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Month: December 2023

REFORMS SPARK LINGUISTIC TUG-OF-WAR

Posted on by Tizita S.

In a consequential shift in the educational sector, controversial reforms inspired by Scandinavian models are under implementation, sparking intense debate among parents, educators, and policymakers. Parents who wrestle with the high costs and changing nature of their children’s education are at the centre of this upheaval. Despite paying hefty fees, parents say a focus on playful activities over basic learning makes them doubt the value of such expensive education. The reforms, led by the Minister of Education, Brehanu Nega (PhD), and coordinated with the Addis Abeba Education Bureau, target to overhaul the system from kindergartens to high schools. Key changes include removing the English language as a medium of instruction from kindergarten curriculums and the amalgamation of science subjects in middle schools, along with introducing new subjects like journalism and agriculture in senior years. Authors of the reforms argue that these changes reflect a shift towards practical learning and cultural relevance, aiming to bridge the quality gap between private and public schools.

However, the approach has been met with resistance, especially from private schools accustomed to an English-centric curriculum. Education officials contend that an emphasis on the English language does not correlate with better performance in national exams, contesting the long-standing belief that English proficiency is a key to academic success. It is a position that sparked a fierce debate over the role of language in education, with private school representatives advocating for English as a crucial tool for international competitiveness. The implementation of these reforms has led to significant pushback. The Addis Abeba Education & Training Quality Regulatory Authority has begun revoking accreditations of non-compliant private schools, noting various transgressions like the absence of Afan Oromo classes and unauthorised school fee increases. Notable institutions like St. Michael School and Gibson School Systems have faced accreditation issues, exposing the limitations in aligning with the new guidelines and the lack of consultation in the reform process.

The changes have also stirred concerns among teachers, who face the challenge of adapting to broad-ranging subjects under the new curriculum. Leaders of the Private School Teachers’ Association expressed worries about the practicality of expecting educators to teach combined science subjects proficiently. Parents are also caught in a dilemma, balancing the desire for quality education with the financial burden it entails. As the educational sector in Addis Abebe undergoes these sweeping reforms, those concerned from various corners – parents, educators, private school owners, and policymakers – are engaged in controversies. While lauded by some, the shift towards a more culturally and linguistically relevant education system continues to face resistance in its implementation, raising questions about the future of education in Ethiopia.

Ethiopia’s Eurobond Default: Now What?

Posted on by Tizita S.

Ethiopia has stumbled into a precarious fiscal zone, marked by its first-ever default on external debt. The missed 33 million dollar coupon payment on a one billion dollar Eurobond, issued a decade ago, has sent ripples through the bond market, revealing the fragility of emerging economies in the global financial terrain.

A country with a storied past and a complex present, Ethiopia has come to embody the broader trouble developing countries face in managing external debt facing economic headwinds.

The Eurobond, acquired by a spectrum of investors, including American Beacon Frontier Market (125 million dollars), Templeton Emerging Markets Bond Fund (65 million), Picpit (51 million), and JP Morgan Emerging Markets Fund (31 million), was initially floated in the mid-2010s. Its purpose was to finance Ethiopia’s ambitious industrial parks, offering a seemingly attractive 6.5pc interest rate, set to expire in 2024.

However, the unfolding scenario exposes the intricacies between sovereign debtors and international bondholders.

Now, treading the path of a few African countries at the brink of default, Ethiopia is confronted with a trilemma in its debt management strategy. It could repurchase the bonds from the secondary market, albeit at a considerable cost; refinance the debt; or seek a maturity extension from its creditors. The authorities have opted for the latter, proposing a four-year maturity extension and a subsequent four-year grace period, while cutting the interest rate to 5.1pc.

This approach has met with a lukewarm response in initial virtual meetings with bondholders, underlining the inherent problems in negotiating with private creditors first, known for their strong objections towards debt cancellations or ‘haircuts’ as the lexicon of the aid world prefers to use it.

Private creditors are not known to be as generous as official creditors. However, they have offered 333 million dollars in annual amortisation payments for a three-year extension. Ethiopia’s negotiators face the risk of holdout creditors, including the largest buyers holding its bonds.

The situation is further complicated by the legal jurisdiction of the bond sales in New York, which, while shielding Ethiopia from foreclosure risks, does not shelter it from the significant reputational damages a default could incur. State Minister for Finance Eyob Tekalegn contends that the default is not indicative of insolvency but rather a strategic alignment of debt servicing between bondholders and official creditors under the G20’s Common Framework Agreement, which focuses on debt reprofiling from bilateral and private creditors.

It could also be a maverick move taken to compel the big bondholders into the discussion, dragging them out of their present reluctant state. This, however, diverges from the conventional wisdom that prioritises settling terms with official creditors before engaging private bondholders, showing a unique, albeit risky, manoeuvre by Ethiopian policymakers.

Ethiopia’s economic recovery hinges on external factors like global economic conditions and donor support. The country is exploring various debt relief options, including a reduction in the stock of debt (HIPC-Lite), which could enhance government fiscal space and macroeconomic stability. The implementation of these debt relief options faces obstacles, especially in securing creditor participation and agreement.

Ethiopia’s future depends on its ability to navigate through complex debt restructuring while promoting development and economic growth. However, its relationship with China, its largest external debtholder, is central to its debt predicament.

China’s resistance to providing financial assurances under the Common Framework agreement complicates matters, as private bondholders are keen to gauge the extent of bilateral creditor support before making their own concessions. While offering liquidity relief, the Common Framework demands compatibility with the International Monetary Fund (IMF) programs and embodies a process replete with longevity, complexities and diverse creditor interests.

Ethiopia requires around four billion dollars in debt relief from its Paris Club creditors, who hold five per cent of its external debt stock, non-Paris Club (China, India and Turkey) 52pc, Eurobond seven percent, commercial banks 25pc and the remaining from the multilateral institutions.

Its public debt, ballooning to 57.1 billion dollars, about 50.1pc of its GDP, paints a grim picture of an economy under siege. The convergence of high debt levels, macroeconomic instability, and diminishing external support has effectively paralysed its economic progress. The downturn is exacerbated by soaring inflation and a widening fiscal deficit, eroding the purchasing power of its citizens and revealing a failure to maintain a balanced macroeconomy.

The debt service ratio, alarmingly high at 22pc, overshoots the IMF’s recommended ceiling of 15pc, with a significant chunk of export earnings being channelled towards debt servicing. This is compounded by a sharp decline in official development assistance (ODA), which fell by over 40pc to 2.7 billion dollars following the outbreak of the civil war in the north in 2020. Such a drastic reduction in external aid undermines Ethiopia’s debt servicing capacity and its development financing.

The country’s reliance on external financing for development projects further aggravates the situation, which has led to an increasing expenditure allocation towards debt service and defence, overshadowing social services. The imbalance in fiscal priorities strains an already fragile economy, inhibiting its developmental trajectory.

Ethiopia’s external debt also impacts its ability to invest in areas critical for economic growth and poverty reduction. The World Bank’s International Debt Report shows the severity of the sovereign debt crisis among the world’s poorest countries, with external debt service reaching a record high of 88.9 billion dollars in 2022. Ethiopia, alongside Ghana, Chad, and Zambia, is on the brink of a full-blown debt default by 2024.

Historically, Ethiopia’s debt service as a percentage of exports was considerably higher at 260pc in the early 1990s. But this anecdotal reference offers little solace in the face of current pressures. The high debt-to-export ratio suggests vulnerability, but the influx of equity in foreign direct investment and the resumption of official aid, as well as a lower debt-to-GNI ratio, offer some hope.

Educational Upheaval Tests Reform Limits, Parents’ Patience

Posted on by Tizita S.

Eden Tsegaye’s morning routine has become a ritual symbolic of her dual roles as a businesswoman and a mother living in Addis Abeba. Each day begins with her sending her six-year-old daughter to kindergarten near the Alem Bank area, a simple act laden with the complexities and anxieties of a parent deeply invested in her child’s education.

Eden, who supports a family of four on a monthly income nearing 10,000 Br, embodies many parents’ economic and emotional struggles. Her concerns about her daughter’s education are not unfounded. Despite the steep monthly school fees of 2,200 Br, she observed her daughter engaged more in playful activities than in learning fundamental skills like the ABCs. The mismatch between the cost of education and its perceived return is a source of growing unease for Eden.

The growing panic made Eden question her decision to pay for a private school.

“Why do I pay thousands for this?” she pondered.

Her dilemma, repeated in households across the city, mirrors a larger, more intricate story unfolding in the educational sector. It is part of a broader picture of sweeping educational reforms inspired by Scandinavian models and spearheaded by the Minister of Education, Brehanu Nega (PhD). These reforms, which began with kindergartens and extended to primary and high schools, have not been universally welcomed. They have sparked stormy debate among parents, educators, and policymakers, unearthing the diverse and often conflicting perspectives on the future of education.

The reforms, coordinated between the Addis Abeba Education Bureau and the Ministry of Education, have introduced radical changes.

One of the most contentious issues has been removing the English language from kindergarten curricula. Other changes include amalgamating subjects like Physics, Biology, and Chemistry under a general science umbrella in middle schools and introducing subjects such as journalism, marketing, and agriculture for senior students. These shifts reflect a broader philosophy of grounding education in the cultural and linguistic context of the students, a move away from a perceived overemphasis on theoretical knowledge and rote learning.

At the heart of these reforms is a push for practical learning. The authors of these reforms say they aim to bridge the quality gap of education provided by private and public schooling.

One of the authors is Umer Imam, head of the Ministry’s social science education curriculum desk and instrumental in pushing for these changes. He talked about the efforts to bring theoretical concepts into workable projects, harmonising educational approaches across different types of schools.

Under the new system, all 26.4 million students across Ethiopia’s 52,202 schools are expected to learn under a unified curriculum with their native tongue as the medium of instruction until high school. This represents a significant departure from previous practices, particularly in private schools where English has often been more than just a single subject.

This has not been without controversy, particularly among private schools accustomed to an English-centric curriculum.

The debate over the role of language in education is particularly fierce. Education officials argue that an overemphasis on the English subject in private schools does not necessarily translate to higher scores in national exams.

“They’re not the ones who score the highest in national exams,” Umer told Fortune. “We don’t endorse adoption of a foreign curriculum.”

It is a position that challenges the long-held parental belief that English proficiency is vital to academic and professional success and reexamines the role of indigenous knowledge and perspectives in education.

For Abera Tassew, president of the 1,000-strong private school lobby group, English may not be knowledge alone.

“It’s, however, a bridge towards international competitiveness,” Abera said.

Another architect of the curriculum, Akalewold Eshete (PhD), lectures at Addis Abeba University. he remains optimistic about the reforms, but acknowledges that resistance during implementation would exist. He criticised the previous curriculum’s language orientation, arguing that it unfairly benefited private schools and created a disconnect in the quality of education. He hopes the new curriculum rectifies this, teaching children in their native languages and allowing them to focus on content.

“Implementation gaps will need further research,” he told Fortune, emphasising the need for a continuous evaluation process.

However, the rigorous implementation of these changes has led to significant backlash.

In the past weeks, the Addis Abeba Education & Training Quality Regulatory Authority and the Education Bureau have begun revoking accreditations of private schools that fail to comply with the new guidelines. Officials cite failing to provide Afan Oromo classes, issue report cards in line with the authorised subjects, respond to inquiries about raising school fees, and distribute their own textbooks as transgressions against the new curriculum.

St. Michael School, a prominent private school in Yeka District, had three of its four branches accreditation cancelled for several of these reasons.

Solomon Gesese, a significant shareholder and manager of St. Michael School, contested these allegations, arguing that the school had tried aligning with the new curriculum. He pointed out the logistical challenges and the lack of consultations with private schools in the reform process.

From the Ministry, Umer recalled several rounds of discussions over the curriculum with experts drawn from Addis Abeba, Jimma, Bahir Dar and Hawassa universities.

According to Solomon, the revisions of policies on kindergarten should have included the private sector, as no public school provides schooling for kids admitted lower than first grade. According to him, the report cards from the Education Bureau came in late, with the school handing them out to students as they were delivered.

“Everything could be checked and verified,” Solomon declared, pleading for a fair evaluation of the School’s compliance.

A prominent educational institution with 17 campuses, Gibson School Systems, faced similar restrictions on its accreditations for allegedly using English as a medium of instruction despite notices. Apollo Global Academy also had its accreditations terminated due to the “unreasonable increases” in school fees.

The Authority issues an average of 60 new accreditations for private schools annually, in addition to the 1,500 private schools in the capital. These are subject to sudden inspections to determine alignment with the curriculum over the ensuing years. Fikeru Gebisa, head of the Authority at Gulele Branch, was behind the decision. He attributed the recent wave of restrictions on Gibson’s to notices issued in advance, which the School’s administrators failed to comply with.

“They can change the accreditation to an international school,” he told Fortune.

Private schools in the capital say they found themselves wrestling to find qualified staff to teach diverse subjects such as visual arts, Afan Oromo and general science.

Nonetheless, Solomon’s is a sentiment loudly echoed by Abera. He argued for a more extended grace period for schools to adapt to the changes, suggesting a five-year window. He revealed that a study on the potential benefits of the new reforms was sent to the Ministry by the Association, which he claimed received little attention from the officials. This lack of acknowledgement fueled the frustration of private school owners.

“Our appeals fell on deaf ears,” he told Fortune.

The Association’s President argued that the dismal failure rate of national examinations over the past two years, with around 55,000 students passing from close to 1.7 million, was derived from multiple factors, not just the curriculum.

The varied reactions of parents, teachers, and school owners further complicated what is already unfolding. Parents like Eden are caught between the desire for quality education for their children and the financial burden it entails.

Teachers, represented by the Private School Teachers’ Association, which commands a membership of 4,000, are under pressure to adapt to the broad-ranging subjects encompassed in the ‘General Science’ curriculum. The Association’s Spokesperson, Melak Demelash, was worried about the practical limitations of expecting teachers to proficiently administer Chemistry, Physics, and Biology lessons all in one.

“They only graduated in one field,” said Melak.

The Association found itself caught in the middle, striving to protect the interests of 752,000 teachers nationwide while understanding the broader challenges schools face.

Melak observed that parents’ motives to enrol their children into private schools came from a desire to impart English proficiency and quality education. He feared that more parents might switch to public schools, impacting the enrollment rates in private institutions.

“Why would they pay extra if it’s all the same,” he wondered.

School owners are wrestling with aligning their curriculums to the new standards while maintaining their identity and educational philosophy.

Federal education officials have provided a detailed syllabus as a curriculum roadmap, setting clear expectations and guidelines. City administrations and regional states could utilise the national policy to craft their textbooks following their particular context.

The Addis Abeba Education Bureau, operating under a 2.2 billion Br budget, modified the national curriculum based on recommendations of experts from the Kotebe Metropolitan University who conducted a study around mediums of instruction. The 2,150 schools under its oversight were instructed to either teach in the Amharic language as the primary medium of instruction with Afan Oromo as supplementary, or the other way round.

Tagaitu Ababu, deputy head of the Bureau, recalled a meeting with owners of private schools at the start of the school year, where they expressed concerns over the issue of the English language as a medium of instruction and the inadequacy of teachers.

“We forwarded their concerns to the Ministry,” she told Fortune.

She acknowledged delays in textbook delivery but argued it was a slight inconvenience in implementation.

“We’ll aggressively pursue our implementation procedures,” said the Deputy Head.

Tagaitu revealed that the Bureau had warned some private schools that they would be denied the right to have their students sit for national exams if they proceeded with their ways.

The focus on teachers’ training emerged as a crucial strategy to ensure a smooth transition. The Kotebe Metropolitan University is preparing a module to aid teachers, recognising the need for additional support in the face of the new challenges.

Experts such as Alemayehu Teklemariam (PhD) appreciated the orientation towards practice and project-based learning, considering it a good start despite the current implementation problems. Lecturing at Addis Abeba University’s Inclusive Education Department, he offered a different perspective, pointing to the lack of proper methodology in teaching English as the primary cause of the problem.

“Merely adopting curriculum from other countries won’t solve the education problem,” Alemayehu cautioned.

Alemayehu would want to see schools create customised textbooks in a language of their choice. While acknowledging the severe constraints in technical and financial resources, he believes in tailoring educational materials to suit the local context.

However, this has not quelled the concerns of parties involved, from parents like Eden and teachers like Melak to school owners such as Solomon, who argue for a more inclusive and consultative approach to educational reform, reflecting education’s nature and purpose. The impact is not confined to the academic curricula but extends to the very identity of educational institutions.

Failure to Clear Tax Obligations Wipes off Diaper Plant Assets

Posted on by Tizita S.

Ontex Hygienic Disposables Plc, a renowned manufacturer of Canbebe diapers, finds itself embroiled in a protracted dispute with federal tax authorities, a conflict that has recently escalated with the seizure of the company’s assets. This marks a significant setback for the diaper producer operating within the Hawassa Industrial Park for over five years.

The dispute goes back to Ontex’s initial entry in 2017.

Under the managment of Argentinian executive Charles Bouaziz, the company invested 25 million Br with ambitions to tap into the regional diaper market. Operating from two expansive sheds in the Industrial Park, Ontex quickly made a name for itself with a production capacity that could churn out half a million diapers every four hours. This rapid scale-up was backed by the promise of duty-free privileges, granted on the condition that Ontex would export its products.

However, Ontex’s journey was fraught with troubles from the onset. The company struggled to find international buyers for its products, particularly its flagship Canbebe Diapers. According to Girum Haileleul, Ontex’s supply chain manager, the high cost of production, compounded by logistical complexities, caused Ontex’s products less competitive in the global market. The situation was exacerbated by what Girum described as a lack of support from the Ethiopian Customs Commission (ECC) officials.

“They drove us out of business,” he told Fortune.

Ontex inability to meet export requirements became increasingly apparent, leading to non-compliance and, hence, the watchful eyes of customs officials. They took over Ontex’s plant in the Park, which had been inactive for over two years. The climax of the events was the seizure of the company’s assets a month ago, a dramatic turn of events for the once-thriving manufacturer, despite some reduction in the levied taxes through ministerial intervention.

Although factories within industrial parks are expected to export all their merchandise, Ontex’s initial venture into the manufacturing sector involved agreements with the Ethiopian Investment Commission (EIC) and the Ministry of Industry. It was allowed up to 40pc of its output to be sold in the domestic market. The plan did not materialise, aside from a few containers being shipped to Eritrea as the border opened in 2018. Ontex’s failure to comply led to the eventual closure of its operation.

Belay Hailemichael, a branch manager at the Commission, noted that Ontex’s failure to export was initially overlooked due to its dominance in the domestic market and contributions to import substitution. Canbebe diapers were initially imported by Tracon Trading Plc, which stopped diaper imports four months ago due to foreign currency shortages, and 14 other importers. In the first month of 2020 alone, Ethiopia imported over  294,000 dollars of diapers, mainly from China.

However, patience wore thin as Ontex continued to fall short of its export commitments, said Belay.

The company’s troubles were further compounded by a post-clearance audit conducted by the Park’s ECC branch. The audit revealed discrepancies in input-output reconciliation and alleged abuse of duty-free privileges, leading to claims by federal tax authorities of approximately 400 million Br in tax receivables. According to Gedana Tsegaye, deputy head of the Customs Branch at the Park, Ontex disputed these findings, setting off appeals and prolonged legal litigations.

The dispute reached a pressing juncture when the company was instructed to vacate the premises of the Industrial Park at the end of 2020, following repeated warnings to begin exporting. It came against a backdrop of broader turmoil the manufacturing sector faced. A World Bank report disclosed the lack of effective coordination between public institutions as a main obstacle to encouraging a thriving investor class.

Ontex’s senior managers, including General Manager Gabriella Moreno and CFO Fasil Issac, Timothy Muhnaji, the plant manager and Girum say they have struggled to address these issues, but claim their efforts were met with diminishing support from the Ethiopian authorities.

Anbessaw Serebe, facilitator of Industry Parks at the Commission, disagreed. According to him, continuous support was provided by the Commission since the company’s entry into the country, recognising its size and international standing. However, support waned when Ontex’s management left the plant two years ago.

“They abandoned the plant,” he said.

Anbessaw recalled Ontex’s appeal for a review of duties imposed on it three years ago as it struggled to find export markets.

“It was possible to reduce the taxes,” he told Fortune.

Manufacturing and export trade directorate facilitator at the Customs Commission, Tolesa Dirjena, identifies the challenges Ontex faced arising from one core issue.

“Factories who can’t export don’t get to operate within industrial parks,” he told Fortune.

Exports from industrial parks, including Hawassa Industrial Park, have seen a decline of 24pc. With a 20 million dollar monthly capacity, the Park only meets 15pc of its export potential. The situation reflects a broader issue within the industrial sector, where manufacturers fight against high logistics costs, a monopolised logistics sector, and an overvalued currency.

Million Kibret, managing partner of BDO Consulting Plc, called for policy overhauls, including currency liberalisation and increased private sector involvement in logistics.

Industry insiders also emphasise the need for strategic planning and comprehensive policy reforms to create a conducive environment for sustainable industrial growth. The case of Ontex, they argue, shows the pitfalls of poor initial business planning and a failure to adapt to market realities.

“It’s a trap for setting unattainable targets,” Million told Fortune.

Hibret Lema, leader of the 22-member Investors Association inside the Park, believes the shutdown reflected broader constraints manufacturers face. Hibret observed that Ontex addressed its problems without seeking intermediate assistance from the local industry.

“It’s disheartening,” he told Fortune.

Currency Rues Drive Lifan Motors Production to Grinding Halt

Posted on by Tizita S.

Ethiopia’s automotive landscape is facing uncertainty as Lifan Motors, one of the pioneering assemblers in the country, faces a myriad of challenges that could lead to its exit from the Wollo Sefer area in the capital to the Eastern Industrial Park. The once-thriving company in Dukem town, Oromia Regional State, has not produced a single vehicle in the past two years due to an acute foreign currency crunch.

The Chinese company once boasted a production capacity of around 60 cars a month through a decade of operation. However, grappling with the inability to access nearly one million dollars monthly forced the management to cease production.

“We’re in a serious struggle,” said Mark Ma, general manager of Lifan Motors.

Lifan Motors has faced various challenges over the years, including disputes with partners, changes in management, and the inability to secure a stable supply chain for key components. The Company entered the Ethiopian market in 2007 through a partnership with the now-defunct Holland Cars managing to sell 50 locally assembled cars a month. Its early engagement ended in a bitter dispute with the founder, Taddesse Tessema, who left the country after a few years.

Mark Ma highlighted that around 40 employees have stopped their daily commute to work due to the sheer lack of activity. The plant that once had a capacity of producing up to 2,000 units a year now averages around three million Birr in revenues from providing maintenance services to cars sold a few years ago. Meanwhile, operational costs and staff salaries have cast a grim shadow.

The manager indicated their futile attempts to secure foreign currency through appeals to the National Bank of Ethiopia (NBE) and commercial banks left them in a state of uncertainty. He recalled efforts to engage in the coffee export sector in the early days of the foreign currency squeeze five years ago, which were later abandoned due to conflicts with the business license that strictly specified auto assembly.

“We’ve stopped planning beyond three months,” Mark told Fortune.

The Company’s plans for expansion and automotive exports to Egypt and Sudan failed to materialise, contributing to its decline in operations fueled by the inability to bring in some of the key inputs from its headquarters in Chongqing municipality, Southwest China.

The forex crunch has been a point of contention, hindering the vitality of the export sector and creating obstacles for manufacturers reliant on imports.

Getnet Haile, managing partner of Target Consultants, points to a long-term adjustment of the forex regime towards liberalisation as the main solution to currency woes consistently faced.

He believes the strict control of foreign currency “has hurt more than it has helped.”

While he recognises room for smaller import-based businesses through informal routes or exports at dismal prices, he argues manufacturers who receive their inputs from a single international supplier will continue to struggle.

Getnet pointed to the country’s vast trade deficit as signalling a reliable route for financial resources to exit, which will mostly be used to facilitate imports by individual importers. He reasoned that the tight control on foreign currency hampers the vitality of the export sector as businesses rely on it only to fund their imports.

The Eastern Industry Park fully owned by Chinese investors, has been Lifan Motors’ sanctuary for a decade. The federal government had covered 30pc of the internal infrastructure costs for the country’s first industrial park only to build its Industrial Parks later in 2014.

Launched in 2007, the Park houses 140 factories, employing around 23,000 workers. With six of the 127 factories being exporters, the current landscape reveals that most producers cater to local demand rather than engaging in international trends for the Park initially envisioned as a hub for industrial export growth.

Yosef Sultan, a representative from the Investment Commission at the Park, notes that producers are largely responsive to local demand rather than international trends.

“Almost all produce for the domestic market,” he told Fortune.

The scarcity of locally assembled vehicles and the soaring prices of imported alternatives have created a market gap that Lifan Motors once filled. The potential void left by the Company’s departure could further strain the already challenging dynamics of the automotive sector as the models gained popularity over the years when the prices of imported vehicles surged.

A car dealer for the last decade, Kidus Beshu observed a spike in demand for the Lifan models over the past three years as the price of imported vehicles doubled. Meanwhile, most models cost between 800,000 Br and 1.25 million Br depending on the condition and mileage while imported alternatives cost at least two million Birr.

“No car dealer would pass up a model in good condition,” he said, indicating that prices have gone up with the production halt.

Ethiopia spent close to five billion Birr on the import of road motor vehicles last year, with the value highly understating the amount of foreign currency used due to the prevalence of under-invoicing prices in the sector. Commissioner Debele Kabeta affirmed the plight two weeks ago during a panel discussion on manufacturing in Ethiopia.

With around 1.5 million registered vehicles, the country has one of the lowest car density rates in the world at around two cars for 1,000 people, with half of the vehicles estimated to be in the capital. The combination of five different duties on vehicles and the restriction on imports of vehicles by levying excise taxation of around 105pc for cars above eight years old have been critical factors fueling the demand and sharp ascent in prices.

The 40-year-old real estate broker Mikias Chernet indicates that buying a new car in the market would be a challenge considering the high cost. He has been driving a 520 subcompact sedan Lifan for the past six years after purchasing it for 235,000 Br. He believes the vehicle would be an asset despite its issues with the overheating and low suspension often being a victim of speed breakers.

 

Editors’ Note: This article was updated on January 5, 2024, as it has come to our attention that Lifan Motors is moving out of the Wollo Sefer area to the Eastern Industrial Park.

Zemen Bank Redefines Success in Banking Giants’ League

Posted on by Tizita S.

Zemen Bank, a relatively modest player in the banking industry, has recently demonstrated an ability to punch above its weight in profitability and asset management, outperforming several of its larger competitors. Its noteworthy performance comes when the industry is becoming increasingly competitive, with more prominent banks dominating the market in equity and deposit mobilisations as well as loans and advances.

Zemen Bank’s reported profit grew 22.3pc, reaching 1.81 billion Br, notably exceeding the average profit of 15 private commercial banks by 400 million Br. The Bank’s profitability was also substantially higher than its peers, including Berhan, Bunna, and Oromia banks, marking a significant achievement for a financial institution of its size.

Despite the impressive profitability, Zemen Bank experienced a decline in Earnings per Share (EPS), which dropped by 25 Br to 430 Br. This dip, however, did not dampen the spirits of shareholders, who remained optimistic about the Bank’s future.

Dereje Zenebe, president of Zemen Bank, addressed the shareholders’ meeting held at the Millennium Hall four weeks ago and attributed the decline in EPS to recapitalisation, the Bank’s investments in technology and skills acquisition.

An alumnus of Adds Abeba and Lincoln universities, Dereje came to the leadership of Zemen five years ago after a quarter century in the financial sector, including stints at Wegagen and Awash banks. Under his watch, Zemen Bank has also increased its paid-up capital by 37.2pc, reaching the regulatory minimum threshold regulators of the central bank set, with a deadline in 2026.

However, the Bank’s EPS of 43pc displays its robust earnings capacity, eclipsing the industry average of 38.4pc. Its Return on Equity (ROE) and Return on Assets (ROA) were 24.3pc and 4.3pc, respectively, comfortably above the 19.8pc and 2.4pc industry averages.

Zemen Bank’s performance in the industry is particularly notable given its undersized stature compared to larger competitors. The Bank’s total equity stood at 8.4billion Br, nearly double its modest capital, while its total liabilities amounted to 39.3 billion Br, representing half the average for the 15 private banks. Along with its conservative leverage position, this tells of a cautious yet effective approach to risk management that Dereje and his directors have taken.

While larger banks such as Awash, Abyssinia, and Dashen continue to dominate in size and market share, Zemen Bank’s achievements illustrated that smaller institutions can compete effectively through operational efficiency and profitability.

Substantial income growth from financial intermediation accompanied Zemen’s growth as interest on loans, advances, and central bank bonds grew by 64.6pc to four billion Birr. The surge in income is attributed to increased extension of credits and more investment in securities combined with an increase in lending rates. The income from fees and commissions, gains from foreign exchange dealings and other activities swelled to a very modest figure of three percent to 1.73 billion Br.

However, the Bank’s performance is not without its drawbacks.

The London-based financial statement analyst Abdulmenan Mohammed (PhD) recommended a watchful eye on the Bank’s management on the interest expenses, wage hikes, and other operating expenses.

“These need serious attention,” he cautioned.

Zemen Bank’s operating expenses have seen significant increases, with interest expenses rising by 46pc to 1.37 billion Br and wages up by 46.9pc to 954.29 million Br. The rising costs have prompted calls from financial analysts and shareholders for a more mindful approach to expense management.

Incorporated in 2008 with 2,800 shareholders, Zemen Bank has built a robust capital base, with capital and non-distributable reserves increasing by 37.4pc to 7.13 billion Br. With its capital adequacy ratio (CAR) of 21.3pc, the Bank’s total assets expanded by 36pc to 47.78 billion Br, a figure that, while lower than industry giants like Dashen and Awash, demonstrates a strong growth trajectory.

Founding shareholder Assefa Tefera is content with the outcome.

“I’m generally satisfied with the performance,” he told Fortune.

However, he wants to see “unnecessary expenses” curtailed; he would have liked to have the general assembly held at the Bank’s newly inaugurated headquarters on Ras Abebe Aregay St., instead of outside venues.

Dereje attributed the surge in expenses to branch expansions, increased IT costs, and the prevailing inflationary pressures. Over the past year, Zemen Bank has expanded its network, opening 23 new branches, bringing the total to 102.

“The Bank’s profitability per branch is top of the industry,” he told Fortune.

Mahlet Girma manages one of these branches, located at Zemen’s headquarters. Worked for the Bank for 15 years, she is pleased with the progress the Bank has made in loans, deposits, foreign currency and online banking. She observed a prevailing liquidity problem that plagued the industry last year, which could have caused problems but was avoided by “careful management.”

“We managed it better than others,” Mahlet told Fortune.

Zemen Bank has maintained a strong position in loans and asset provisioning. Its provision for loans and assets impairment showed an increase of 125pc, signalling a cautious approach to cushion potential risks. The Bank’s liquidity position has also evolved, with its cash and bank balances growing by 10.7pc to 8.91 billion Br. Zemen’s ratio of cash and bank balances to total assets decreased to 18.6pc from 22.9pc.

“It maintained a reasonable amount of liquid resources,” said Abdulmenan.

However, the ratio of these balances to total assets has declined, denoting a shift in the Bank’s liquidity management strategy.

The Bank has shown remarkable growth in its loan and deposit portfolios. Total loans and advances reached 31.39 billion Br, posting a growth of 48.6pc, while total deposits increased by 38pc to 37 billion Br.  Zemen Bank’s deposit mobilisation was lower than Oromia Bank’s 54.3 billion Br, while slightly higher than Berhan’s 33.8 billion Br and Bunna’s 36.6 billion Br. Its loan-to-deposit ratio, hailed by Abdulmenan as “ideal” grew by six percentage points from 78.6pc the prior year.

Board Chairman Ermias Eshetu promised the 7,957 shareholders that a five-year strategy under implementation would help Zemen Bank maintain a competitive edge in the industry poised for opening up for overseas banks.

Riding in Limbo Amidst Transparency Woes

Posted on by Tizita S.

The iconic blue taxi drivers colloquially known as ‘Lada,’ are considering the formation of a robust new organisation and advocate for their interests as frustration mounts over delays in receiving vehicles promised by Elauto Engineering Plc. Over 8,000 drivers are disillusioned and questioning the legitimacy of their initial deposits of nearly one billion Birr to the company in three years with only a little over 240 cars delivered.

The confluence of anxious drivers eagerly awaited the cars initially promised within four months. As inflation surges and the cost of the promised vehicles doubles to 1.2 million Br, drivers are growing sceptical about the transparency of the process, wondering if they were misled from the beginning. The discontent has escalated to the point where an association was accused of defamation and had its contract suspended six months ago.

The saga surrounding Addis Abeba’s Ladas has spanned for four years, involving the suspension of duty-free privileges by the Ministry of Finance, the establishment of a new factory in Dire Dewa City by Elauto, and a growing animosity among the close to 200 associations representing the drivers.

Executives indicate that 540 semi-knock-down vehicles assembled for distribution to the drivers have been put at the Dire Dewa plant for the past eight months, inaugurated a year and a half ago with over half a billion Birr.

Esayas Tafesse, director of marketing at the Company, cited a three-month-old ordinance by the Ethiopian Customs Commission, which banned imports through partialised letters of credit, as the main culprit. He disclosed the assembled vehicles have been locked away only to ensure that the new ordinance would not jeopardise further imports.

He indicated progress in declaring the vehicles despite not specifying the number. Esayas argued the company had gone out of its way to actively seek finance for 3,000 cars from the Global Bank of Ethiopia, even though it was not contractually obligated.

“Distributing the vehicles would be to our advantage,” Esayas stated.

Esayas revealed plans to distribute the vehicles in its fleet in the coming year if no external factors get in the way, signalling agreements with Bishoftu Automotive Industry and Lifan Motors.

While senior management at Elauto points to regulatory hurdles and changing policies as reasons for the delayed imports and distribution, the drivers allege reluctance from the company to take up loans from credit facilities.

Biniyam Melese, a representative of the Addis Abeba Lada Taxi Association, highlighted the challenges faced during the credit process, despite the initial agreement for 10,000 cars worth six billion Birr signed with the Commercial Bank of Ethiopia (CBE) three years ago. He noted changes in management and lending policies as contributing factors to the difficulties encountered in securing credit lines from 22 commercial banks.

According to Biniam, although the Association neared a deal with Amigos Saving & Credit Cooperative Society a few months ago, it was not picked up by the company and was later transferred to other dealers.

“The management and lending policies changed,” he told Fortune.

Biniam underscores the struggles faced by drivers to adapt to a shifting landscape dominated by technology-backed taxi-hailing services offering newer models and smoother rides.

“Most remain idle during the day,” he said.

The initial contract states a 120-day delivery schedule for the vehicles, subjecting Elauto to a 10pc penalty of the initial 130,000 Br deposit three months from the agreed date. Meanwhile, it stipulates a 20,000 Br penalty for breaches, compelling taxi owners to pay if they wish to withdraw their money. Approximately 600 drivers have registered to withdraw their depreciated deposits, further exacerbating the tensions between the drivers and Elauto Engineering.

The dissatisfaction also raises questions about the transparency of contracts and the protections afforded to drivers. Legal experts stress the importance of closely evaluating the terms and conditions agreed upon in contracts to address disputes and non-performance effectively.

Yehaulashet Tamiru, a lawyer with contractual business expertise, emphasised that contracts are binding to their stipulations. He highlighted the need to examine Force Majeure clauses, which relieve parties from obligations in exceptional circumstances that are impractical, illegal, or impossible to uphold their end of the contract.

The Russian-made Ladas are relics of Ethiopia’s history under socialist rule in the 1970s. Their uncertain future underscores the broader challenges faced by traditional taxi services in adapting to evolving market dynamics dominated by technologically advanced competitors. As the discontent simmers among drivers, the proposed formation of a new organisation may signal a united front seeking resolution and fair treatment in the face of ongoing challenges.

Zerubabel Wendwesen, a representative from one taxi association, acknowledged the outdated nature of their cars and the inability to compete with taxi-hailing services. He lamented the rush to acquire new vehicles, which he believes blinded drivers from scrutinising the contract’s original terms, leaving them with minimal protection.

He recalls a passionate rush to get new cars, blindsiding the drivers from meticulously going through the contract’s original terms, which he now identifies as creating little protection for the drivers. Zerubabel indicates that most drivers have been struggling to make a living as the cost of living shoots up and their income diminishes by the day.

“We can’t compete with the taxi-hailing services,” said Zerubabel.

Tax Troubles Blossom Threatening Floriculture Industry

Posted on by Tizita S.

A heated tax dispute is blossoming between authorities and six major investors in the floriculture sector. The conflict stems from an investigative tax audit of the Dutch family-owned business initiated two years ago, sparking uncertainty and legal battles within the industry.

At the centre of the storm is Desa Plants Plc, a subsidiary of Florensis, Europe’s largest supplier of cut flowers with 13 million euros in revenues last year. A tax audit resulted in the rejection of 38pc of its expenditure. Subsequent audits of Red Fox Ethiopia Plc, Maranque Plants Plc, Asella Farm Plc, Klaver Farm Plc and Marginpar Farm Plc, had upto 55pc of their costs rejected by the Medium Tax Payers Branch Office.

The companies took the matter to Aynalem Nigusse, Minister of Revenues. While Desa Plants successfully appealed its case before the Federal Supreme Court’s Cassation Bench last year, tax authorities have persisted in their claims against the other five, citing a lack of clarity in tax stipulations.

Desa primarily operates on a 15hct plot in eastern Shewa Zone, Oromia Regional State. General Manager Ronald Vijverberg recounts the challenging legal battle against tax authorities, emphasising the calculations only considered sales amounts without factoring in production costs. He claims that 41 million Br including interest and penalties was demanded.

He recalls the contentious tax debacle that he claims threatened the company’s very existence as it was forced to kick start a legal battle. Justices Mulgeta Ayalew, Yosef Alemu, Desta Abate, Fasika Tamirat and Rediet Lemma of the Federal Supreme Court’s Cassation Bench ruled in favour of the company in December last year.

“We took a gamble and won,” said Ronald. Yet, the 50pc payments to appear before the tax appellate commission have not been returned.

However, officials from the Medium Tax Payer’s Branch Office have not heeded the court’s ruling. Deputy Head Sisay Gezu, suggests that there is a pervasive problem of underreporting tax liabilities in the industry, which requires a vigilant response from officials.

“We need to detect and deter non-compliance,” he told Fortune.

Caught in the Ministry’s ambitious plan to collect 440 billion Br in tax revenues this year – a 35 billion increment from the previous year – the floriculture businesses are facing heightened pressure. Profit margins are dwindling, with production costs exceeding revenues by five percent. This precarious situation is not unique to Desa Plants; it is a shared concern among major players in the industry.

One of the six companies caught in this tax turmoil is Assela Farm Plc. Last year, their tax declarations were rejected for “inflating the cost of freight expenses.” The Company operates out of a 24hct farm in Welliso, Oromia Regional State.

Nestanet Mengistu, the finance head of Assela Farm, fears for her company’s existence, pointing out that more than half of their costs are attributed to freight.

The novel nature of tax regulations in the industry and insights into floriculture’s unique challenges have been noted by industry stakeholders.

Tewodros Zewde, who heads the 126-member strong Ethiopian Horticulture Producer Exporters Association, has been vocal about the industry’s concerns. He fears that the ongoing tax dispute might lead to similar audits that may open Pandora’s box, affecting the 87 active flower farms in the country.

“This would shake the industry to its core,” he said.

The potential for overstating costs while underrepresenting revenues requires a deeper investigation, according to the legal representative from the Ministry of Revenues.

Wendimu Adise observed the emerging tax contention as the novelty of the sector presents a lack of rigorous standards for assessing profitability and costs. The continued profitability of the businesses, despite claims of surging expenses, raises questions about the accuracy of information on costs, according to Wendimu. He said that tax evasion is a possibility, highlighting the need for clear legal frameworks to prevent tax disputes.

As the industry grapples with regulatory uncertainties, legal battles, and financial pressures, the need for clear standards, comprehensive studies, and well-defined legal frameworks becomes increasingly evident.

The importance of investigating potential tax evasion is deemed critical by legal experts as companies continue to remain in business after declaring a loss for three years.

Yohannes Woldegebriel, point to the need for laws that determine allowable expenses to prevent potential tax disputes across all sectors. He argues clear legal frameworks are essential for maintaining tax integrity and fostering business trust in the long term.

With promises of an ongoing study by experts drawn out of the National Bank of Ethiopia, the Revenue Ministry, and the Customs Commission to formulate clear standards, officials at the Ministry of Agriculture tried to mediate the plight.

Mekonen Solomon, a senior coordinator of horticulture, underlines a legal obligation for companies to pay the levied taxes until the study addresses critical issues such as the cost-to-revenue ratio, wastage margin and input-output coefficient.

“It’ll resolve the industry’s tax conundrum,” he told Fortune.

 

Turning Lofty Promises into Tangible Priorities

Posted on by Tizita S.

As we set resolutions to achieve personal goals and give back, the end of the year is a time to envision the positive changes we can bring to the world in the upcoming 12 months. Shining a light on the power of doing good, it is a time to consider how we can extend our impact to do the most that we possibly can.

Globally, all countries have promised to fix all the world’s big issues by 2030, through the Sustainable Development Goals (SDGs). The world’s governments came together in 2015 to promise to end hunger, poverty, and disease; to fix corruption, climate change, and war; and to ensure jobs, growth, and education along with a bewildering array of big and small promises like developing more urban gardens.

Unfortunately, even the United Nations (UN) admitted this year that we are failing badly. Promising everything means nothing is a priority.

We need to insist that our politicians get real in 2024 and focus first on the most efficient policies. And in our own end-of-year donations, we should similarly look to achieve the most good we can for every dollar spent.

In recent years, with the Copenhagen Consensus, a think-tank, I have worked with over 100 of the world’s top economists and several Nobel Laureates to discover where we can help the most first. Our free, peer-reviewed findings, which can also be read in the book “Best Things First”, offer a roadmap for the 12 smartest initiatives for politicians around the world. They highlight proven solutions to persistent problems that deliver immense benefits at low cost.

These are policies like delivering more mosquito nets to tackle malaria, nutritional supplements for pregnant women to boost the baby’s opportunities even before it is born, or better legal protection to ensure poor farmers’ rights over their land, increasing productivity.

Politicians could set aside just 35 billion dollars a year — a rounding error in most global negotiations — to deliver immense benefits. Implementing these policies would save 4.2 million lives annually and make the poorer half of the world more than one trillion dollars better off every year. On average, a dollar invested would deliver an astounding 52 dollars of social benefits.

But just as these overarching goals should inspire and guide politicians, they can also guide us as we make our own end-of-year donations to help make a better 2024.

We need to focus more on the tuberculosis (TB) epidemic. TB has been treatable for more than 50 years, yet still kills more than 1.4 million people annually. The solution is quite straightforward: Make sure more people get diagnosed and make it easier for patients to stay on their medication, which is needed for a gruelling six months. Many organisations push for these simple solutions, and we can help them.

We find that governments should similarly increase their funding. Just 6.2 billion dollars annually can save a million lives a year over the coming decades. Each dollar delivers an impressive 46 dollars of social benefits.

We also need to pay attention to cheap and efficient ways to increase learning for kids in schools.

Shared tablets with educational software used just one hour a day cost only 31 dollars per student over a year, resulting in learning that generally would take three years. Semi-structured teaching plans can make teachers teach more efficiently, doubling learning outcomes each year for just nine dollars per student. As individuals, we can donate to organisations doing amazing work in these areas, across Africa and beyond.

Governments could collectively – and dramatically – improve education for almost half a billion primary school students in the world’s poorer half for less than 10 billion dollars annually — to generate long-term productivity increases worth 65 dollars for each dollar spent.

And we can help much more with maternal and child health. The research shows a simple package of policies that improve primary care and family planning access is compelling – and many organisations are working hard in these areas. If we could convince politicians to commit less than five billion dollars annually, we could save the lives of 166,000 mothers and 1.2 million newborns annually.

Across all the policies we identified, inspiring organisations are doing incredible work. Our donations—and any additional government spending—can have the biggest impact in these areas.

As the year winds down, we are presented with an occasion to break free from the never-ending cycle of negativity. The holiday season, with its moments of reflection and celebration, encourages us to pause and take stock of the positive aspects of our lives and the world at large.

For 2024, let us resolve not only to help more but to help better. Let’s focus on making the most effective and impactful contributions to create a brighter world in the 12 months ahead.

 

Modern Marvels of Virtual Symphony

Posted on by Tizita S.

I recently found myself out of my depth as I uncovered the vibrant world of the virtual realm my son effortlessly navigates.

At first, I thought he was listening to music or watching a movie with his headphones until I noticed him mumbling phrases. Assuming he was talking to me I asked for clarification ready to engage in a conversation. He quickly pointed out that he was virtually playing a game with his five friends who were stationed all over Addis Abeba.

This was officially out of my league.

His response took me back in time when I spent a lot of money and time at the pioneering arcade games zone with my friends. It was stationed at the Tropicana, near the Addis Abeba Stadium during the 1990s.  Our minds were blown by the slot machines feeding on the priceless coins to start the games. My favourite was Formula One (F1) which needed eight players at a time while my friends went with air force jet aerial dogfights, shooting and soccer games.

That was the highlight of the decade and we were on top of our world. Although the memory put a smile on my face, our time seemed primitive compared to what my son and his friends are doing now.

As I grapple with the generational gap, I realise the evolution of gaming mirrors broader shifts where virtual connections redefine the way we build relationships. It appears as a challenge to actively bridge the gap in an ever-evolving digital realm and appreciate the virtual realities that define the youth.

In the not-so-distant past, ordering a meal from a restaurant involved a phone call, a physical exchange of cash and perhaps a subsequent refund upon delivery. Fast forward to date, the process has evolved into a seamless transaction as mobile banking allows instant payments. The need for physical currency is eliminated while making it possible for people to perform multiple tasks without leaving their immediate surroundings.

In a world that was once bound by the limitations of physical presence and face-to-face transactions, the advent of virtual connectivity has ushered in a new era of possibilities. The evolution of technology, coupled with the seamless integration of online payment systems, has transformed the way we interact and conduct tasks.

Mundane activities are facilitated by virtual systems. From managing Wi-Fi installations with minimal human contact to resolving technical glitches remotely, companies exemplify the potential of a tech-driven, virtually connected society. The efficiency of systems that blend human and machine interactions offers a customer experience with limited physical engagement.

But this is just one dimension.

Peter Semmelhack’s book, “Social Machines” sheds a different light on technology as it delves into the expanding concept of social media presence for machines. It starts with a machine offering promotional detergent contingent upon sharing the link from its display on social media. Reluctant at first but realising no harm could come of it, a lady goes on to share it on her timeline. She was quickly rewarded with a small package of detergent free of charge. With a simple social media post, the lady won a useful product and the supplier managed to make a promotion expanding its reach. The book takes a fascinating turn as machines acquire social media accounts, introducing the concept of communities that extend beyond the realm of humans.

Imagine a car or washing machine having a social media account and sending a friend request. The envisioned possibilities include real-time information sharing, human-to-machine connectivity, and machine-to-machine communication, promising a future where the boundaries between human and machine interactions blur.

The potential goes as much as influencing opinion and disrupting major events. A recent France 24 report sheds light on the looming threat of deepfakes in upcoming elections. Its magnitude to deceive the public and manipulate events through false information is a concerning aspect.

Yet, amidst the looming threats, technology is also harnessed for positive outcomes. In the same news channel, a touching account of a Chinese man finding solace through an avatar of his deceased son exemplifies the compassionate potential of Artificial Intelligence (AI). Similarly, the innovative use of technology to combat loneliness in nursing homes demonstrates the constructive impact of AI on human well-being.

From custom-made solutions for health monitoring to innovations to assist the elderly, the positive impact that technology can have on our lives is undeniable. However, the challenges posed by emerging technologies should also be acknowledged.

The rise of deepfakes is a double-edged sword, capable of both constructive and destructive applications. There is a potential for misinformation, manipulation, and ethical concerns surrounding such advancements. Alarming instances of deepfakes targeting public figures emphasise the need for stringent regulations and ethical considerations in the digital age. The ironic footage of US House Speaker Nancy Pelosi’s arrest posted on Facebook is a recent deepfake incident that caught attention. An equally controversial incident emerged when the platform refused to delete the footage with Mark Zuckerberg saying the medium had ownership of its users.

Addis Abeba embarked on its own digital journey where the generational gap in embracing advancements is palpable. The younger generation’s seamless integration with virtual technologies is contrasted with nostalgic recollections of arcade games in the 1990s. The evolution from primitive gaming experiences to the immersive world of virtual reality is commendable.

The concept of Augmented Reality (AR) is another frontier in the ever-evolving tech landscape. While walking across Mesqel Square one time, a small group of people and a blaring heavy-duty speaker grabbed my attention. A vendor is offering onlookers to try his immersive augmented play glasses strapped over the back of his head with goggles in the eye. One young man decided to give it a try. It was not long before he began making gestures and moves which were amusing to the rest of us until he finally gave way and buckled to his knees convulsing as if he had an electric shock.

This is a glimpse into the potential applications of virtual experiences beyond mere amusement. The incident, where a young man’s virtual experience prompts laughter from onlookers, serves as a small indication of the impact virtual reality might have in the future.

As we stand at the crossroads of a rapidly advancing technological landscape, it is wise to reflect on the profound shifts in our daily lives. A nuanced understanding of the opportunities and challenges presented by social machines, virtual reality, and the interconnected future that awaits us is vital.

The societal impact of virtual connectivity and social machines is a multifaceted phenomenon. While this trend undoubtedly offers unparalleled convenience, it also prompts reflection on the importance of human connections and the potential impact on interpersonal relationships.

Energy Management’s Untapped Potential in Our Factories

Posted on by Tizita S.

In the contemporary industrial terrain, energy remains a crucial yet often understated factor. Its integral role in production, particularly in the manufacturing sector, directly correlates with the Gross Domestic Product (GDP), beckoning a deeper examination of energy access, distribution, and utilisation. These are areas which merit the same rigour of management commonly reserved for other critical resources like materials, human resources, and finances.

The manufacturing sector is intrinsically tied to energy consumption. The costs of energy, not merely in monetary terms but also its environmental impact and potential for misuse, require a strategic approach. Energy, much like any other resource, is measurable and controllable. Yet, the concept of energy management often remains underutilised or overlooked, in contrast to the established practices of resource management.

The absence of such systematic energy oversight can lead to operational inefficiencies and economic vulnerabilities.

Implementing an energy management system, however, can yield substantial benefits. It not only contributes to reducing production costs and improving business competitiveness but also plays a crucial role in reducing emissions. It addresses constraints associated with energy distribution and power quality issues, particularly in the use of electrical energy. The repercussions of poor energy management extend beyond inflated production costs. They manifest in the reduced lifespan of production machinery, frequent production interruptions, and escalated maintenance expenses.

The lack of awareness surrounding energy consumption and efficiency, especially in appliances and equipment procurement, further exacerbates these issues. Such is an oblivion that leads to higher energy expenses and demands larger capacities for backup power solutions like generators. The failure to prioritise energy efficiency in household appliances and factory equipment is a glaring oversight in energy management.

Seemingly insignificant issues like leaking pipes in pump systems, unoccupied but active fans, and unnecessary lighting contribute substantially to energy wastage. These inefficiencies often go unnoticed or are underestimated by maintenance staff and technicians. The role of an energy manager, tasked with quantifying these losses and identifying economically viable maintenance and loss-prevention strategies, is critical.

The situation is particularly acute in factories and plants in Ethiopia, where energy wastage is rampant across all systems, be it electrical or thermal. Common occurrences like leaking steam or compressed air are often dismissed as normal in the hustle of production. This nonchalant attitude towards energy wastage, compounded by a lack of awareness and prioritisation, contributes to a significant loss at the national level.

These losses are far from being theoretical; they are quantifiable and exceed the production capacity of several hydropower plants, accounting for a substantial share of the overall fuel imports.

Reducing energy wastage can have far-reaching implications, directly impacting import dependencies and bolstering currency reserves. Improved energy distribution and accessibility also open avenues for exporting electrical energy to neighbouring countries, supplementing national revenue streams. In industries such as cement plants, power interruptions put pressure on using additional energy sources like coal to maintain operational temperatures, leading to increased production costs and market prices.

However, it is essential to recognise that power interruptions are not always a result of energy scarcity. Often, they stem from inadequate distribution systems and sudden surges in demand.

An effective energy management system can address these issues, yet the question remains: how much more energy must be wasted before the implementation of such a system becomes a priority?

Energy management should not be about controlling consumption. It should encompass the installation of control mechanisms and reporting systems for prompt action. Energy managers are expected to propose energy-efficient solutions and conduct cost-benefit analyses to justify their implementation. An energy management system’s role in mitigating the rising energy costs is vital. By improving operational efficiency, facility energy managers can reduce energy costs without compromising production or service quality.

Globally, the energy management profession is gaining traction as energy costs rise and its availability becomes increasingly constrained. Concerns over global warming and environmental impacts drive the shift towards energy efficiency through robust energy management practices. The change must be mirrored on both sides of the energy meter, with state-owned utility providers addressing distribution losses and consumers watching consumption without impacting their services or production.

The potential energy savings from effective energy management represent a clean and readily available energy source, enhancing distribution capabilities. A paradigm shift is essential, where energy is not perceived merely as an overhead cost but as a controllable and manageable resource. There are many opportunities for energy savings in industries, distribution systems, households, and buildings. These can translate into significant profitability for business owners, contingent on the presence of well-trained and competent energy managers.

The Climate Paradox at COP-28, Africa’s Dilemma

Posted on by Tizita S.

The Conference of Parties (COP) summits have been fixtures since their inception in the mid-1990s. The recent COP-28, held in the United Arab Emirates (UAE), has captured attention not only for its efforts in addressing climate change but also for the criticism it faces, particularly from the global press, labelling it as the “hypocritic show on earth.”

This moniker reflects a growing scepticism about the effectiveness and sincerity of these conferences, especially in the context of the developed world’s approach to fossil fuel consumption and greenhouse gas emissions.

The COP summits have historically focused on advocating for a comprehensive phase-out of fossil fuels, including oil and gas. Predominantly championed by developed Western nations, a corresponding reduction has not matched their respective fossil fuel usage and trade. Interestingly, the recent reductions in fossil fuel usage in these countries, primarily attributed to the COVID-19 pandemic-induced lockdowns and the disruption of oil and gas supply chains due to the Ukraine war, have provided them a platform to vocalise more vigorously at the conference in Dubai.

The central issue at stake remains the balance between reducing carbon footprints and the economic development needs of underdeveloped and developing economies.

Developed nations, including the United States (US), United Kingdom (UK), France, and Germany, have historically prospered due to the availability of low-cost energy, contributing significantly to greenhouse gas emissions since the 1890s. The development in OPEC Block countries is similarly tied to the fossil fuel trade. While developing countries have generally supported COP declarations, they have maintained a degree of flexibility in their commitments.

Notably, India and China, two major emerging economies, forborne the signing of the COP-28 declaration but agreed to adopt the rulebooks agreed in Paris for a paced transition to low-carbon energy options.

A report by the Centre for Global Development (CGD) uncovered an imbalance in historical carbon emissions, with developed countries responsible for 79pc, led by the US, the European Union (EU), and China. In contrast, the entire African continent contributes less than four percent, a discrepancy raising questions about the equitable distribution of responsibilities and burdens in global climate efforts.

Sub-Saharan Africa, in particular, has consistently tussled with energy shortages, significantly impacting its economic development. Due to investment constraints, the region’s inability to utilise its natural resources, such as Mozambique’s coal reserves, exemplifies these constraints. Oil discoveries and exports have been crucial for the economies of countries like Ghana, Angola, Algeria, Gabon, and Nigeria. Imposing restrictions on fossil fuel exploration and exports could thus precipitate an economic crisis in these nations.

The current focus of the developed world on future-oriented energy policies contrasts sharply with the immediate energy needs of sub-Saharan Africa.

The African Development Bank (AfDB) reports that the electricity access rate in African countries is a little over 40pc, the lowest globally. A sub-Saharan African consumes a mere fraction of the energy an American or European uses, a disparity attributed more to energy availability than income levels. The lack of sufficient energy access in Africa is not only a barrier to economic prosperity but also a health hazard, with reliance on wood-burning stoves for cooking causing numerous deaths.

Its renewable and hydroelectric power potential further complicates Africa’s energy landscape. However, the exploitation of these resources has been impeded by substantial investment requirements, environmental concerns, and socio-political challenges. For instance, the Cahora Bassa Dam in Mozambique has not been expanded since its construction in 1974, despite its potential, due to these impediments.

The situation raises the question of whether Africa could benefit more immediately from utilising its fossil fuel resources.

The future of COP declarations will undoubtedly impact energy access in sub-Saharan Africa. The role of developed world non-state entities in influencing international financial institutions against funding fossil fuel projects in Africa adds another layer of complexity. They are also advocating for the creation of voluntary carbon markets on the continent, where they intend to “buy” African carbon credits in exchange for continued emissions in developed countries.

While acknowledging the environmental impact of fossil fuels, particularly coal and diesel, Africa’s energy needs and carbon emission profiles differ significantly from those of the developed world. The continent’s leadership now faces the urgent task of consolidating a unified position on energy policy, balancing immediate needs with long-term sustainability, before it becomes too late to effectively influence the global climate agenda.