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Month: September 2022

TSEDEY BLOOMS IN SPRING

Posted on by Tizita S.

Spring has come, in the form of a commercial bank. Amhara Credit & Saving Institution restarted operations as a full-fledged bank last week with the moniker Tsedey, Amharic for spring. It was a day that put a smile on the faces of [left to right] central bank Governor Yinager Dessie (PhD), who rarely misses bank inauguration events, Agegnehu Teshager, speaker of the House of Federation, and Yilkal Kefale, president of the Amhara Regional State.

Tsedey Bank is one of several micro-finance institutions (MFI) that took the opportunity to transition into a bank following a central bank directive issued two years ago. The other institutions are Oromia Credit & Saving (upgrading to Siinqee Bank), Sidama Microfinance, Somali Microfinance (into Shebelle Bank), Omo Microfinance and Addis Credit & Saving Institution. Absent Amhara, Oromia and Somali microfinance institutions, the size of this segment of the finance sector has drastically declined. Their number dropped to 37, savings deposits by 44.6pc and total assets by 43.1pc during the third quarter of the past financial year.

Tsedey wasted no time meeting central bank requirements to become a commercial bank. A few months after the central bank gave the green light, it reduced the Amhara Regional State’s ownership in the financial institution to 70pc to comply with banking laws. It has introduced a logo with a shining sun, similar to the last commercial bank to inaugurate its services, Tsehay Bank, and on-boarded Gedu Andargachew, former Foreign Minister, as founding board chairperson. The new bank joins the industry with 11 billion Br in equity, 71pc paid up, and 46 billion Br in assets.

Its customer base is around 12 million, and employs over 12,300. Unlike most commercial banks, all but 18 of its 148 branches are concentrated outside Addis Abeba.

Why Ethiopia’s Economy Catches Cold When Europe Sneezes

Posted on by Tizita S.

Look no further than the flower industry to appreciate the importance of the European market to underdeveloped economies such as Ethiopia. Within a decade and a half, the country has shot up the list of the largest flower exporters in the world to fifth place. Businesses that flooded the horticulture sector from Europe, especially the Netherlands, helped build the infrastructure and attracted massive investment. International financial institutions like the International Finance Corporation (IFC) have been handy in providing loans.

Export revenues have doubled to half a billion dollars. Last year, they increased by 16pc, and volume grew by 12pc to ??????, an impressive growth if it can be sustained. As is true for coffee, the European market has been the most significant contributor. The policymakers may want to replicate this success with fruits and vegetables, especially avocados.

Such growth and promise seem unlikely to continue in the long term. Even short-term prospects should be worrying. A global recession, at least in major regions, is sure to occur in the medium term as recovery from COVID-19 fizzles out in the face of geopolitical tensions and supply chain disruptions. No less impactful should be the consequence of Russia’s invasion of Ukraine.

Ethiopia appears to have highly self-absorbed and passive policymakers. By the time they begin to pay attention to these shifts in the global economic setting, the effects might have already hit the ground, if they have not already.

Both the International Monetary Fund (IMF) and the World Bank have slashed their projections for global growth owing to recurring crises. The United States, struggling with inflation for the first time in four decades, is trying to find its way out of the woods through a minor recession. China, the other pillar of global growth, has prospects of repeating its phenomenal development of the past three decades, dashed by its Zero-COVID policy and a ranging real estate crisis.

The most affected of the major markets could be Europe. Russia’s President Vladimir Putin’s decision to invade Ukraine impacts this region more than any other. War on the doorstep of one of the world’s most stable and peaceful parts (since the 2000s) is not doing much for investors’ confidence. Dollar strength is leading to Euro and Pound sell-offs, and Right-wing populism, in Sweden recently and most likely in Italy later, is threatening EU’s unity.

Then there is energy insecurity. Even as benchmark crude oil prices have stabilised at around 100 dollars for months, that of natural gas is shooting off the charts. Highly dependent on Russia for cheap energy and powering the juggernaut economy of Germany, the costs of keeping factories running, houses warm and the lights on can be unsustainable. Even the nationalisation of power companies cannot calm the energy markets. A recession is likely for this region, impacting trade partners worldwide.

Undoubtedly, Ethiopia’s economy will be directly affected by the recession in Europe. It has trade surpluses with most European countries, an unusual phenomenon for the infamously feeble and uncompetitive economy. The biggest export destination this year was Switzerland, where all of the gold produced was sent and with which Ethiopia has over half a billion dollars in trade surplus. The Netherlands, the largest flower destination, has nearly a quarter of a billion dollars in trade surplus. Even Germany, one of the significant export powerhouses, runs a 97 million dollar trade deficit with Ethiopia.

Over a third of exports in goods make their way to the region, while not a single European country lists as a top 10 exporter to Ethiopia. It has been a highly worthwhile market for market actors here.

However advantageous, Europe is also a market under threat both in the short and long terms.

Consumers will likely cut back on spending in the short to medium term. This harms Ethiopian Airlines, which had just begun to recover, as travel expenses are apparent targets for households and businesses to cut back on to adjust to harsher economic circumstances. It is also detrimental to the coffee and flower industries, companies that thrive when times are good. Events thrive, and people go to restaurants and cafes during times of affluence.

Even if volumes may not go down, a falling value of the Euro will have exporters get less bang for the same amount. It has already hit parity with the dollar a few times and is currently at its lowest in two decades. In the official rate, year to date, the Birr has gained against the Euro. This should indicate something.

It is a trend that is likely to continue as long as the prospects of Europe’s economy remain uncertain and the US Treasury and central banks across developed economies hike interest rates.

Contracts, infrastructure and networks are too well locked in to re-orient in such a short period. But the short-term problems are symbolic of the long-term. With its ageing population and highly mature economy, Europe is projected to see slow growth and high inflation for the foreseeable future.

Nonetheless, Europe is not a market that could be avoided, mainly due to its geographic distance, which is far closer than the other major regions of North America and East Asia. Still, there is an acute need to diversify further.

The African continent is one of the most prominent places to do this. Compared to East African members, Ethiopia has far less trade with its near and distant neighbours. Exports to African countries are a mere 14.5pc of the total, with over half of this accounted for by Khat trade with Somalia. Kenya’s share of export with Sub-Saharan African countries, by comparison, is a third of the total.

This can be facilitated by fully embracing – beyond the traditional rhetoric – the African Continental Free Trade Area (AfCFTA) to engage more with nearer countries. Opening up the financial sector is a good start, where the players that engage will likely be regional financial institutions. Beyond this, though, Ethiopia’s policymakers on the economic front should move to make it possible to invest through capital liberalisation efforts, precisely a flexible exchange rate – a trade and investment barrier that makes engaging with Ethiopia’s market harder.

Less than Sweet: Sugar Troubles Far from Over

Posted on by Tizita S.

On a hot, sunny morning last week, three saleswomen inside a narrow container in Addis Abeba’s Aqaqi-Qality District were in a rush to serve a long queue formed outside.

The stuffy metal container had been converted into a consumer-cooperative outlet that sells household commodities at discounted prices. On offer that day was sugar. Buyers had been lined up outside, standing for a while – some of them for hours.

As their patience grew thin, a few resorted to attempts to sneak to the front while others tried to force their way through the queue. The commotion was nothing new to the sales associates – it had become an everyday scene over the past few months.

Sa’ada Imam, 28, was among those in the line. She was desperate to get her hands on sugar, an essential component of her business selling tea and coffee in a makeshift stall nearby.

She rents her spot under the awning of a busy corner housing a kiosk selling khat. The location on the side of the main road connecting Qality with the Adama Expressway is less than ideal, as stalled construction prompted the cars to pass by, leaving behind a trail of dust. Nonetheless, Sa’ada depends on her small business to make it through.

“I’ve been here for over an hour,” she said, eyeing the half a dozen people ahead of her.

Sa’ada sells a cup of coffee for 10 Br. A kilo of sugar at the cooperative outlet goes for more than 42 Br. Retailers elsewhere charge triple. Even if she could afford it, a volatile market meant she would have no way of knowing what prices were on a given day. Her other expenses include 400 Br for a kilo of coffee beans. She also pays no small amount for the coal she uses to brew her coffee. At Sa’ada’s place, 20 cups in daily sales bring 50 Br in profit margins.

It is no longer the case. Her desperate circumstance is reflected in her expression.

“I can’t increase my prices,” she told Fortune. “I might lose my customers.”

She lives in a single room, paying 1,500 Br in rent, which she can no longer cover without support from her family. It is a discouraging situation, for, Sa’ada had begun her small business hoping to become financially self-dependent.

Outdated data takes part of the blame for the long queue for sugar.

A door-to-door survey conducted six years ago by officials in the wereda where Sa’ada has lined up puts the number of residents in the area at 18,500. This led wereda officials to determine demand at 1,100qtl of sugar a month. Each household included in the survey is allocated three kilos of sugar a month regardless of the number of residents. Families with five or more people are allowed five kilos.

Birtukan Gize, team leader for the wereda’s trade transaction department, concedes the quota no longer reflects the actual demand. To make matters worse, the quota was eventually lowered to 780qtl. Even then, the wereda has not received the full amount for the last eight months. Supply shortages have cut supply by half.

“It’s getting worse,” said Birtukan.

The sugar shortage is not limited to the Wereda 07 of this District. Neither is it something unusual to occur.

Underwhelming domestic sugar production has long been an everyday phenomenon, forcing federal authorities to import millions of quintals of the commodity to cover deficits in supplies each year.

The state-owned Ethiopian Sugar Industry Group is the sole supplier of sugar to consumer cooperatives and state-run outlets. The Council of Ministers approved the formation of the Group with 115 billion Br capital earlier this year, transforming it from its former self, the Sugar Corporation. The oldest sugar estates: Wonji, Metehara, and Finchaa and the newly-built Kessem and Tana Beles plants are its founding shareholders. It is also mandated to monitor the progress of ongoing construction on eight state-owned sugar plants.

Other parastatals – the Ethiopian Industrial Input Development Enterprise (EIIDE) and the Ethiopian Trading Businesses Corporation (ETBC) – distribute the sugar plants under the Group’s management produce. Last year, it awarded a foreign supplier a contract to import two million quintals of sugar. However, only half of the volume has been shipped due to issues with opening a letter of credit (LC).

“We’re trying to distribute the product we have on hand,” said Reta Demeke, public relations head.

A month ago, officials at the Ministry of Trade & Regional Integration (MoTRI) instructed the Group’s executives to distribute stocks to stabilise the market. The Ministry determines quotas for regional and city administrations.

The Amhara Regional State administration sees a quota of 117,000qtl to be delivered every 45 days. This translates to eight deliveries a year; however, its officials only received two last year, disclosed Tafere Yimer, head of a consumer cooperative, trade, and market development bureau under the regional state.

Things have not improved much since.

The regional administration has taken delivery of one-third of the quota twice thus far this year, in August and September. Tafere’s Bureau has contacted distributors to deliver missing quotas from previous months as a reserve for the consumption of the national army, which has a heavy presence in the Regional State due to the civil war raging in the north for close to two years now.

One of the primary distributors is the state Enterprise, which supplies to the Amhara, Oromia, Southern, Afar, and Southwest regional states. It receives 60,000qtl each month on average. As production falls, the volume has fallen to a third of that this month.

“We’re preparing to import on our own [sugar],” Solomon Girsha, deputy chief executive officer (CEO), told Fortune. “We’re looking for prospective private investors to deal with foreign currency problems.”

The forex shortages are also what the Corporation’s executives face.

Ketsela Shewarega, the deputy CEO of corporate operations, concedes that supply has fallen to 40pc of the quota.

The public relations head blames a lack of forex for importing machinery, spare parts, chemicals, and fertilisers for the falling production. He disclosed that trouble transporting fuel to sugar factories brought on by instability has also been challenging.

Finchaa Sugar Factory, 350Km northwest of the capital in Oromia Regional State, is the country’s oldest sugar estate. It has an annual production capacity of 270,000tns. It did not manage to produce more than a third of its capacity last year. Near the Adama (Nazareth) town, Wonji-Shoa Sugar Factory commenced production in 2013 after the Wonji and Shoa sugar estates were merged through an expansion project. It produced 340,000qtl last year, and close to 600,000qtl the year before. However, both are far too short of its production capacity of one million tonnes a year.

Jemal Aman, general manager of Wonji, attributed the inaccessibility of raw materials to dropping production.

“Farmers delivered only 60pc of cane production,” he told Fortune.

A sugarcane growers’ union of 7,000 farmers under 17 associations supplies 2.5 million quintals of sugarcane annually. However, the harvest has been dwindling.

Teshome Abera, the union’s general manager, disclosed that scarce water supply and a lack of inputs pushed close to 10,000 farmers to cease growing sugarcane in the last couple of years. The number of associations under the union has also fallen by nearly half.

“The factory had agreed to provide pumps, fertiliser, and chemicals to the farmers,” Teshome told Fortune. “It’s yet to do so.”

The factory signs contract with farmers, renewable every three years, overseen by consumer cooperatives in the region and the Sugar Industry Group.

Teshome reveals there are other issues, too. The farmland the government provides is unsuitable for sugarcane production, while machinery inside the factory often breaks down and leaves production lines idle. The hurdles proved too much for thousands of farmers.

Reta Alemu, however, is hanging on.

The father of four is a member of the Awash Melkassa Sugarcane Growers Association that supplies to Wonji. Established in 2011, the Association comprises 164 farmers growing close to 100hct of land. Reta and his fellow members used to provide over 3,000qtl of cane to the factory each year. It has dropped to 700qtl, according to him.

Reta blames aged and dysfunctional irrigation pumps and lines for the fall in production. Sugarcane requires large volumes of water to grow, and irrigation systems must be maintained regularly.

Says Reta: “We requested replacements, but we haven’t heard any responses.”

The issues have forced Reta to seek a second job in a government office to support his family.

“Sugar cultivation is not worthwhile,” he said.

Production shortages are common, and the Group resorts to imports to compensate for supply deficits. It used the state-owned Ethiopian Shipping & Logistics Services Enterprise (ESLSE) for transportation. However, Weyo Roba, CEO of the Group, proposed to his board of directors to begin looking for other alternatives as shipping costs have grown too expensive.

The federal government imported two million quintals of sugar two years ago, spending 375 dollars a tonne and 62 dollars a tonne for transportation.

“We may implore the macroeconomic committee,” Weyo told Fortune.

Federal officials have spearheaded reforms at state-owned sugar estates over the past month. New laws allow sugar factories to form their respective board of directors, which they did last month. The boards will be reporting to the Ministry of Trade & Regional Integration.

The authorities hope the new structure will facilitate lagging efforts to privatise sugar plants. Weyo aspires to see private sector involvement speed up unfinished projects, introduce new technologies, and promote value addition.

The Sugar Industry Group, whose board Girma Birru chairs, was among over two dozen state-owned enterprises to come under the Ethiopian Investment Holdings (EIH) this year. The sovereign wealth fund under Mamo Miheretu recently called for an expression of interest from foreign and domestic investors to buy eight state-owned sugar factories.

The sugar estates up for grabs include four in Omo Kuraz, Tana Beles, and Tendaho as the federal government revives its privatisation efforts. The authorities had initially announced plans to privatise eight of the 13 sugar plants in operation or under construction. Last July, Ernst & Young was hired as a transaction advisor after offering 3.3 million dollars.

Not a single estate has been sold to private buyers yet.

Experts like Abinet Belay, an investment consultant, advise that privatising factories is essential to solving supply and production snags. However, he urged the authorities to consider other alternatives.

“Accessing loans from foreign banks is another option,” said Abinet.

However, the expert warns officials must ensure the sugar estates can repay the debts before considering this course of action.

Whatever the authorities decide, it will likely be too late for Sa’ada, who does not know how long she can keep up her coffee business.

“I prefer working to being unemployed and dependent on my family,” she said.

Financial Institutions to Open Wallets for War Efforts, Again

Posted on by Tizita S.

Federal authorities are pushing heads of financial institutions – yet again – to contribute up to two percent of gross profits to the Ethiopian National Defense Forces (ENDF). They are expecting the sector to chip in no less than 800 million Br, people familiar with a series of meetings held last week disclosed.

Muferhiat Kamil, minister of Labour & Skills, attempted to persuade executives of banks, insurance and microfinance institutions to back the federal government in the renewed fighting in the country’s north. In a meeting held at the Hilton Hotel two weeks ago, a federal committee for resource mobilization for the war was unveiled, comprising central bank Governor Yinager Dessie (PhD), Abie Sanu, president of the Commercial Bank of Ethiopia (CBE), and Nestanet Lemessa, CEO of the Ethiopian Insurance Corporation (EIC).

They have asked the banks to contribute 1.5pc of annual gross profits and insurance firms to chip in half a percentage point more.

Data from the National Bank of Ethiopia (NBE) indicates that the banking industry netted nearly 50 billion Br last year. Deposits grew to 1.7 trillion Br.

It marks the third time the financial sector is facing a push to donate to war efforts. Banks contributed close to 200 million Br through the Ethiopian Bankers’ Association in December 2020, a month after the war in the north broke out. Half of this amount was made by the state-owned CBE. Awash, Dashen, Abyssinia, United, the Cooperative Bank of Oromia and the Development Bank of Ethiopia (DBE) donated 10 million Br each.

In August 2021, the banking industry donated close to 400 million Br. Insurance firms and microfinance institutions contributed close to 100 million Br, people close to the matter revealed.

Executives of the financial institutions have requested time to discuss the request from the federal authorities with their respective boards. They have also inquired about the confidentiality of the contributions for fear that it could potentially affect relationships with international business partners.

“We’re waiting for guidance on how to make the contributions,” Kassa Lisanework, CEO of Tsehay Insurance, told Fortune. “We’ll table the issue to the board of directors.”

Tsehay Insurance registered 32.8 million Br in profits last year.

There are banks and insurance companies that have received the approvals of their boards. Not all have yet.

“The board is yet to decide on how much the Bank will contribute,” Melaku Kebede, president of Hibret Bank, told Fortune.

Banks will forward their final decisions to the Ethiopian Bankers’ Association, a lobby group for all private and state-owned banks, chaired by CBE’s Abie. Recent industry entrants such as Amhara, Tsehay, Goh and ZamZam banks are also expected to contribute.

The latest request comes amid growing fiscal pressures on the federal government and a record defence budget. A year ago, Prime Minister Abiy Ahmed (PhD) told Parliament that his administration had spent over 100 billion Br to pay for the war and humanitarian provisions in Tigray Regional State. It is a cost that has undoubtedly spiralled in the year since, though by how much remains unclear. Nonetheless, the cost of the militarized conflict continues to pile up.

Finance officials proposed close to 90 billion Br in military spending in the budget bill, four times what Parliament approved last year. Members of Parliament have raised concerns over the 787 billion Br federal budget and the share appropriated to defence.

Parliament passed the budget bill, comprising 40pc higher than what lawmakers had approved the previous year and around 16pc larger when accounting for the 122 billion Br supplementary budget approved last December.

Experts from the Ministry of Health estimate a 20 billion Br budget for reconstructing health institutions in conflict-affected areas. Officials at the Ministry of Finance said the civil war caused 40 billion Br in losses to the federal government revenues last year. Authorities at the Ministry of Revenues have previously stated the armed conflict has been a stumbling block in their tax mobilization efforts.

Mounting budget constraints are the reasons behind a nod from the Council of Ministers to a new type of tax imposed two months ago. Dubbed “social welfare levy,” officials look to charge importers an extra three percent on the commodities they import to bridge financial gaps in rehabilitation and reconstruction efforts. Tax officials hope to generate an additional 22 billion Br through the new levy this year.

Health Ministry Foresees $23m National Lab Built

Posted on by Tizita S.

Lia Tadesse’s (MD) Ministry of Health foresees building a national reference laboratory as part of a project funded with funds secured from the World Bank.

The laboratory is slated to make Ethiopia the fourth in Africa to host a standard biosafety level-3 lab. BSL-3 laboratories are characterised by safety equipment designed to study airborne diseases and toxins to public health. The lab is to be erected in the premises of the Ethiopian Public Health Institute (EPHI) headquarters near St. Paul’s Hospital, on the north-west edges of Addis Abeba, for a projected cost of 23 million dollars.

Health authorities say that half a dozen consulting firms have expressed interest thus far, though they decline to disclose their identities for the tending process is still ongoing.

It will remain open for the coming month, but there is a possibility of extension, says Gemechis Olani, the Ministry’s director for finance and procurement.

The consultants are expected to supervise the construction process. Officials hope the bid evaluations to take two months.

“We hope to start construction in the coming five months,” said Dereje Duguma (MD), a state minister for Health.

Those in the medical profession say the BSL-3 laboratory will boost diagnostic capabilities.

“The lab will be a place where East African countries can test for viruses such as monkeypox and ebola,” said Daniel Melese, director of lab capacity building at the Health Institute.

Ethiopia lags far behind in the availability of advanced medical equipment and diagnostic facilities. The limited number of laboratories is a challenge for medical practitioners, forcing them to make decisions without sufficient laboratory analysis. Nearly 70pc of clinical findings are dependent on laboratory testing.

Gezachew Kedia serves as executive director of the Ethiopian Medical Laboratory Association, established in 1964 as a lobby group of 2,500 members. The Association comprises 15pc of laboratory professionals in the country.

He blames the absence of laws regulating diagnostics.

“Patients don’t receive adequate treatment,” he told Fortune.

Tikur Anbessa (Black Lion), the oldest and largest public hospital with 1,000 beds and over 3,400 staff, treats 20,000 patients daily. It carries out nearly 100 types of diagnostic tests in its laboratory. The cost of some of these tests and a lack of funding limit the medical tests the Hospital conduct, according to Temsegen Sisay, laboratory director.

Financial constraints prevent Temesgen and his team from providing testing services for medical cases, including tuberculosis (TB).

Private diagnostic centres also face challenges.

Arsho Medical Laboratory was established in 1972 by Arshavier Terzian (MD). It has since become one of the country’s principal private medical diagnostic facilities. It offers a variety of diagnostic tests through 11 branches. However, a lack of facilities forced it to send samples abroad for hepatitis testing. Its Laboratory Director, Meseret Chane (MD), disclosed that Arsho has plans to become the first to begin testing for hepatitis B and C.

Nonetheless, Arsho faces difficulties due to a shortage of chemicals and reagents to run tests, as well as a lack of parts for medical equipment. This is despite reagents sitting at the top of the central bank’s priority list for forex allocation.

Gemeda Abebe (PhD) is a lecturer at Jimma University and the manager of a mycobacteriology research centre. He has been working in laboratories for over two decades.

Gemeda attributes the shortfalls in diagnostic testing centres to the absence of a capable regulatory body and urges officials to give due attention to the issue.

He observes that the faulty distribution of laboratory professionals is also a drawback.

A study conducted by the Medical Laboratory Association four years ago revealed that less than a third of health centres in the Amhara and Oromia regional states have laboratories, despite the regions accounting for around half of the population.

“Due to this, many clinical mistakes are made,” said Gemeda.

Officials hope to see the national reference laboratory address some of these issues. The construction is part of a 150 million dollar project under the Africa Centres for Disease Control & Prevention (CDC) – a specialised agency under the African Union (AU) established to support public health institutions in the continent. China is putting up a multimillion dollars headquarters in Addis Abeba, whose construction was launched two years ago in the southern suburb of Addis Ababa.

Featuring modern offices, high-end laboratories and accessories, the project covers a 90,000sqm. It is expected to be completed in three months.

The Africa-CDC also seeks to build labs in remote areas such as Moyale, a border town with Kenya, and erect training and data centres. In addition to the construction of the reference laboratory in Addis Abeba, regional laboratories will likely take up four million dollars.

Incumbent Mesenbet Wins Landslide Second Term as Chamber Head

Posted on by Tizita S.

Mesenbet Shenkute has consolidated her incumbency at the Addis Abeba Chamber of Commerce & Sectoral Associations, garnering 62pc of the votes cast last week.

She was re-elected to her second term as president, the second female in the 75-year history of the private sector institution.

Established in 1947, and reorganised half a century later, the Addis Abeba Chamber claims a membership of 17,000 companies. Nonetheless, barely a thousand members appear to vote for their leaders every two years.

Mesenbet managed to win 431 of a possible 700 votes in the election held at the Inter Luxury Hotel. A five-member electoral committee chosen ruled that 30 votes were invalid.

Mesenbet had served as president of Abay Bank before taking the helm from Elias Geneti as the second female head of the Chamber in 2018, after Mulu Solomon, now serving as Ethiopia’s envoy to Germany.

A 54-year-old mother of two, Mesenbet is the head and founder of a private consulting firm, New Dimension Management Consultancy, which was established in 2015. She is also the spouse of the historian Bahru Zewde (Prof.). She holds a graduate degree in business administration and has served as a member of the board of directors of the city chamber since 2015.

Mesenbet also serves as a member of the Amhara Bank board of directors. The fourth-generation Bank is one of several to join the industry over the past few months. It enters the market with six billion Birr in paid-up capital raised from a little over 160,000 shareholders. Others, such as Tsehay and Ahadu banks, have joined the fray. Last week saw microfinance institutions-cum-commercial banks Siinqee and Tsedey launch operations.

“I’m apt for the position,” said Mesenbet after the election results were announced.

She told delegates of her achievements in promoting 500 start-up businesses with 29 million Br, a project that stayed for four years. She also takes credit for persuading the Addis Abeba city authorities to return the Addis Abeba Exhibition Centre under the Chamber’s management and take over the administration of the underground parking lot at the newly rebuilt Meskel Square, parking over 1,400 vehicles.

Laying on a 24,000sqm plot, the 40-year-old exhibition centre is the largest venue for bazaars and trade fairs held in the city. It comprises three halls, each containing 90 booths.

However, she came under fire from members for spending five million Birr to commemorate the 75th anniversary three months ago. She also faced criticisms for her leadership’s lack of enthusiasm to modernise the Chamber with new technologies and alleged failure to raise women’s participation in leadership positions.

However, Yohannes Woldegebril, head of the Chamber’s arbitration institution, is confident in Mesenbet’s leadership. He sees her first term in office as “sufficient” to prove Mesenbet is the ideal leader for the private sector.

She ran against Edao Abdi, a significant shareholder of Edao InternaChamber’sading, a company eChamber’sagricultural produce. Last year, he was appointed vice president of the Ethiopian Pulses, Oilseeds & Spices Processors-Exporters Association.

Edao garnered 61 votes for the chamber’s presidency.

The Chamber’s bylaws grant the vice-presidency to the head of the Addis Abeba Sectoral Associations. Fasikaw Sisay holds both positions.

The general assembly also voted for a new board of directors last week. Melaku Kebede and Asfaw Alemu, presidents of Hibret and Dashen banks, respectively, were voted to the board.

Mesenbet and her newly elected board directors have set their eyes on the completion of an international convention and exhibition centre under construction in the northern part of the city, across the CMC residential complex.

The Addis-Africa International Convention & Exhibition Center (AAICEC) was conceived in 2013 to attract investment and business into the country. It was incorporated as a share company with 20 founding shareholders, including the city government, the Chamber, the Bank of Abyssinia, and Ethiopians in South Africa. A Chinese construction firm has been contracted for 120 million dollars to build the centre lying on an 11hct plot, incorporating a conference venue, exhibition platform and hotel.

Unions Ink Deal with Feed Supplier as High Prices Haunt Farmers

Posted on by Tizita S.

Farmers’ unions across the country have inked a deal with a private feed processing company as the cost of nourishing livestock remains untenably high.

MSA Trading Plc signed agreements with no less than 20 unions from five regional states last week, with officials from the Ministry of Agriculture facilitating the deal. Ranchers and pastoralists have been under pressure from rising animal feed prices, which have nearly tripled to around 3,000 Br a quintal over the past year.

“We hope the agreement will bring relief to farmers,” said Araya Abraham, director of feed development.

The rising costs for feed have been a worry for federal authorities as the livestock sector contributes 16pc to the gross domestic product (GDP). There are an estimated 59 million heads of cattle; sheep and goat populations count at 7.5 million and 13.2 million, respectively. The latest survey from the Ethiopian Statistics Service put the country’s chicken population at around 59.5 million.

Experts blame compounded events over the last two years for such exorbitant prices. The Covid-19 pandemic, desert locust invasions, economic stagnation, political instability, runaway inflation, and civil war have contributed to the disruption of the feed market in the past two years, says Wessinew Adugna (PhD), who studied livestock productivity at the Addis Abeba University before embarking on a two-decade career in the field working for an international organisation.

“Developing processing plants where raw materials are easily accessed is another option,” he told Fortune.

He believes attracting private investors to feed production is a sustainable response to deal with supply gaps.

Officials from regional agricultural bureaus and the Ethiopian Cooperative Commission (formerly the Federal Cooperative Agency) pushed for the sales contracts signed between the company’s executives and the unions’ leaders last week. The deals are set to run for the coming three years.

“The agreement is vital considering the long supply chain,” said Ayalsew Werkineh, head of communications at the Cooperative Commission. “It required a huge amount of budgeting.”

Incorporated in 2006 with a registered capital of 1.7 billion Br, MSA Trading processes over 25 types of animal feed from corn and soybean for fish, poultry, and camel consumption. Mulualem Alene, a founder of MSA Oilseeds and Tulip Hotel, is a significant shareholder.

It operates a factory erected on a hectare of land in Bahir Dar, the Amhara Regional State, 500Km from Addis Abeba. With a capacity of producing up to 4,800tns of animal feed a day, MSA sources maise and soybean raw materials from farmers in the western Gojjam zone. Aklile Belete, an advisor to the CEO of MSA Trading, declined to disclose sales prices but pledged the company plans to distribute animal feed to farmers at a “fair price.”

MSA used to distribute its products in the Amhara and Oromia regional states through 30 agents. The latest deal with unions will spread its reach to the Southern, Harari, and Sidama regional states.

“The main goal is to abate shortages in production and supply,” said Aklile.

Damot Union is one of 30 unions operating in the Amhara Regional State. Comprising 77 cooperatives, it lists over 173,000 farmers as members in West Gojjam. Damot signed up for the deal with MSA last week.

“We’ve made a deal to buy the feed at the factory’s prices,” said Mezgebu Mekonnen, deputy manager of Damot Union. “It’s lower than what’s offered in the market.”

The latest development comes a few months after Eyob Tekalign (PhD), a state minister for Finance, waived customs duties for importers of animal feed components and exempted them from value-added tax (VAT). The preferential treatment applies to MSA Trading.

Erikum Union, based in Dessie, in the Amhara Regional State, has 270,000 farmers under 105 cooperatives. The Union operates a factory that produces four animal feed varieties, churning up to 100qtl a day. It is part of the deal with MSA Trading.

“It isn’t sufficient to meet demand,” said Mesay Alemnew, manager.

He estimates that demand sits near 2,000qtl a day for members of the Union such as Seid Hassen.

A father of five, Seid lives in southern Wello and supports his family through his dairy cows. He visits the market weekly to buy three quintals of “furishka,” a feed made from wheat chaff. Each quintal cost him 3,000 Br, a six-fold increase from last year.

“The prices are exaggerated and unfair,” he told Fortune. “I’m having a hard time feeding my cows.”

Legal Advocates Grouchy Over Tax Obligations

Posted on by Tizita S.

A committee comprising tax authorities, officials from the Finance Ministry, and legal professionals is conducting a study to address misgivings from lawyers and legal advocates over what their leaders say is “unfair” tax obligations and a lack of consistency in the tax regime.

Legal advocates claim that tax rates are inconsistent and have petitioned officials of the Addis Abeba Revenues Bureau for a change. The latter argue changing the law is not within their mandate.

A letter issued by the Ethiopian Federal Advocates Association two months ago claims the absence of clear regulations for the legal profession is the root of inconsistency in fulfilling tax obligations. The Association has been lobbying officials at the ministries of Finance, and Justice to address the problems its leaders say have been a headache for over a decade.

Nearly 5,000 legal professionals hold permits from the Justice Ministry that allow them to practice in federal courts.

Lawyers and attorneys were not allowed to form law firms until last year. A new law approved paved the way for two or more lawyers with advocacy service permits to establish entities considered businesses. Law firms can be organised under a limited liability partnership (LLP) arrangement. Unlike the unlimited liability legal structure, LLP limits the liability of the partners to their financial interest in the partnership.

For over six decades, lawyers and legal advocates have been lobbying for the amendment of the commercial code, which had restricted the establishment of law firms as business entities.

“The confusion began when legal service began to be seen as any other business activity,” said Tewodros Getachew, the Association’s vice president.

Law firms and legal advocates can be subject to presumptive taxes.

Tax authorities classify businesses based on annual turnover. Those with less than half a million Birr in annual turnover fall under Category ‘C’. They pay tax based on the presumptive valuation method, as they are not required to keep accounts of their income.

Businesses listed under categories’ A’ and ‘B’ are legally required to use cash register machines and file audited financial reports. Practising lawyers do not hold trade licenses; however, officials want them to file financial reports if their annual turnover qualifies them for either of the two categories.

Over 124,000 taxpayers registered in the capital are under categories ‘A’ and ‘B’ and must comply with tax filing guidelines. The Bureau collected 55.7 billion Br in taxes last year, exceeding its target by 7.2 billion Br.

Wondemagegehu Kassaye, head of tax assessment and collection at the Bureau, has acknowledged the complaints from legal professionals about the tax regime. He says there is little in the way of solutions except to propose that lawyers declare taxes by filing audited accounts or produce receipts they issue.

“We can’t write a new law specific to a particular taxpaying category,” he said.

Tax authorities have granted a short-term solution, allowing legal advocates to pay taxes based on the method that best suits them for a year.

Lawyers say that tax authorities do not recognise miscellaneous expenditures in law offices.

In April this year, Habesha Legal Advocates became the first law firm registered by the Ministry of Justice a year after Parliament legislated a proclamation governing the commercialisation of advocacy services. The firm paid taxes without wrangling with the authorities. However, it faced challenges when tax auditors rejected claims for expenditures such as fuel and administrative costs, according to Wubshet Demissie, Habesha’s general manager.

Tax experts argue that subjecting law offices to taxes based only on annual revenues is unfair considering their expenses. Lawyers are compelled to provide pro bono services for three cases a year to charity and civil society organisations, as well as community institutions and individuals with low income.

Yehualashet Tamiru, a legal expert, observes gaps in determining what it costs to run a legal office. He urges tax authorities to understand the nature of the law profession.

Boeing Pays $200m to Settle SEC Charges Over 737 Max

Posted on by Tizita S.

Boeing Co. will pay 200 million dollars to settle charges that the company and its former CEO misled investors about the safety of its 737 Max after two of the airliners crashed, killing 346 people.

The Securities & Exchange Commission said that it charged the aircraft maker and former CEO Dennis Muilenburg with making significant misleading public statements about the plane and an automated flight-control system that was implicated in the crashes in Indonesia and Ethiopia.

Neither Boeing nor Muilenburg admitted wrongdoing, but they offered to settle and pay penalties, including one million dollars to be paid by Muilenburg, who was ousted in December 2019, nine months after the second crash.

The SEC said Boeing and Muilenburg knew that the flight system, known as MCAS, posed a safety issue but promised the public that the plane was safe. The SEC said they also falsely claimed that there had been no gaps in the process of certifying the plane in the first place.

“Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 Max all in an effort to rehabilitate Boeing’s image” after the crashes, said Gurbir Grewal, director of the SEC’s enforcement division.

Boeing said it has made “broad and deep changes across our company in response to those accidents” to improve safety and quality.

“Today’s settlement is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 Max accidents in a manner that serves the best interests of our shareholders, employees and other stakeholders,” said the Arlington, Virginia-based company.

A new Max operated by Indonesia’s Lion Air crashed into the Java Sea in October 2018, and another Max flown by Ethiopian Airlines nosedived into the ground near Addis Ababa in March 2019. In each crash, MCAS pushed the nose down after getting faulty readings from a single sensor, and pilots were unable to regain control.

The crashes led regulators around the world to ground the plane for nearly two years until Boeing made fixes to the flight-control system, which was designed to help prevent aerodynamic stalls when the nose points up too sharply. Neither plane that crashed was in danger of stalling.

The SEC accused Boeing of misleading investors in a press release after the Indonesia crash which said the plane was “as safe as any airplane that has ever flown the skies.” Boeing knew when it made that claim that MCAS would need to be fixed and was already designing changes, the SEC said.

After the crash in Ethiopia, Muilenburg said on a call with investors and Wall Street analysts and during Boeing’s annual shareholder meeting that the company had followed the normal process for getting the plane certified by regulators. But by then Boeing – in response to a subpoena from federal prosecutors – had already found documents indicating that it did not disclose key facts about MCAS to the Federal Aviation Administration, the SEC charged.

Boeing reached a separate 2.5 billion dollars settlement with the Justice Department last year. Most of that money went to airlines whose Max jets were grounded.

(The Associated Press).

 

Without Surety, Construction Industry Will Collapse

Posted on by Tizita S.

As the Ethiopian insurance industry is challenged by contractors who fail to perform their contractual obligation, the National Bank of Ethiopia (NBE), has issued restrictions on issuing financial guarantee bonds. This and similar regulatory decisions create wrong assertions about the bond market, risk management and the insurance industry as a whole.

Recently, most contractors have failed to perform their contractual obligation and caused larger claims of advance payment and performance bonds. The trend, if it continues, will urge insurers to reduce their appetite for the bond market. The paradox is that for the construction industry to continue to grow and the country’s infrastructure to be developed, guarantee bonds that redistribute risk need to expand.

A good indicator is this year’s federal budget, where 787 billion Br was approved. Road construction takes up 66.2 billion Br, water and energy 24.7 billion Birr, and urban development and construction 18.9 billion Birr. The Addis Abeba City Administration has also approved 100 billion Br to hit certain targets, giving priority to infrastructure, water, road, entrepreneurship and industrial sectors. In support of primary insurers, reinsurers were supposed to have an enhanced appetite to accept mega risks with more relaxed criteria.

The Ethiopian insurance industry is supported by Africa Re, Zep Re and local Ethiopian Re, and a few other internationally-based reinsurers. The first one recently introduced enhanced criteria for domestic insurers on performance bonds and advance payment guarantees.

With diminished appetite and barriers to bond issuance, how will we satisfy the need for development projects? What would be the role of insurers in the construction industry?

After all, the share of insurance to GDP is estimated at one percent and the penetration ratio is negligible. The total asset of insurers is three-quarters of a percentage of GDP. We are also bucking the global trend where bond insurance rose nine percent in 2021 as market demand continued to increase steeply, initially due to credit concerns caused by the pandemic. This is because the performance of contractors, regardless of the outcome, should not block the appetite for the bond market. During financial crises, world insurers and reinsurers do not close their doors and walk away.

They would instead use the incident to issue different securities that allow them to retain their existing customers and attract new ones. The idea of breaking the need to have collateral for mega-projects through different insurance sureties is becoming common in the world bond market.

The rationale behind availing the insurance bonds without having collateral or with a small share of collateral on the bond value is creating strong bondage with multinational contractors willing to place their bigger ventures at a higher premium than average bond rates in the market. By designing tailor-made insurance coverage and retaining crucial bond buyers, insurers alleviate the risk associated with bonds.

The situation in Ethiopia is different. Primary insurers and reinsurance companies are developing very stringent criteria, insisting insurers hold around half the bond value in collateral. Can even grade-one contractors satisfy this criteria? The declining appetite for the bond market in a country where infrastructural development is the primary driver of growth will have detrimental effects. It will also hinder the growth of the insurance industry, which is something shareholders, executives and boards of directors should dwell on for longer.

When reinsurers and regulatory bodies become so demanding, insurers will follow, and contractors will begin to avoid risks altogether. Instead of this crisis, the insurance sector should develop a workable enhanced rate and tailor-made products since the experience and opportunity of several contractors remain valuable. The regulatory body should support such alternatives and help insurers revise directives in bond insurance. Otherwise, economic transactions will be tied up without the adequate provision of surety and end in a lose-lose scenario.

Battle against Antimicrobial Resistance Requires Robust Health Systems

Posted on by Tizita S.

Staphylococcus aureus is the source of a skin infection that can turn deadly if drug resistant. Estimates regarding the most common resistant variation, methicillin-resistant Staphylococcus aureus (MRSA), exceed 100,000 deaths globally in 2019.

But up until recently, we did not have a solid grasp on how much of a problem MRSA – or any other antimicrobial resistant pathogen – was in Africa. It turns out, after testing 187,000 samples from 14 countries for antibiotic resistance, our colleagues found that 40pc of all Staph infections were MRSA.

Africa, like every other continent, has an AMR problem. But Africa stands out because we have not invested in the capacity and resources needed to determine the scope of the problem, or how to fix it. Take MRSA. We still do not know what is causing the bacteria to become resistant, nor do we know the full extent of the problem.

We are failing to take AMR seriously, perhaps because it is not glamorous and relatable. The technology that we currently use to identify resistant pathogens is not fancy or futuristic looking. Combatting AMR does not involve miracle drugs, expensive treatments, or fancy diagnostic tests. Instead, we have bacteria and other pathogens that are commonplace and have learned how to shrug off the good old medicines that used to work.

The global health and pharmaceutical industries do not seem to consider solving this problem to be very profitable. Compare that to the urgency of solving COVID-19, which has been embraced – and interventions such as diagnostics subsidised – by governments eager to end the pandemic. The COVID-19 response has been characterized by innovations popping up literally every other week.

Why can we not mobilise resources and passion for AMR? Are resistant pathogens too boring? Is it too difficult to solve through innovations? Does this make prospects for quick wins and fast return on investment too elusive for AMR, especially when compared to COVID-19 or other infectious disease outbreaks?

The World Health Organisation (WHO) has repeatedly stated that AMR is a global health priority – and is in fact one of the leading public health threats of the 21st century. A recent study estimated that in 2019, nearly 1.3 million people died because of antimicrobial resistant bacterial infections, with Africa bearing the greatest burden of deaths. A high prevalence of AMR has also been identified in foodborne pathogens isolated from animals and animal products in Africa.

Collectively, these numbers suggest that the burden of AMR might be on the level of – or greater than – that of HIV/AIDS or COVID-19. The growing threat of AMR is likely to take a heavy toll on Africa’s health systems and poses a major threat to progress made in attaining public health goals set by individual nations, the African Union and the United Nations. And the paucity of accurate AMR information limits our ability to understand how well commonly used antimicrobials actually work. This also means we cannot determine the drivers of AMR infections and design effective interventions in response.

We have just wrapped up a project that gathered data on many of the scariest pathogens in 14 countries, revealing stark insights on the under-detected and under-reported depth of the AMR crisis across Africa. Less than two percent of the medical laboratories in the 14 countries examined can conduct bacteriology testing, even with conventional methods that were developed more than 30 years ago.

While providing national stakeholders with critical information to advance their policies on AMR, we have also trained and provided basic electronic tools to more than 300 health professionals to continue this important surveillance. While a strengthened workforce is critical, many health facilities on the continent are coping with interrupted access to electricity, poor connectivity, and serious, ongoing workforce shortages.

Our work has painted the dire reality of the AMR surveillance situation, informing concrete recommendations for improvement that align with the new continental public health ambition of the African Union and Africa Center for Disease Control (CDC). The challenge is to find the funding to expand this initiative to cover the entire African continent.

AMR containment requires a long-term focus – especially in Africa, where health systems are chronically underfunded, while also being disproportionately challenged by infectious threats. More funding needs to be dedicated to the problem and this cannot only come from international aid.

We urge African governments to honour past commitments and allocate more domestic funding to their health systems in general, and to solving the crisis of AMR in particular. We also call upon bilateral funders and global stakeholders to focus their priorities on improving the health of African peoples. This might require more attention to locally relevant evidence to inform investments and less attention to profit-driven market interventions, as well as prioritising the scale-up of technologies and strategies proven to work, whether or not they are innovations.

Containing AMR means we have to fix African health systems. The work starts now.

 

Black Market Gold Rush

Posted on by Tizita S.

We have all heard the news by now. The black market rate for one dollar is now around 90 Br. The official rate, for those with access, is around 53 Br. This is a premium of over 70pc, unheard of as far as memory serves me.

Look at the Balance of Payments, and the reason why becomes clear. Despite rises in goods and service export, the four billion dollar escalation in goods’ import values, has put the balance position in negative territory. Thank global price rises in fuel, grains and edible oil for this. An official two billion dollars more in foreign currency rushed out of the country than was brought in.

Cepheus Growth Capital, an investment management firm, estimates that the foreign currency reserves of the central bank have fallen by nearly half to 1.5 billion dollars. Banks only have around one billion dollars in reserves. There has been massive drawdown to cover foreign currency expenses in goods import, debt service and a fall in both new borrowing and grants. It is a very precarious situation.

It is thus no surprise that the black market rates have gone up. It is simple supply and demand. More buyers of foreign currency – including car importers – unable to satisfy their foreign currency needs from commercial banks are taking their business to informal market players and willing to pay phenomenal premiums for the access. The joke here is that commercial banks themselves charge high fees to sell their non-existent foreign currency. The higher the demand, the larger the spread between the official and informal rates. The lifting of restrictions against franco valuta is also believed to feed this demand, as importers rush to buy dollars and euros.

On the supply side, a good chunk of the remittance is being diverted to the black market. Here again, supply and demand apply. Few members of the diaspora exchange their dollars at banks, which offer a measly 53 Br rate compared to widely available black market players that bid nearly double that amount. It is not a competition. The other joke here is that this happens under the nose of the authorities in a popular spot, National Theatre. It has been public knowledge for decades that it is the epi-centre of black market trading.

It seems that the government has a few plans against this. It is impossible to say to what extent the decision to liberalise the financial sector is influenced by the foreign currency shortage but it is most likely in the minds of policymakers. The government is also trying to get an International Monetary Fund (IMF) programme going. Beyond that, it is merely appealing to the good nature of the diaspora community to remit through formal channels, where the central bank buys 70pc at the prevailing market rate.

There will be no way out of this until productivity in Ethiopia improves in agriculture (to address food insecurity and reduce the need to import so much grain) and manufacturing (to diversify out of the volatile commodity market and exploit the country’s cheap labour). Until the merchandise trade deficit, currently at 14 billion dollars, or around 14pc of GDP, or more than three-fold of revenues from goods export, could be addressed, it is impossible to get anywhere.

The structural issue of the age-old foreign currency crisis also needs to be addressed: lack of a float. Unless the Birr can be exchanged at a market rate, economic slowdowns will always come with a foreign currency crisis. Of course, it is probably a good idea to improve the political situation and work out issues on debt burden with development partners first.