commercial banks were a target for 370 billion Br in attempted fraud over the past five years.

However, this is the tip of the iceberg. The study covered a small fraction of the financial crimes committed, says Awol Sultan, senior prosecutor and head of the press secretariat at the Justice Ministry. About 700 court cases involving 85 million Br have been reported in the last two months. Close to 90pc bank frauds are committed in Addis Abeba.

“Banks are reluctant to share information with the authorities,” said Awol.

Beyond withholding information, the report alleged, some banks even attempt to negotiate with perpetrators to recover stolen money. The problem is alarming, for less than 16pc of the money stolen from banks is recovered, according to KMPG, an international consulting firm.

Berhanu says some employees working for the state-owned Ethio telecom are involved in these crimes. His bureau has held a dozen working for Ethio telecom and banks in custody, under investigations for alleged involvement in some fraud victims like Sisay.

Cheque-related fraud, likely the oldest form of financial fraud, accounts for over a third of all economic crimes. Forgery and theft of cheques are the most common. The Ethiopian banking industry is particularly vulnerable, as most branches do not have the tools to carry out ultraviolet checks to identify fraudulent cheques. However, the CBE fares relatively better at deploying ultraviolet scanners.

Another common financial crime is unauthorised withdrawal. According to Dahlak Yigezu, vice president for digital banking at the CBE, in most cases, this is committed using forged documents and IDs.

But Berhanu sees fraud in mobile banking as growing at an alarming rate. According to the Justice Ministry, crimes on electronic payment platforms account for 14pc. It is a trend likely to continue with the growth of digital banking.

Although cash remains king, electronic banking is gaining momentum. Commercial banks have adopted digital platforms enabling clients to remotely access services such as cash withdrawal, transfer, and utility payments.

Mobile banking was introduced in 2015 with the arrival of two mobile money providers – HelloCash and M-Birr. The CBE launched its digital money transfer platform (CBE-Birr) two years later, followed by Dashen Bank’s Amole mobile wallet. Awash Bank unveiled its “Awash Birr” platform two years ago.

Almost all commercial banks and microfinance institutions (MFIs) provide mobile money services today. More than a dozen mobile banking, wallet, and money platforms are operating. Combined, they facilitated transactions valued at 320 billion Br last year.

Amole Wallet has close to 3.5 million users. The CBE boasts 5.4 million users on its platform, which accounts for nearly 40pc of the country’s 14.5 million mobile banking users.

The progress is twinned by digital security vulnerability and financial fraud exposure. Rapid technological advancement plays a significant role in festering fraud as it allows scammers to thrive from virtually anywhere, argues Fitsum Wesen, a cybersecurity management expert.

Investigators like Berhanu learned that most financial crimes in mobile banking are committed through password theft. Law enforcement officers caution that strong authentication details are vital since mobile devices are easily lost or stolen. A digital banking service requires basic literacy, but most users are unaware of financial fraud, says Berhanu.

Not even financial firms are privy to the need for digital security. One of the vulnerabilities comes with using standard communication channels and the increased opportunity for hackers to access users’ phones remotely. Most service providers use these channels for their mobile money offerings. And mobile banking presents challenges, including growing malware threats targeting mobile channels.

Federal agencies like Financial Intelligence Service receive up to 2,000 complaints annually, disclosed Endale Assefa, head of communications.

“We only investigate those under our jurisdiction,” he told Fortune.

The former Financial Intelligence Centre was reconstituted as a Service earlier this year, tasked to fight growing financial fraud, money laundering and terrorism financing activities. Its investigators coordinate with their colleagues in the Information Network Security Agency (INSA) to protect financial institutions from cyber-attacks.

Agency officials recently announced more than 5,000 cyber attack attempts were made last year. They targeted 37,000 interlinked computers used by financial institutions. Fitsum warns that escalating fraud puts into question the financial sector’s sustainability.

“Unless it’s addressed in time, it could result in huge losses,” said the expert.

The banking industry recognises the growing risk. Its leaders, such as Aklilu Wubet, president of Wegagen Bank, echo experts’ words of caution. Wegagen was among the first affected by financial crimes, according to the MoJ study.

“It’s becoming a threat to the industry,” he told Fortune.

Industry players see poor internal control, the absence of separation of duties, and inadequate documentation are the major enabling factors. From where Ermias Andarge sits, presiding over Enat Bank, fraud detection mechanisms are insufficient to fight the crime effectively.

Says he: “Unless there are suspicious activities, banks have no tools to detect fraud before the threats materialise.”

But not for lack of legislative tools, argue regulators. Solomon Desta, vice governor of financial institutions at the central bank, argues that existing laws can protect the public from bank fraud.

A directive governing fraud monitoring compels banks to investigate incidents of financial fraud internally. The law requires financial institutions to report their activities quarterly to the National Bank of Ethiopia (NBE). In instances of financial crimes, they are obligated to report cases within three days.

However, these measures have proved ineffective. Although external firms audit banks annually, disclosing losses from financial fraud is rare. Awol of the Justice Ministry attributed this to banks’ having executives hesitant to provide information to auditors fearing public disclosure.

“Auditors focus on bigger transactions vulnerable to mismanagement and theft,” said Tewodros Hailu, managing partner at Degefa & Tewodros Authorized Accounting Firm.

Nevertheless, he observes the rise of bank fraud during the auditing process.

Industry players say the directive governing fraud monitoring, introduced eight years ago, does not match the advancement in technology. Solomon concedes that, although not urgent, the directive might require an amendment to cover mobile money and digital banking users.

This shows that the threat of financial fraud is no longer limited to banks. The risk becomes more perceptible as the web becomes more tangled with multiple parties sharing mobile money and other e-payment platforms. Attempts to leverage existing online banking infrastructure inherently come with risks, according to Fitsum. The digital banking landscape is changing with the arrival of financial tech (fintech) firms.

Until two years ago, only financial firms, particularly banks and microfinance institutions, were permitted to provide mobile banking services. This changed after the central bank issued a directive in August 2020, allowing non-financial institutions to join the fray. Last year, the arrival of the state-owned Ethio telecom’s “Telebirr” became a game-changer.

One of five non-financial entities to have secured permits from the central bank, Telebirr allows users to deposit, withdraw, and transfer funds using a mobile application or a USSD code. It has garnered close to 22 million users thus far, overwhelming much of its competition within a year. It has facilitated close to 30 billion Br in transactions. But not without concerns and security threats.

Ethio telecom recently suspended money transfers to Telebirr accounts under another account holder’s name. Regulators at the central bank have also put limits on bank-to-bank transfers, capping transactions at 25,000 Br.

These threats have led the state telecom provider to agree with Subex, an Indian enterprise software provider, to provide a fraud management system. Tsegaye Emanuel, the chief information security officer at Ethio telecom, hopes the system will enable the company to adopt a proactive approach to combat risks, including mobile money fraud.

In the absence of integrated and standardised identity cards, Dahlak of the CBE cautions the difficulties of combating cheque-related fraud and unauthorised withdrawal. He sees the National ID programme as a vital tool.

“The proper implementation of the ID can go a long way to battle bank fraud,” he said.

These measures may come too little too late for victims like Sisay, who is unlikely to see his hard-earned money recovered.

Regional Admins in Uproar over Surging Cement Prices, Supply Shortages

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Trade officials from regional states are in an uproar over the worsening cement shortage sending retail prices through the roof. They have lodged complaints with federal authorities.

Cement supply shortages have become common over the past couple of years, but the situation has worsened last month. The stocks of retailers and wholesalers across the country are depleted following the introduction by federal trade authorities of a directive a month ago, which sought to end the distribution of cement through agents.

Gebremeskel Chala, minister of Trade & Regional Integration (MoTRI), followed the directive with a price cap. He told factories to sell a quintal of cement to designated distributors between 770 Br and 870 Br. Although the measure was meant to stabilise the market, retail prices have surged to 2,000 Br a quintal, more than triple what manufacturers offer at their gates. Federal officials, however, stand by their decision.

“The cement supply chain used to be long and complex,” said Hassen Mohammed, a state minister for Trade. “This had a profound impact on the retail price.”

Five regional administrations submitted formal complaints to the Ministry last week. They blame the shortages on cement factories not supplying distributors based on quotas set by the Ministry. Intermediaries in the Amhara Regional State trading cement informally sell a quintal of cement for over 2,000 Br, disclosed Abeje Ayehu, deputy head of the region’s Trade Bureau.

His office is among those that lodged their complaints to federal authorities. The regional administrators expected more than 61,000tns of cement supply monthly from seven plants.

“Designated distributors are not getting cement based on the quota,” said Abeje.

There are 25 selected distributors in the region that source cement directly from the factories. Amhara state administrators expect Mugher Cement Factory to supply close to 16,000tns a month.

Established in 1984, the state-owned Mugher Cement is one of the seven factories expected to supply cement to the region’s distributors. The plant can produce one million tonnes annually. However, Gezahegn Dechasa, general manager, disclosed that Mugher utilises a fifth of its capacity.

“We’re doing our best to supply more cement under the circumstances,” said Gezahegn.

The situation is similar elsewhere.

The monthly quota assigned by the Trade Ministry to the Dire Dawa City Administration stands at 6,500tns, to be supplied by Pioneer and National cement factories. An assessment conducted last year revealed that the quota matches only half of the demand, according to Abdi Muktar, deputy head of the Dire Dawa Trade Bureau. The Bureau has established a committee to monitor the marketing activities of cement factories.

“The shortage worsened because factories are not supplying based on the quota,” Abdi told Fortune. “We’ve apprehended 10 trucks carrying cement leaving the city illegally.”

Addis Abeba’s cement markets, too, are feeling the burn.

Henok Eshete, a taxi driver, was roaming around Megenagna last week to buy cement to refurbish his two-bedroom house. But cement was nowhere to be seen in the capital’s retail hub. After a half day of the search, he found brokers willing to sell for 1,850 Br a quintal.

“It’s beyond my budget,” Henok told Fortune.

The business slowdown around Megenagna has also affected the lives of those who earn their livelihood transporting cement to and from retail shops.

Tsegaye Zergaw is one of them. For the past 15 years, the father of two has been in the cement transport business. He makes 700 Br for each trip of three a day.

“I haven’t made a single trip in the past two weeks,” Tsegaye told Fortune.

The Ethiopian Industrial Inputs Development Enterprise is one of the entities authorised to distribute cement in the capital through six outlets. Five factories, including Derba, Dangote, and Mugher, have to supply 50,000tns of cement a month to the Enterprise. Over the last two weeks, the Enterprise made payments to buy 22,000tns of cement. However, it received less than a third of the volume.

Solomon Girsha, deputy chief executive officer (CEO), says he knows a quintal of cement is on sale for more than 1,800 Br without traders issuing receipts.

The problem is more about supply-side issues than the inadequacies of the quota system, argues Solomon. Experts agree.

Getie Andualem (PhD), a lecturer at the Addis Abeba University College of Business & Economics, notes that the shortages come due to the government’s failure to anticipate the rise in demand and act accordingly to attract investors to the cement industry.

“No company joined the industry in the past five years,” he said. “On the contrary, a few factories ceased production.”

There were 13 cement plants with an aggregate production of four million tonnes yearly. Their ranks have dwindled to 10 with a production of 1.7 million tonnes. The turbulence is partly due to a shortfall in production as factories struggle to use installed capacity.

Dangote Cement produces no more than a fifth of its 2.5 million tonnes in annual potential. The same goes for Derba, a factory owned by Mohammed Ali Al-Amoudi (Sheikh) and his family. Its production is slightly more than 10pc of its 2.3 million tonnes annual capacity.

“It’s no secret there is a mismatch between demand and supply,” the State Minister concedes. “We’re trying to create a mechanism that ensures the fair distribution at reasonable prices.”

The executives of cement factories attribute the decline in production to a coal shortage.

Established in 2005, Ethio Cement can produce 64,300tns a month. However, its output is closer to a third of this, according to Yigerem Zerihun, marketing manager.

Cement factories source coal from small-scale miners operating in four regional states, including the Oromia and Benishangul-Gumuz. The miners supply unwashed coal, which has an average energy production capacity of 2,500 kilo-calories a kilogramme. Washed coal, which cement factories had been importing, generates up to 4,000 kilo-calories of power.

“The availability of the local coal is also unpredictable,” said Yigerem.

However, Hassen argues that factories act like agents, selling cement directly instead of supplying it to designated distributors. The Trade Ministry has established a task force to monitor the cement supply chain.

Warns Hassen: “We’ll take swift measures on those who operate outside the system set up by the government.”

Abie Sano Opts for CBE ATM Management Outsourcing

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Abie Sano has the Commercial Bank of Ethiopia’s (CBE) executive team consider outsourcing the management of automated teller machines (ATMs) to a third party. Potential bidders began vying to bag a lucrative contract managing the country’s largest ATM network.

Two weeks ago, the CBE called for expressions of interest; Abie and his team are expected to pick the contractor in three months.

The Bank’s sheer size and a need to focus on core operations are behind the decision to outsource ATM management, disclosed Dahlak Yigezu, vice president for digital banking. Abie sits at the helm of the CBE, the most highly capitalised financial institution in the country. By the end of last year, CBE’s capital reached 59 billion Br, accounting for over a quarter of the industry’s aggregate.

Abie had served as CBE’s president for a year before leaving in 2009, replaced by Bekalu Zeleke. He returned to the top job two years ago, following the departure of Bacha Gina. Bekalu now serves as president of the Bank of Abyssinia (BoA).

By the end of the last financial year, the 80-year-old CBE enjoyed deposits topping 735 billion Br. An aggressive branch expansion strategy and the deployment of electronic payment machines were attributed to the hefty deposits. The Bank has opened about 700 branches over the past five years, pushing its network to 1,900.

However, the sprawl comes at a cost. CBE executives found that keeping the momentum with a workforce of 28,000 has become daunting. The CBE is not alone. The banking industry faces a shortage of skilled and experienced labour. With 140,000 jobs, banks are among the country’s largest employers. The shortage of skilled workforce has forced the banks to adjust salaries regularly and offer pay above the average labour cost and benefits packages. This has pushed operating expenses over the edge.

The arrival of new players to the industry adds pressure on the management of CBE. No less than three commercial banks have opened for business in recent weeks. CBE executives are convinced that by hiring a contractor to manage ATM operations, they can trim operating expenses and overhead costs while concentrating on strategic areas and core banking activities.

It would not be a territory new for the state-owned financial giant.

The CBE has outsourced its security, messenger, and cleaning services to Commercial Nominees, a pioneer in outsourcing services where the CBE has significant shares. In 2018, the state policy bank, the Development Bank of Ethiopia (DBE), adopted a similar approach, establishing Ethio Capital Investment S.C. to oversee foreclosed assets and manage companies whose loans they defaulted. The Turkish joint venture companies, Ayka Addis Textile and Else Addis, are a few of these companies.

However, the labour crisis becomes more evident in areas that require particular skills, according to Tewodros Tassew, a financial technologies consultant. Steady technological advancement and the compliance demand make it difficult for financial institutions to keep up with ATM operations, said Tewodros.

ATMs were introduced to Ethiopia a decade ago to have evolved rapidly into mainstream digital banking service outlets. Their number has doubled to above 10,000 over the past three years. Cardholders have seen ranks swell to 17 million, transacting 150 billion Br last year.

Moti Engineering Plc has played a more prominent role in this growth, supplying over 7,000 ATMs to banks, including the CBE. Incorporated by five siblings in 2006, with an initial capital of 100,000 Br, it has partnered with international companies such as NCR Global.

“The company also provides post-sale technical support,” said Abdulhamid Mohammed, managing director of Moti.

Moti operates with 200 staff and 40 service centres.

The CBE currently runs 2,700 ATMs. In the past month alone, the Bank acquired 100 machines. It receives technical support from Diebold Nixdorf and NCE Global, US-based companies specialising in the manufacture and installation of ATMs. With a 32pc global market share, Diebold Nixdorf has supplied over one million ATMs globally; NCR operates with a network of 300,000 ATMs.

CBE executives feel the technical support is insufficient considering the Bank’s size.

The practice may seem novel in Ethiopia, but it has been decades since financial institutions in developed economies began outsourcing ATM management at off-site locations that were difficult to maintain. The global ATM outsourcing market was estimated at 22 billion dollars last year. The market size is forecasted to reach 27.8 billion in six years, according to Stratview Research, a market intelligence firm based in India.

US-based Cardtronics; Asseco Group, headquartered in Poland; and Sharenet, a South African financial services provider, are among the major players in the ATM outsourcing market.

Domestic companies are trying to seize the opportunity presented by the CBE.

Incorporated a decade ago, Advantech Network & Communication Systems Plc provides software, digital boards, and hardware equipment for financial institutions.

“We’ve plans to participate in the bid,” Habtamu Taye, general manager, told Fortune.

Trade Ministry Lists More Crops to Contract Farming Scheme

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Trade officials have added six commodities under the contract farming scheme, hoping to fight what they say is “rampant” under-invoicing and hoarding practices. Officials hope to boost export revenues through the reclassification.

The addition includes niger seeds, groundnut and chickpeas. Gemechis Melaku, executive director of export trade at the Ministry of Trade & Regional Integration (MoTRI), believes the decision will encourage farmers to expand a demand-driven farming system.

“It’ll help the government control under-invoicing and hoarding,” he toldFortune.

A few commodities, such as oilseeds, sugarcane, and barley, were eligible for contract farming. However, trade officials suspended contract farming for sesame (part of the scheme since 2019) last year, alleging widespread illicit activities. Authorities claimed to have seized a 60,000tns of cash crops stashed in warehouses belonging to 105 exporters, who had to ship them in a month. The Trade Ministry regulates the domestic trade and export of sesame and pulses.

The oilseeds and pulses exports generated 477 million dollars last year. Trade Minister Gebremeskel Chala and his deputies have forecasted revenues of close to 600 million dollars this year.

Sourcing export commodities from the domestic market has challenged agro-processing industries and exporters. They are forced to buy the commodities at higher prices or default on their contracts.

Incorporated seven years ago with a registered capital of four million Birr, Hamam Commercial & Industrial Plc has been exporting cereals and oilseeds. It sources most export items from farmers in the Amhara and Gambela regional states.

“We buy from farmers at prices higher than those offered at the Ethiopian Commodity Exchange,” said Abebaw Tadesse, the general manager.

Hamam Commercial earned seven million dollars last year, shipping 7,000tns to China, Japan, and Europe.

Other exporters have chosen to cut down shipments to get by.

Ademe Mekonnen Export Plc annually ships up to 1,500tns of cereal and oilseeds to Israel and China. Established in 2009 with four million Birr capital, the company used to source cash crops from the Ethiopian Commodity Exchange (ECX). However, it has been unable to receive sufficient quantities, disclosed Mehatemie Memhir, export manager.

Shortages in the domestic market have reduced the company’s export volumes by more than a quarter. Last year, it shipped 1,500tns of cereals and oilseeds, generating nearly three million dollars. Mehatemie says the company stopped exporting niger seed two years ago.

Niger seed production has been in decline in recent years. Last year saw 210,000tns harvested, down by a quarter from the previous year’s output.

Mehetemie’s firm had previously attempted to source 50,000qtl of cash crops through contracts with farmers in the Benishangul-Gumuz Regional State. He blames a few exporters who convinced farmers to sell their products, demanding higher prices.

“The higher prices these exporters offer motivates farmers to breach their contracts,” said Mehatemie.

He observes that although lower administrative levels in regional states authenticate contracts between farmers and agro-processors, enforcing the contracts remains a challenge. Federal authorities responded last week, imposing floor and ceiling prices for oilseeds and pulses traded through the ECX platform.

Assefa Senbeta is a plant scientist who worked for the Ethiopian Seeds Enterprise (ESE). He has observed transactions carried out through contract farming but without a legally bidding arrangement.

“Unless the scheme is recognised through legislation, its disadvantage outweighs the benefits,” he told Fortune.

The Council of Ministers endorsed a long-awaited bill governing contract farming before sending it to legislators two weeks ago. It aspires to enforce contracts, formalise the scheme, and allow agro-processing industries to source raw materials from millions of small-scale farmers.

Abebaw and Mehatemie hope the new law will address some of their problems. To be tabled to lawmakers next month, the bill proposes to make unlawful contract terminations a criminal offence. Contract disputes are settled in civil courts.

Assefa says incorporating specifics in the law is key to making the most out of the scheme.

Dereje Abebe, team leader for out-growers and contract farming at the Ministry of Agriculture, disclosed a directive outlining the responsibilities and rights of parties involved in contracting farming has already been completed.

“It’ll be implemented after Parliament ratifies the proclamation,” he toldFortune.

His office is also preparing a guideline outlining conditions for the production and marketing of farm products.

Minister Takele Eyes Iron Ore Mining Industry Emerge

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Takele Uma has begun the long journey of animating an iron ore mining industry, hoping to reverse the downward spiral in metal products manufacturing brought on by raw material shortages.

The Minister of Mines has been contemplating a strategy developed by his experts for five years for import substitution. The Ministry had partnered with Meqelle University to conduct a study to determine whether manufacturing iron and steel domestically can be a viable industry.

A former Deputy Mayor of Addis Abeba, Takele was appointed to the mining portfolio in the cabinet two years ago. An engineer by training, Minister Takele has been working to replace imported coal with domestic production to cut import bills amounting to 300 million dollars annually.

He recently granted concessions to eight companies in coal extraction with a combined registered capital of six billion Birr.

He intends to find an international consultant to conduct a detailed feasibility study to establish an iron and steel plant. The Ministry’s tender was the second in a year when it was issued two weeks ago. The Ministry’s officials have yet to see the response they had expected.

“We’re hoping more companies will participate this time around,” said Guta Legesse (PhD), director general of the Ethiopian Mineral Development Institute.

The Institute is a federal agency tasked with studying and supporting metal factories. Its officials anticipate the feasibility study to be conducted in six areas before selecting a suitable location for installing iron and steel plants.

For the past year, experts from the Ethiopian Geological Survey have conducted preliminary studies. Their initial assessment indicates that there could be 600 million tones of iron ore reserves, disclosed Dejene Hailemariam, the director.

Previous studies have revealed three kinds of iron ore deposits: Magmatic iron in the West Wellega and Bale zones of the Oromia, lateritic iron in the Afar, and banded iron in the Amhara and Oromia regional states. However, attempts to mine iron ore over the last three decades have proved futile. Five companies with a combined investment of 90 million Br have done iron ore explorations in the past, including Sekota Mining Plc, Ezana Mining Development Company, and the Ethio Engineering Group, formerly the Metals & Engineering Corporation (MetEC).

Sekota Mining minted a deal with the federal government to mine iron ore with a pledge to invest one billion dollars after acquiring a concession in Wag Himra Zone, Amhara Regional State, a decade ago. Sinosteel Institute of China surveyed a 740Km area, discovering a 79 million tonne reserve with contained iron of 24 million tonnes.

Nonetheless, the venture remains on the drawing table.

Officials say addressing the foreign currency shortage for steel imports through exploiting natural resources is of national interest.

“The extraction of deposits is important to boost the metal industry,” said Guta.

The proposed plant will have an annual production capacity of 2.5 million tonnes of crude steel in the form of billet, bloom, and slabs. It can substitute over a quarter of the raw materials required by steel manufacturers. Officials estimate it will cost four billion dollars to set up the iron and steel plants.

Minyahl Teferi (PhD), a lecturer at Bahir Dar University’s Department of Geology, foresees the investment capital may go up depending on the quality of the iron ore from which metallic iron can be extracted. High-quality ore can be fed to iron-making furnaces directly. According to the expert, the process can be expanded in low-grade iron ore, making the project more expensive.

Minister Takele hopes to raise equity from domestic and foreign investors in a joint venture with the state.

Those in the metal industries welcome the initiative.

“It’s a promising endeavour,” says Solomon Mulugeta, president of the Ethiopian Association of Basic Metals & Engineering Industries, an industry lobby group representing 75 manufacturers.

There are 410 firms in the metal industry, creating employment opportunities for 126,000 people. Nonetheless, the industry’s contribution to the economy is nascent, using less than 25pc of its capacity.

“The foreign currency crunch to import raw materials is a major impediment,” said Solomon.

The metal manufacturing industry requires six million tonnes of billet annually, costing over 1.3 billion dollars. Billets account for half of the raw material in demand, while slab, bloom, and sponge iron constitute the balance. Over two dozen metal and steel factories have recently closed due to raw material shortages.

Formerly known as Kality Metal Products Factory, Tsehay Industries S.C is one of the oldest metal manufacturers that suspended operations in recent months.

The factory depends entirely on imported steel with an annual production capacity of 276,000tns.

“We’re unable to bring in the raw materials,” said Workineh Tesfaye, the CEO.

The pressing challenge to Minister Takele is to keep the remaining factories in business.

Municipal Authorities to Formalise “Bajaj” Transport

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Municipal authorities are endeavouring to bring three-wheeled vehicles under oversight, introducing a route-based public transport system in the capital.

There have been attempts to regulate three-wheel rickshaws (commonly referred to as Bajaj) since 2019. However, the efforts led nowhere as most vehicles are not registered with the Addis Abeba transport authorities. The majority of rickshaws have registration with the Oromia and Amhara regional states. According to Yirgalem Berhane, deputy director of operations at the Bureau, none of them have permits to operate in the city.

The absence of a legal framework stood in the authorities’ way of regulating three-wheeler taxis. They plan to introduce legislation after registering the rickshaws on the capital’s roads. The registration process has already begun.

A year ago, the former Addis Abeba Transport Authority drafted a directive that gives the Bureau the mandate to dispatch the vehicles and set tariffs. However, the law has yet to be enforced.

“The work we’ve been doing so far is preventing them from operating in the city centre,” Yirgalem told Fortune.

Zewdie Fikadu, 34, has been driving a rickshaw in the Gelan condominium neighbourhood after he bought a Bajaj three years ago for 300,000 Br. He charges 10 Br a kilometre and avoids the main street for fear of getting caught by traffic officers. Rickshaw drivers are fined 1,000 Br fo driving on main roads or outside designated areas.

“Working like this is tough,” said Zewdie.

Yirgalem says the Bureau cannot place a blanket ban on rickshaws as they play a role in public transportation services. Rickshaws have demonstrated their vital role in urban areas with limited mass transit systems. Bajaj comprises most of the public transport network in Dire Dawa town with 6,000 vehicles.

Imported from India, the three-wheeled vehicles first appeared in Ethiopia two decades ago in Dire Dawa. Gradually, rickshaws became a regular sight across all urban areas, including Addis Abeba. Data from the former Federal Transport Authority reveals that close to 170,000 rickshaws operate in the country.

A third of these vehicles are registered in the Oromia, followed by the Sidama and South Western regional states. The Amhara region accounts for a fifth of all rickshaws. The Oromia Transport Bureau has thus far registered 65,000 three-wheel vehicles under 574 associations. Each association is comprised of up to 400 members.

In Adama, Jimma, and Shashemene towns, the vehicles have been given routes, according to Getachew Abebe, director of transport supply for Oromia Transport Bureau. This includes three-wheeled vehicles operating in towns under the Oromia Special Zone, including Sebeta, Legetafo, Burayu, and Sululta.

The Addis Abeba Transport Bureau thus far registered 6,100 rickshaws.

Engida Tadie, a lecturer of urban planning and transportation management at Kotebe Metropolitan University, believes it is the right move. A shortage of vehicles and long queues at terminals and stations is common in Addis Abeba, a city with over 2.7 million residents dependent on public transport. The Bureau deploys no less than 8,000 minibuses and nearly 1,500 buses, including 425 operated by Sheger Mass Transportation Services Enterprise. The Anbessa City Bus Services Enterprise runs a fleet of 650 buses.

“It’s a good start to easing the challenges faced by residents who depend on public transport,” said Engida.

However, it is insufficient. Closing the gap with the growing demand is the primary task facing the newly-appointed Bureau head Mitiku Asmare.

He served in the transport sector for over 15 years before his latest appointment, including as head of the city administration’s transport authority and director general for the former Federal Transport Authority. Last month, he replaced Dawit Yeshitla, who had run the Bureau since 2019.

Rickshaw registration in the capital also has another purpose. Although Bajaj owners are entitled to fuel subsidies under the federal government’s dual-rate system, they have been excluded from the preferential treatment thus far. Owners of three-wheeled vehicles were to benefit from 25 litres of subsidised gas a day.

“Their files have not been handed to federal authorities,” Yirgalem told Fortune.

Officials pledge that rickshaw owners will be encouraged to register on the Telebirr mobile money platform run by the state-owned Ethio telecom after finalising the registration process. This will allow them to pay for fuel using personalised accounts on Telebirr and receive rebates for the price difference under the dual-rate subsidy scheme.

Although the authorities have identified close to half a million transport vehicles with plate codes “1” and “3”, only 27,000 receive nine Birr cash back for a litre. Those who exceed daily fuel quotas pay full price.

Since the subsidy lift-off began two months ago, the federal government has reimbursed transport vehicle owners 14 million Br.

Moroccan Group Bequeaths Fertiliser to Wheat Sufficiency Aspirations

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Moroccan executives of the state-owned OCP Group have let agriculture authorities breathe a sigh of relief after offering 50,000tn of much-needed chemical fertilisers, free of charge. At current prices, the commodity is worth more than 35 million dollars.

Ethiopian authorities have struggled to meet demand from eight million smallholder farmers dependent on chemical fertilisers. Only half of the 1.2 million tonnes of fertiliser the federal government bought was available to farmers a month after the Mehir harvest season began in July.

Fertiliser prices have been soaring globally since 2020. The supply crisis has exacerbated following Russia’s invasion of Ukraine six months ago. Ethiopian farmers face retail prices of up to 4,900 Br a quintal, nearly triple what they had previously paid.

The OCP Group, a phosphate rock miner, has been Ethiopia’s primary fertiliser supplier since 2016. Last year, the company supplied 780,000 tonnes of NPS and NPSB for 710 dollars. Its largess last week is part of its “fertiliser relief programme” of providing 180,000tns to some African countries. An additional 370,000tns is offered at discounted prices, disclosed Mohammed Anouar (PhD), the CEO of OCP-Africa, a subsidiary of OCP Group.

Officials are well aware of the significance of last week’s gesture. It will cover a third of the fertiliser needed.

“The government is grateful for the contribution made when fertiliser prices are skyrocketing,” said Oumer Hussein, minister of Agriculture, during a handover ceremony held at a warehouse belonging to the state-owned Ethiopian Agricultural Businesses Corporation in Qality.

According to Sofia Kassa (PhD), a state minister for Agriculture, the fertiliser shipments have reached ports in Djibouti. It will be distributed to farmers incorporated in the government’s off-season farming programme; an initiative launched three years ago.

With aspirations to substitute wheat imports, the administration of Prime Minister Abiy Ahmed (PhD) initiated the off-season farming programme three years ago with the farming of 3,500hct of land. Officials now claim the land used to farm summer wheat reached close to half a million hectares last year, with output projected to reach 107 million quintals.

Federal and regional authorities are tasked with facilitating the provision of agricultural inputs and equipment to smallholder farmers. The government allocated a 400 million Br budget to the programme last year. According to official figures, farmers in the Oromia Regional State farmed nearly 260,000hct under the programme last year. The Amhara Regional State is home to nearly 40,000hct cultivated, which produced 1.5 million quintals of wheat. The harvest is less than half of the 3.6 million quintals the authorities had expected to see produced.

A shortage of agricultural inputs was a factor behind the deficit, says Shimelash Yeshane, senior advisor at the Amhara Agriculture Bureau.

Close to 65,000qtl of fertiliser and improved seeds were distributed to farmers in the region. It was not enough.

Comprising close to 140 cooperatives in 11 weredas of the Gojjam Zone, Merkeb Cooperative Union has been distributing agricultural inputs to farmers included in the off-season initiative. However, the Union could only manage to supply fertiliser to half of the 12,000 farmers under its ambit.

“The demand was more than we could satisfy,” said Getachew Eshetu, the general manager.

Farmers like Geremew Nebere, 36, had little but to resort to other options. Although the father of three had a quintal of fertiliser left over from the previous year, it was not enough to cover his one-hectare plot.

“My yield declined by four quintals last year,” he told Fortune.

He harvested 18qtl a hectare.

Fertiliser shortages have significantly affected productivity in the recently-formed Sidama Regional State. Over 250 farmers there were expected to participate in the programme last year. However, only a quarter managed to grow 2,700qtl of wheat on 100hct. However, these are setbacks not deterring Amsalu Argaw, director of irrigation at the Sidama Agricultural Bureau. His office plans to involve 300 farmers in the programme this year, making agricultural inputs available. Officials hope to see 400,000qtl of wheat cultivated on 10,000hct.

Experts, however, say supplying the inputs alone may not be enough to realise the aspirations of wheat self-sufficiency.

Farmers must believe in the strategy, according to Lemma Wogi (PhD), assistant professor of soil science at Haromaya University.

“Forcing them to join the programme without the necessary inputs will not bring the desired outcome,” he warns.

Wheat accounts for about a fifth of Ethiopia’s total cereal production. A significant portion still grows on small farms, contrasting with the widely held narrative that Ethiopia is among Africa’s top three wheat producers. Harvests are only sufficient to cover two-thirds of national demand.

The federal government procures the grain from the international market. Imports have ballooned from 600,000tns to 1.7 million tonnes a year over the past decade. The country spends over a billion dollars annually on wheat imports. Eastern European countries such as Russia, Ukraine, and Bulgaria have been primary wheat sources for many African countries, including Ethiopia and Egypt.

Egyptian officials’ attempt to buy five million tonnes of wheat last week was thwarted. A steep rise in prices and the overwhelming logistics hurdles surfaced following the outbreak of war in Eastern Europe took the blame.

Gig, Freelance, Off-shoring: The Glass Half Full Perspective

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Recently, a job summit took place at the Sheraton Addis Hotel. Part of the time was dedicated to the Enkopa Summit, where business-to-business interactions, two-panel discussions and pitches by entrepreneurs were carried out. The discussions centered around building a digital entrepreneurship ecosystem and a freelancing, outsourcing, and gig (FROG) economy in Ethiopia.

Among the attendees were public officials such as Muferiat Kamil, minister of Labor & Skills, entrepreneurs, representatives from large corporations, and development partners. This is not surprising as creating jobs remains one of the top preoccupations for the government, with rising inflation and unemployment not showing any signs of slowing down.

Ethiopia is situated in a triangle of high unemployment, large youth population and limited entry-to-mid level career opportunities. The labour environment presents many challenges: labour laws and workers’ rights are limited, unemployment and underemployment are high, and the informal sector remains significant.

However, these challenges can be turned into an opportunity. Without a burdensome legacy system, Ethiopia can leapfrog into the future of work, where gig and freelance workers can perform multiple missions and tasks, leveraging different skills while earning a decent wage.

In this endeavor, look no further than digital entrepreneurs. They see a glass half full rather than half empty, turn challenges into opportunities and help informal gig workers in the millions transform into wage earners offering their skills. Thanks to these pioneering entrepreneurs, digital platforms for gig work are recently emerging, and there is great potential for them to scale to create millions of decent jobs in the next few years.

Every year more than three hundred thousand students graduate with a STEM degree. It is no wonder as education has been in the top three government budget expenditures for the last few years, making Ethiopia a country hosting one of the largest pools of educated talent on the African continent.

Unfortunately, the country has not been reaping the fruits – the return on investment has been limited and seldom is the service sector showcased at global events. Instead, Ethiopia seems determined to repeat the same monotonous song and dance of promoting itself as the origin of coffee, or the mantra of “thirteen months of sunshine” and “land of origins” whenever the occasion arises on a global stage.

Digital platforms can become that paradigm shift badly needed to start anew, with new origins, crossing boundaries virtually and yet bringing back hard currency.

Digital entrepreneurs can turn a sizeable idle pool of talent into a pool of freelance workers who only need a stable internet connection and a laptop to sell their services to a client across the country or the continent. Indeed, digital platforms for freelance work are also emerging in Ethiopia and there is a great potential for them to scale to create thousands of decent jobs in the next few years.

All these digital entrepreneurs require a support mechanism that the emerging tech ecosystem in Ethiopia has not been able to deliver. Traditionally, startup support programs have been led by development partners – a model that has not proven to be sustainable. Going forward, incubation, acceleration and venture capital investment in local startups should be led – in a win-win format – by large corporations who are sitting on extra cash like Ethiopian Airlines, Ethio Telecom and commercial banks.

On the horizon emerges yet another opportunity for the country as it is also becoming an offshoring hub. Until recently, Fortune 500’s and multinationals have had a knee-jerk reaction to relocate their middle and back-office processes to India, the Philippines, Eastern Europe, North Africa, and Central America. But as labour cost continues to rise in those parts of the world, some African countries like Ethiopia are emerging as alternative destinations, mainly due to labour arbitrage and the high availability of trainable talent.

Ethiopia is the second most populous nation in Africa, where the cost of skilled labour is, on average, 15 times cheaper compared to Western countries, and very competitive compared to South Africa.

Ethiopia has a great potential to become an offshoring hub for multinationals looking to relocate their middle and back-office processes. Cheap electricity, internet redundancy and labour arbitrage are the main traits of a country in this sector. CCI, one of the largest BPO companies in Africa, announced it launched operations from Ethiopia last week. More such logos need to be attracted to Ethiopia.

The job summit held at the Sheraton will take place again in 2023 with a more pan-African outlook and presence. More of it is needed to deliberate and create awareness of modern ways of stimulating employment opportunities.

Past Time to Catch Up for Under-globalised Sub-Saharan Africa

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The International Monetary Fund (IMF) has released its 2022 World Economic Outlook report. Predictably, it speaks volumes of gloom on the growth front. Major world economies already suffering from the effects of COVID-19 led by high energy and food prices, supply-demand imbalances and rising inflation went into contractionary monetary policies. These policies are now driving global growth downwards. All this happened when the world was waiting for V-shaped recoveries in advanced economies. A classic case of the cure being worse than the disease!

The United States, China, and Europe are the major laggards pulling down the world baseline growth forecast from 6.1pc in 2021 to 3.2pc in 2022 and 2.9pc in 2023. The United States growth forecast is down to one percent due to the reduced household purchasing power and tighter monetary policy, while in China, further lockdowns and the deepening real estate crisis have led to a downward revision of the growth forecast to 4.6pc. Europe is suffering from spillovers from the war in Ukraine and tighter monetary policy and is expected to grow at 1.2pc in 2023.

On the other hand, Sub-Saharan African (SSA) economies have shown an amount of resilience in an upward growth trajectory. Although the growth in the region has weakened during 2022 thus far, it is forecast to grow at 3.8pc percent in 2023. Many SSA-centric economists have predicted that the sharp deceleration of global growth is creating substantial headwinds for the region. This is anticipated given the industry and trade profile of the region. Nevertheless, the SSA statistical data continues to be dominated by big economies such as Nigeria and South Africa.

Now that the developed world has caught up with Africa’s growth prospects in percentage terms, can the African continent match the economic recovery rate of the developed world? Emerging and developing Asia and ASEAN block has consistently clocked an annual GDP growth rate that has been twice that of the United States and Europe – why not Sub-Saharan Africa?

Economic growth is a function of economic output. Incremental economic output depends on structural changes in the economy. In the present context, SSA has surprisingly not booked huge human losses due to COVID-19. Compared to the developed world, stagflation in Sub-Saharan Africa has been due to pandemic-induced losses.

The first and foremost barrier to post-pandemic recovery in almost every Sub-Saharan country today is rising inflation levels – much higher than in the developed world. IMF has reported that the high levels of commodity and food prices have hampered recoveries in almost all sectors leading to erosion of disposable incomes, depressed demand, and deepening poverty.

This, to a large extent, is a homegrown challenge – for years, most SSA countries have held back their economies from globalisation. Global value chains are yet to reach these countries. Low production base and uneven overseas procurement of goods and services have led to a human-made scarcity of goods and services. Developed countries will quickly bounce back, but SSA countries have to move faster to integrate their economies with large global value chains until such time as they raise capital to produce locally and be a vital part of global value chains.

SSA has the potential to be the breadbasket of the world. But it is not difficult to understand why food shortages and inflation should take a particularly severe toll on vulnerable populations. IMF has flagged the surging food and fuel import bills in SSA countries as they have the potential to reverse recent progress in poverty alleviation across the region, especially in the Democratic Republic of Congo and Nigeria, where vulnerable populations are sizable, and in Benin, Comoros, The Gambia and Mozambique, where the dependence on imported food is high. Local logistics and food security program administration need more focus to eliminate shortages and uneven distribution.

According to IMF, about 45pc of the SSA economies are politically fragile and conflict-affected countries. Insecurity and violence threaten the economic outlook, especially in the lowest-income countries. A quick economic turnaround is, therefore, a distant dream.

Fiscal prudence also holds the key to the post-pandemic challenges. Advanced economies are pursuing accelerated policy tightening, the effects of which are felt in SSA countries already constrained by high levels of public debt and trade imbalances. Managing the risk of systematic insolvency is vital. Nevertheless, GDP growth and public debt are interrelated and dynamic public debt programs that lead to asset creation are critical to economic bounce back.

Currently, the whole world is sailing on the same ship. Still, countries with a balanced demand-supply situation will bounce back faster than expected. SSA leadership must cautiously pursue economic globalisation to catch up with the developed world. Adaptability and decisive decision-making are the need of the hour.

Human Psychology Continues to Beat Data

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No one really can predict the future. The advances in collecting, collating and analysing large amounts of data are impressive. But they have not taken humanity as near to clairvoyance as was hoped.

Take, for instance, the predictions on the aftermath of the invasion of Ukraine by Russia. The coverage all around was about doom and gloom. A potential nuclear strike being provoked was discussed; prices for a barrel of oil hitting 200 dollars; and famines in many places being caused by skyrocketing food prices.

The war was and continues to be ugly, but the worst did not happen. In fact, oil prices are below pre-war levels, as well as global food prices. Geopolitical tensions continue to simmer and food prices are still high by historical standards. But many dire predictions did not pan out. Consider even how every pundit agreed that Russia would take over Kyiv, the Ukrainian capital, within a few days until it became all too clear that it had no hope of doing as such.

Or consider the repeated grim assessments of China’s economy. Capital outflows shortly after the war in Europe were supposed to crash the economy. Before that, it was the default by the major real estate developer, Evergrande, which was supposed to be the Lehman-Brothers-collapse moment for China. The country is obviously in a property market crisis, but it is not nearly the calamity it was suggested to be at the outset; not to mention, Evergrande is still standing.

The cherry on the cake was predictions about COVID-19 cases in Africa at the outset of the pandemic. The most morbid reports came from Italy first, with hospitals barely coping with the influx. If Europe struggles so much to arrest the disease, how would Africa, which has the poorest health infrastructure in the world, ever cope? Biblical levels of suffering, it was said, were in store for African countries.

The pandemic was no joke, and its economic and public health effects continue to be felt. But it was nothing like it was predicted to be by the analysts. It has been a struggle to explain why, but the pandemic has been much more manageable in Africa than in the rest of the world, especially considering there have not been full lockdowns.

Why are we so bad at predicting events?

One reasonable explanation is bias. Most of the time, we are expressing what may be based on how we see the world and not necessarily on how it is in reality. We make assumptions that fit our worldviews and ideologies. Even experts have a hard time maintaining an entirely objective stance. The philosophical debate on whether research could be fully objective should be settled by now. It is most likely not the case.

It is also true that most of us are pessimistic. Look at most estimates about events over the past few years, and it is clear that they portray most occurrences as being worse than is otherwise the case. We see a Hitler, an economic calamity or major war in every nook and cranny. It is not that things are not bad. It is just that they are not as bad as advertised – not as grim as the activists and TV channels that want to keep us glued to our screens claim.

It probably has to do with our biological evolution. Our brains are better hardwired to record and respond to potentially alarming developments than they are to good news, because the former could be existential. It is our fight-or-flight psychology at work. The problem is that it was not designed for a world where so much bad news is easily accessible.

Our obsession with data and its analysis makes sense. It is an effort to take subjectivity out of predictions. But this has proven harder than anticipated. We need much more data to map events accurately, including human’s psychological tendency to overreact.