Is Ethiopia's Maritime Ambition a Dicey Dive into Somaliland's Waters?

Is Ethiopia’s Maritime Ambition a Dicey Dive into Somaliland’s Waters?

Posted on January 28, 2024January 27, 2024 by Tizita S.

Christopher Clapham, professor emeritus of Cambridge University and an expert on Ethiopia, describes the Horn of Africa region as “a perennially unstable region”. It is often overshadowed by the dramatic geopolitics of the Middle East and historically great powers. Lately, though, a discreet yet significant diplomatic manoeuvre is unfolding after Ethiopia, a landlocked giant with a storied history and a population exceeding 105 million, has made a bold move through an accord with the self-declared Republic of Somaliland.

Seemingly peripheral in the grand schemes of wars and conflicts across the world, the accord could have profound implications for the region’s balance of power.

A deal, inked between Prime Minister Abiy Ahmed (PhD) and Somaliland’s President Musa Bihi, remains shrouded in riddle, with both parties withholding the details. What seeps through, however, suggests an agreement involving a 50-year lease for Ethiopia to establish a naval base along a 20Km stretch of Somaliland’s coast. In exchange, Addis Abeba “might recognise” Somaliland’s long-sought sovereign status.

Unsurprisingly, this quid pro quo has sparked a diplomatic furore, with Somalia, the parent state from which Somaliland unilaterally seceded in the early 1990s, vehemently opposing the arrangement. The Arab League, through Spokesperson Jamal Rushdi, has supported Somalia’s position. So are several countries, from the United States to Turkey and from the European Union to the African Union (AU), compelled to issue a series of statements affirming Somalia’s sovereignty and territorial integrity.

Ethiopia’s quest for a maritime outlet is not novel. Historically landlocked, except for a brief period following the annexation of Eritrea, its leaders have long harboured ambitions of access to the sea. This aspiration reflects not just a quest for strategic depth but also a yearning to break free from the geographical constraints they feel have limited its economic potential.

Prime Minister Abiy’s Administration, under the banner of the Prosperity Party (PP), has been known for its ambitious rhetoric. The latest move can illustrate this tendency, suggesting a willingness to engage in high-stakes geopolitical bets on the world stage. The deal, if realised, could signal a major shift in Ethiopia’s strategic orientation, potentially providing it with a maritime presence that would have been unthinkable a few years ago. It could also signal a more assertive Ethiopian foreign policy, willing to make daring moves despite domestic challenges and the potential for regional backlash.

However, the timing and manner of the agreement should raise questions.

Still reeling from the repercussions of a brutal civil war, Ethiopia faces a cocktail of domestic crises, including macroeconomic instability, violent conflicts, and drought. Investing in overseas infrastructure might seem an ambitious move, but it could also be a risky diversion of resources needed at home. The country’s economy, though showing resilience, is hardly in a state to support ambitious external ventures.

The economic implications of such a venture are substantial. The costs of developing a commercial port, securing finance, and the time before seeing returns on investment are significant considerations. With its economic hurdles, Ethiopia must weigh these factors against the potential for lasting damage to its treasury and international standing.

The Ethiopian populace remains largely in the dark about the precise content of the deal, if not its implications. Expectedly, the absence of transparency from the government has fueled speculation and uncertainty. A state media documentary featuring Prime Minister Abiy discussing the geopolitical significance of maritime access a few months ago added to the air of mystery surrounding his administration’s intentions. The absence of a joint communique following the deal’s signing is unusual, particularly for an agreement of such potential significance.

The opacity is not just a domestic issue for Ethiopia; it has regional implications, as neighbouring states and international actors seek to understand the motives and potential consequences of the diplomatic move. The international reaction has been swift and varied, for the Horn of Africa is a region where historical narratives, ethnic tensions, and strategic interests of global powers intersect.

The African Union (AU), with its headquarters nestled in Addis Abeba, serves as a crucial framework. Its Charter, a legatee to colonial legacies, mandates member states to respect territorial boundaries as demarcated during the colonial era. This principle underpinned Ethiopia’s successful rebuttal of Somalia’s territorial ambitions in the 1970s, grounded in the colonial-era demarcation agreed upon by Italy and Ethiopia. It was this same principle that the international court leaned on to adjudicate the border dispute between Ethiopia and Eritrea.

Yet, the case of Somaliland, a self-declared sovereign state, deviates from this norm.

With a fleeting taste of independence as a British protectorate before its unification with the south to form the Republic of Somalia, its quest for recognition taps into this uncommon historical vein. The early 1990s saw it reassert its independence, a move unheeded by Somalia’s leadership and unrecognised internationally, despite Somalia’s fragility under the duress of armed fundamentalist forces. An external peacekeeping force, spearheaded by the AU and supported by Ethiopian military deployment, remains indispensable in maintaining a semblance of stability, particularly in Mogadishu.

Ethiopia’s boorish posturing in trading recognition for a naval base could be perceived as exploiting Somalia’s vulnerabilities, igniting further tensions. The potential for Mogadishu to escalate diplomatic tensions into a full-blown legal challenge at an international court cannot be discounted. This would not bode well for Ethiopia, often regarded as a bastion of stability in a region marked by volatility, yet eyed warily by its smaller neighbours.

For Somaliland, the deal represents a high-stakes gamble in its quest for international recognition. Despite having a functional government and relatively stable governance compared to its neighbours, it remains unrecognised globally. Its leaders see this deal as a stepping stone towards achieving long-sought international legitimacy. However, this approach risks alienating Somalia and other regional actors, potentially complicating its path to recognition.

The quality of governance in Somaliland has shown signs of erosion under President Bihi, with his temptation to cling to power and the abrupt nature of the agreement he made with Ethiopia. It could undermine the legitimacy and democratic credentials that Somaliland has painstakingly built over the years. Its internal crises, particularly the conflict with the rebellious Las Anod region, add another layer of complexity.

While potentially offering maritime access, Ethiopia’s alignment with Somaliland could embroil it in these internal conflicts, further straining its resources and diplomatic capital.

Somalia, which has long sought to bring Somaliland back into its fold, has rejected the agreement outright. It was a position echoed by the Arab League, affirming the regional implications of the deal. However, more worryingly for Ethiopia should be Egypt, its historical nemesis.

The reaction of Egypt, pronounced by its President, Abdel Fattah el-Sisi, is particularly notable. The longstanding GERD dispute has soured relations between Cairo and Addis Abeba, and Egypt’s support for Somalia could be seen as a strategic countermove. Ethiopia’s leaders must navigate these waters cautiously, as missteps could aggravate existing tensions and draw the country into more convoluted regional disputes.

Domestically, Ethiopia faces its own set of problems. Engaging in a potentially contentious maritime venture at this juncture could be seen as imprudent. While ambitious, its leaders’ recent initiative to export wheat has proven to be a costly endeavour, unearthing the need for rigorous planning and economic pragmatism. Pursuing maritime access, a centuries-old aspiration for Ethiopian leaders, demands a careful balance between ambition and reality.

Ethiopia’s leaders stand at a crossroads. The allure of maritime access and the economic opportunities it presents are undeniable. Nonetheless, the geopolitical and economic risks are formidable. The path forward requires a subtle approach, balancing the country’s long-term interests with the realities of regional dynamics and its internal turmoil.

Tourism Mirage in a Land of Ancient Castles

Posted on January 28, 2024January 28, 2024 by Tizita S.

In the heart of Gonder, a town in the Amhara Regional State, a palpable sense of uncertainty lingers. Once the lifeblood of vibrant festivals that attracted travellers from far and wide, the town now struggles with a starkly different reality. The ancient castles, standing as silent witnesses to the test of time, overlook a town floundering under the weight of an economic downshift.

The Grand Goha Hotel, once a thriving hub during festive seasons, paints a picture of the broader economic woes. With 82 bedrooms, it has historically been a centre of the town’s hospitality industry, but recent times have seen only half of these rooms occupied during key celebrations like the Epiphany. Amare Atnafu, the hotel’s general manager, recalled times when additional tents were necessary to accommodate the overflow of guests – a sharp contrast to the current situation.

The hotel, a part of Bekas Plc, employs 140 staff, whose livelihoods depend heavily on the influx of tourists. However, the sharp decline in visitors has left many rooms unoccupied, straining the hotel’s finances to the point where covering basic costs like electricity and salaries has become demanding. It has also impacted their ability to meet tax obligations, revealing the depth of the financial crisis they face.

This situation is not isolated to the Grand Goha Hotel but is a telltale of broader economic upheaval in the region. The Amhara Tourism Bureau, which once boasted annual revenues of 5.4 billion Br, now faces a significant reduction, having collected only 1.6 billion Br in half a year. The ongoing armed conflict in various parts of the region has heightened safety concerns among potential visitors, leading to a postponement of travel plans.

The tourism sector, critical for the region’s economy, especially between August and February, has seen a dramatic decrease in numbers. The ambitious target of attracting 84,000 international visitors by the year’s end seems increasingly unattainable as last year’s figure of 30,000 tourists dwindled to just 10,000 in half a year. The sector, barely recovering from the impacts of the pandemic and the civil war in the north waged for two years, faced further setbacks with the eruption of another round of conflicts in various parts of the region and the subsequent declaration of a state of emergency in August last year.

“Peace and tourism are two sides of the same coin,” Melakmu Assefa, the Bureau’s director of tourism development, succinctly put it.

This sentiment is echoed by Alubel Workie, a lecturer at the Department of Tourism Management at Gonder University, who points out that low-level promotion, inept leadership, and instability are major factors stalling the sector’s growth.

“Injecting finance into unstable locations is not a panacea,” said Alubel.

He advocated for establishing training centres to develop skilled professionals in the field, urging stability is the linchpin for any sector resurgence.

The narrative shifts when considering the capital city, Addis Abeba, where the vitality of conferences and meetings once filled the air. However, hoteliers reveal that the situation has changed post-pandemic, with technological and service delivery gaps stunting established hotels.

According to Ashenafi Mulugeta, a hospitality consultant, there is a need to focus on meetings, incentives, conferences, and exhibitions – MICE in the industry’s parlance – tourism as a potential lifeline for the industry.

But the conferences and meetings business has been shifted to other African countries like Rwanda and Kenya, which are actively working on business tourism, observed Aster Solomon, a major shareholder of Mosaic Hotel in Addis Ababa, is at the forefront of a lobby group representing 170 hotels in the city. About 10 have shut down or transformed into other businesses while new hotels emerged, driven by franchise agreements.

“They’re actively working on business tourism,” she said of the other countries. “This adds another layer of complexity to the situation.”

Ethiopian Airlines, once an indispensable player in supporting the tourism sector by banding with hotels for transit passengers, has now turned its focus to its establishment, the newly constructed Skylight Hotel on Africa Avenue (Bole Road). It is a fateful development for several hotels in the city, which has led to declined business, exacerbating the already precarious state. With its newly constructed property of around 1,000 rooms, it charges 1,200 Br a night for a transit guest.

Aster remembered the long-drawn negotiations that took place to adjust the inadequate fees paid for transiting passengers, which were then adjusted to 2,000 Br.

Assefa Tilahun, an economist at Gonder University, pointed out that tourism is a critical livelihood, from the grassroots level to hotels and tour operators. The slowdown in tourism has resulted in lower foreign currency flow and difficulties for businesses in paying taxes and salaries. Domestic and international tourism was valued at around 61 billion Br and 3.6 billion dollars last year, respectively, with 38.2 million domestic and one million international tourists.

“It’s what we saw in agricultural production reports that do not show the reality on the ground,” said Assefa.

There is scepticism about the reported increase in tourist flow and revenue, especially given the instability in the northern part of the country, which is a preferred destination for many tourists. Ministry of Tourism struggles with accurate tools for collecting data on domestic and international travellers.

A study on the economic contribution of tourism activities discovered that infrastructure development, promotion, awareness creation, and local community participation in decision-making are crucial for the sector’s success. However, projects like “Gebeta Le’Hager” and “Gebeta Le’Tiwlid”, promoted by Prime Minister Abiy Ahmed (PhD), have not been enough to resurrect the sector, according to Fitsum Gezahegn, head of the Ethiopian Tour Operators Association (ETOA).

The Ministry of Tourism’s struggles with collecting accurate data on domestic and international travellers further expose the tourism industry’s woes.

Alemayehu Getachew, the Minisytry’s head of communication, disclosed plans to develop tourist satellite accounts to illustrate the sector. The Ministry’s current ambition lies in rating the country’s 340 hotels, intending to rank 142 establishments by the year’s end.

Tariku Demisse, head of tourist service providers and licensing at the Ministry, believes in the importance of this rating system.

“Hotels should be evaluated every three years to maintain their star status,” he told Fortune.

Adamantly opposing the idea of businesses being overtaken by the Airlines, for harming their market share, he claimed that the Ministry has done all it can for the sector and urges hoteliers to focus on enhancing their capacity to serve guests, pointing to the sector’s vast growth potential.

“It’s more than enough,” he said, recalling duty-free import privilege for construction and opportunities to train their employees abroad.

The government’s “Back-to-Origins” initiative, aiming to draw second-generation diaspora community back to Ethiopia, has seen mixed results. Despite offering a 25pc discount to the diaspora in collaboration with hotels, there has been a notable decline in their numbers over the past three years.

Elgel Hotel, a proactive participant in the initiative, offered discounts. The Hotel has an average occupancy rate of 72pc a day, disclosed Alemayehu Fikremariam, general manager. He noted that the diaspora community has not taken advantage of the package as expected.

“We haven’t seen any guest surge,” he said.

Fitsum described the challenges tour operators face, including travel alerts embassies in Addis Abeba regularly issue to their citizens about Ethiopia’s uncertainties. He called for advocacy to promote Ethiopia as a tourist destination, arguing against the official narrative presented by the Ministry, which he claims does not reflect the reality on the ground.

“Things are not what they seem,” he said.

Abraham Mola, a major shareholder of Ethiopian Highland Tour, described the grim reality for tour companies. Incorporated 12 years ago with half a billion Birr investment, his company has seen its business decline sharply. Once indulging up to 15 trips a month, the tour company has dwindled to just two tours this year. Financial strains forced Abraham to sell all three company cars to meet tax obligations and payroll for employees residing at tourist destinations.

Out of the 270 tour operators, a significant half now operate in a landscape defined by volatility while insecurity on the roads and the scepticism of travellers fuel the struggle.

“Tourists could come only if they were sure of their safety,” he said, stressing the critical importance of stability for the sector’s survival.

Real Estate Deal Gone Awry

Posted on January 28, 2024January 28, 2024 by Tizita S.

In a high-profile corruption trial at the Federal High Court, businessman Abnet Gebremeskel, formerly a close confidant of prominent tycoon Mohammed Hussein Al-Amoudi (Sheikh), faced criminal charges. Prosecutors claim in an arraignment, which unfolded over two days, that a real estate transaction and the financial dealings for a plot on Africa Avenue (Bole Road), was fraudulent.

Prosecutors allege that a transaction involving a 1,971Sqm plot in Qirqos District, Woreda 2, known as Bole Towers, was transferred fraudulently to Mullege Plc for 83 million Br. An American citizen, Abnet owns a 40pc stake in Bole Towers Plc, which leased the plot, with the remaining share held by Al-Amoudi, a Saudi business tycoon. The alleged deceit is purported to have occurred during the transaction at the Sheraton Addis, a deal that was later authenticated. However, the prosecution contends that Abnet concealed ownership details in collusion with officials at the Land Holding & Registration Agency.

The trial, presided over by a panel of judges including Yonas Mengistu, Gizachew Geleta, and Getahun Gebremeskel, heard testimonies from eight expert witnesses the prosecution brought forward, including Jemal Ahmed, current CEO of MIDROC Investment Group, and Teklu Hailu, former chief financial officer (CFO) of the Group. Jemal, a key witness for the prosecution team, provided a detailed account of the transaction.

Jemal told the Court that he introduced the buyer, Mustefa Awel, a significant shareholder in Mullege Plc, a company incorporated in 2006 with a registered capital of 495.6 million Br. He claimed to have not been aware of the transaction conducted without Al-Amoudi’s prior consent. He testified that he later discovered that Al-Amoudi had not consented to the deal, leading to revelations about the covert depositing of the proceeds into Abnet’s personal account.

The legal proceedings took a dramatic turn during the cross-examination of Jemal by the defence team from the 5A Legal Firm.

The defence attorneys – Ali Mohammed, Amare Ashenafi, Almaw Wolie, and Ashenafi Yirga – probed Jemal on several points, including overseeing a landholding certificate that displayed Abnet’s name instead of Bole Towers Plc. They inquired about the event where Abnet’s spouse was also in attendance to sign off on the property. Jemal admitted to signing the agreement as a witness without examining the details, including the ownership part, a point the defence seized upon to question his credibility and thoroughness.

“I’d still sign on documents I trust,” he told the Court.

Jemal’s longstanding relationship with Abnet dates back to 2000, and his ascent in Al-Amoudi’s business circle, where he managed Horizon Plantations Ethiopia Plc, a subsidiary of Midroc Investment Group. He was eventually appointed CEO of Midroc, an association under scrutiny during the cross-examination. The defence team argued that Jemal’s signing of the document, especially after being granted a power of attorney, proves he was more informed than he told the Court. They also hammered the issue of his company’s involvement in supplying materials to the construction on the disputed plot, to which Jemal’s response was terse yet telling: “It’s our duty.”

The prosecution’s strategy included bringing Teklu, now finance advisor at Midroc, to the stand to establish Al-Amoudi’s part-ownership of the plot through his shares at Bole Towers Plc. He testified about a significant financial transaction – 192 million Br – transferred from Midroc’s account to Bole Towers Plc, allegedly under Al-Amoudi’s instructions, revealing the financial backing for his assets.

“It was considered an investment,” said Teklu at the hearing.

The subsequent day’s proceedings focused on the other defendants Eskedar Assefa, a GIS expert at the time, and Wondimagegn Dagnaw, landholding right services team leader of the Addis Abeba Landholding Registration & Information Agency Qirqos Branch.

Testimonies of experts such as Bahiru Girma, another landholding expert at the Agency, revealed an “evasive amendment” to the certificate issued in Abnet’s name in 2017. The amendment, which occurred three years after the original issuance, inexplicably erased references to Bole Towers Plc, raising serious questions about the document’s authenticity and the Agency’s role in the alteration process, according to the prosecution’s witness.

He told judges that the City Land Development & Administration Bureau should have corrected the document in case of mistaken identities.

“It’s not within our mandate,” Bahiru said.

Defence lawyers Fasika Alemu and Yared Legese (PhD) probed the witnesses rigorously, seeking to unravel the inconsistencies and transparency of the Agency’s processes. The legality of the ownership structure was a point of contention. Expert witnesses indicated ownership should not be altered unless plots are transferred, gifted or inherited.

The experts, including technical expert Behailu Ahmed and document authenticator Azeb Tekle, confirmed that the certificate of ownership issued named both Bole Towers Plc and Abnet when the blueprint was copied, adding another layer of perplexity to the case.

Market Dynamics to Drive Monetary Decisions

Posted on January 28, 2024January 28, 2024 by Tizita S.

The central bank is embracing a price-based monetary policy, a departure from its traditional approach, as part of a comprehensive three-year strategy outlined by the National Bank of Ethiopia (NBE). The shift, spearheaded by Governor Mamo Mihretu, and his advisors, is seen as an essential step towards addressing the country’s long-standing macroeconomic constraints.

The strategy, unveiled last week, aspires to achieve robust macroeconomic stability through a series of quantitative goals, including beefing up the foreign currency reserves to cover two and a half months of imports by 2026. The plan also targets a significant reduction in inflation, bringing it down to eight percent. It seeks to expand the role and value of digital payments and financial services, with an ambitious goal to increase them more than fourfold to 17 trillion Br.

Central to this strategy is the establishment of a market-based monetary system. The central bank is set to reactivate a monetary policy committee that will spearhead this transition. The committee is expected to guide the economy towards a system where monetary policy decisions are influenced by market dynamics, rather than ideologically driven and government-directed path. Price stability is presumed to be the top priority. Eventually, reconsidering current policies on capital accounts and current accounts based on studies is also part of the strategy.

Fikadu Digafe, the central bank’s vice governor, described the shift as a move towards a “more modern system.” He believes the price-based monetary system is in line with global central banking trends, where using interest rates as a nominal anchor to steer the economy is the rule. According to Fikadu, this approach allows for enhanced liquidity management, which is crucial for a growing economy like Ethiopia.

“It’s an essential instrument in liquidity management,” he told Fortune.

A critical instrument in the new strategy is open market operations, a tool for managing liquidity in the economy by allowing the movement of finance based on demand and supply. The central bank’s recent agreement with the US-based technology firm, Motran, is instrumental. Motran will supply a Central Securities Depository (CSD), a system essential for implementing open market operations. Supported by a 2.5 million dollar fund from the World Bank, the company’s earlier involvement includes supplying the CORE banking system twelve years ago.

One of the central bank’s key initiatives is to transform the size, shape, and scope of the financial sector. This transformation includes expanding access to financial services, digitisation, and encouraging foreign investors and capital markets participation. The strategy emphasises the need for a ‘clean and adequate’ currency supply, ensuring financial institutions access sufficient high-quality bills. The approach is expected to streamline currency management across the banking sector.

The shift in policy is also expected to have implications for the nascent capital markets. Interest rates are anticipated to play a more significant role in market dynamics, with the central bank retaining a mandate over inter-banking operations. Brook Taye (PhD), the director general of the Capital Market Authority, noted that market-based principles in security markets facilitate a transparent price discovery process, which is indispensable for a thriving capital market.

“The price discovery process can help,” Brook told Fortune.

Zemen Bank recently became an inaugural investor in the Ethiopian Security Exchange (ESX) with a five percent stake. Its President, Dereje Zenebe, welcomes the central bank’s move, noting that the lack of modern financial instruments has previously impacted liquidity.

“A predictable and reliable financial sector, driven by market forces, can make inflation a healthy phenomenon,” he told Fortune. “Banks create money when they lend it, after all.”

Dereje views the highly anticipated entry of foreign banks in the domestic market as a positive step towards introducing healthy competition and increasing capital and liquidity in the industry. However, he cautioned against seeing this as a final solution to the financial sector’s problems. According to him, the foreign currency crunch is a significant issue, with demand far outstripping supply.

“Everything comes down to demand and supply,” Dereje said.

The imbalance has manifested in the foreign exchange interbank market, which saw a 3.3pc decline in the fourth quarter of 2022/23.

The central bank’s definition of external stability includes maintaining an exchange rate that avoids significant or prolonged discrepancies in the parallel market. The dollar rate in the parallel market is more than double the official rate. In the last quarter of 2023, the number of treasury bills sold by the central bank rose by 20.9pc to 149.2 billion Br, while the outstanding bills increased by 6.7pc, reaching 338.5 billion Br.

Efforts to steer Ethiopia’s financial industry towards market-based principles are not new, dating back nearly a quarter-century. However, previous attempts faltered due to a lack of institutional follow-up and a shift in economic policies with changes in governments.

Eshetu Fantaye, a veteran banker, advocates for an independent open-market operations committee. He sees the need for a strategic position that distances the committee from government objectives as crucial for taming inflation. Success, according to Eshetu, hinges on shedding insular perspectives, embracing long-term commitments, and embodying institutional autonomy, knowledge, and goodwill.

While aspirations for an interbank market resurge, he acknowledged the historical constraints of both local and foreign currencies. Eshetu considers the central bank’s forex reserve target conservative, yet rooted in a thorough analysis of economic trends.

“It likely arises from inspection of trends in the balance of payments, external debt pressures and assessments of the current and capital accounts,” he said.

Oromia Bank’s Strategic Advance Yields Growth in Cutthroat Banking Industry

Posted on January 28, 2024February 2, 2024 by Tizita S.

Oromia Bank has emerged as a noteworthy player in a highly competitive industry, carving out a steady growth path, as evidenced by its recent financial results.

Its profit surged by 600 million Br to 1.58 billion Br, a 31.7pc growth, a trend its leaders credited to operational efficiency and strategic planning. Although the earnings per share (EPS) were much lower than posted in 2018 (525 Br), they have grown by 5.5pc from last year to 324 Br. However, the Bank’s robust performance is overshadowed by its peers, such as the Cooperative Bank of Oromia (Coop) and Hibret Bank, which have netted significantly higher profits.

Assefa Seme (PhD), the board chairman, attributed this growth to implementing a three-year strategic plan to transform the Bank’s operations.

“The strategic focus is not just on growth,” said Assefa. “It’s also on managing the Bank’s expense profile, a critical factor in sustaining long-term profitability.”

Teferi Mekonnen, president of Oromia Bank, echoes this sentiment, emphasising the importance of cautious expansion and prudent staff hiring.

Oromia Bank’s income growth was noteworthy, particularly in its primary revenue streams. The Bank saw a 44.3pc increase in income from interest on loans, advances, and investments in treasury bills and bonds. Income from interest-free financing, fees, and commission also showed significant increases, rising by 44.3pc and 52pc, respectively.

However, this revenue growth has been accompanied by a corresponding expense increase.

The total expenses of Oromia Bank rose to 6.3 billion Br, with interest expenses and distributions to interest-free depositors climbing by 46.3pc. These numbers, while substantial, are still less than half of what the Cooperative Bank of Oromia has reported. Oromia Bank’s wage and benefits expenses, reflecting an industry-wide trend, increased by 51.3pc, and general administration expenses grew by 53.9pc.

The spike in expenses has drawn the attention of industry experts like Abdulmenan Mohammed (PhD), who caution vigilance in managing expense growth to sustain profitability.

The management has noticed it. Reducing expenses has been amongst Oromia Bank’s strategies, particularly on administrative expenses and time deposits, according to Teferi.

“We’ll be mindful over opening new branches and hiring staff,” said Teferi.

Oromia Bank has shown prudence in its expansion efforts. In the fiscal year 2022/23, the Bank inaugurated 103 new branches, taking its total count to 503. However, the expansion has been tempered with heedfulness as Teferi disclosed the Bank’s restrained approach towards opening new branches and hiring new staff.

Dechassa Fanta, a branch manager in the Mexico area, recalled the “unfair competition” the Bank faced, particularly in the construction sector’s downturn and the consequent liquidity crunch. Despite these hurdles, he expressed confidence in the Bank’s ability to manage liquidity effectively, citing its robust Real-Time Gross Settlements (RTGS) capabilities.

Experts commend Oromia Bank’s approach to risk management, particularly in loan provisioning. The Bank’s provision for impairment of loans and other assets stood at a reasonable 70.2 million Br, significantly lower than its peers. This can be attributed to the Bank’s lower non-performing loan (NPL) ratio of 1.6pc, which is three-fold lower than the industry average.

Teferi’s leadership has been instrumental in guiding Oromia Bank through these challenging times. With a banking career spanning 25 years, including a 13-year tenure at Oromia Bank, his experience and strategic vision have been crucial. Under his leadership, the Bank has achieved a historic high in foreign currency generation, with a 33pc surge to 371 million dollars.

Oromia Bank’s journey in the Ethiopian banking sector began in 2008, with a paid-up capital of 91 million Br raised from 5,000 founding shareholders. Today, the Bank’s paid-up capital has grown to 5.37 billion Br, a 22.9pc increase from the previous year. Although its capital adequacy ratio has declined to 17.2pc from 21.3pc, it remains robust, especially compared to its peers.

One of its 15,000 shareholders, Tilahun Girma, holding shares valued at 150,000 Br, emphasised the importance of financial inclusivity and the need to focus on the unbanked segment of the population.

“Financial inclusivity is important,” he told Fortune.

It is a perspective crucial in an environment marked by relentless inflationary pressures and the impending entry of foreign banks into the market.

Ranked seventh among 15 banks in total assets, Oromia Bank holds its own in a sector dominated by giants like Awash Bank (183.3 billion Br) and Abyssinia Bank (149.4 billion Br). While not leading the sector, the Bank’s Return on Assets (RoA) of 2.3pc and the 17.7pc Return on Equity (RoE) are competitive. The industry’s leaders in RoA – Zemen (4.3pc) and Addis International (3.9pc) – set a benchmark, with the industry average trailing slightly behind.

Oromia Bank operates in a sector where EPS ranges from 57pc to 15.6pc. However, the sector’s top performers – Awash (25.8pc) and Abyssinia (24.7pc) – have much larger returns on equity compared to its 17.7pc. The average for the 15 private banks was 19.8pc.

Oromia Bank’s total assets have expanded by 25.7pc to 65.41 billion Br. Its loans, advances, and interest-free financing have increased by 32.9pc to 41.56 billion Br. The Bank’s deposit base also grew by 24.8pc to 54.27 billion Br. While these figures are impressive, they are still overshadowed by its peers like Cooperative Bank of Oromia (116 billion Br) and Hibret Bank’s 64 billion Br. The loan-to-deposit ratio of Oromia Bank, which stands at 76.6pc, indicates potential for further lending.

Contests the President: “It [the ratio] is healthy and meets the regulatory standard.”

Oromia Bank has seen a relative decline in its liquidity level in relative terms, despite an absolute increase in cash and bank balances. Cash and bank balances increased by 12.1pc to 10.99 billion Br. It is a bit higher when compared to Hibret Bank (9.23 billion Br) and Wegagen Bank (9.06 billion Br). Cash and bank balances to total assets ratio decreased three percentage points, and cash and bank balances to total liabilities declined to 19.4pc from 21.7pc. Hibret Bank stands at 11.2pc while Wegagen Bank’s is far higher at 16.9pc.

However, its loan-to-deposits ratio increased by 4.6 percentage points to 76.6pc, signalling room for more lending, according to Abdulmenan. The Bank’s investment in government securities, amounting to 5.25 billion Br, represents a significant portion of its total assets.

Oromia Bank’s future strategy appears to be focused on enhancing its market position, especially in comparison to larger rivals. Improving operational efficiency is likely to be a key focus, given the varied cost-to-income ratios across the industry.

Though not at the forefront, Oromia Bank maintains a considerable market presence. Its competitive strategy could be geared towards enhancing its market position, especially in light of larger rivals like Awash and Abyssinia. Improving operational efficiency might be critical, given the varied cost-to-income ratios across the sector, a key factor experts see for sustaining growth.

“This strategic approach will be crucial for sustaining profitability in a competitive banking environment,” said Abdulemenan.

Editors’ Note: The article was updated from its original form on February 2, 2024.

HIGHWAYS IN HURDLES

Posted on January 28, 2024January 27, 2024 by Tizita S.

Ethiopian Roads Administration (ERA) is under treacherous terrain, terminating 32 road construction projects and suspending an additional 52 projects due to an array of obstacles. Security concerns, supply chain disruptions, budgetary shortfalls and surging compensation claims have cast a shadow over the Administration’s mandate of overseeing the construction and maintenance of approximately 30,000Km of roads across the country.

Mohammed Abdurahman, director general of the Administration, presented last week a six-month performance report to the Standing Committee of Urban Infrastructure & Transport Affairs, chaired by Shewit Shanka. The report laid bare the extent of the crisis on the severe undersupply of construction inputs.

Only 14pc of the nearly 680,000tns of cement demanded by projects were delivered and a mere 39pc of the demand for fuel was met. The 238 renovation and construction road projects, currently spanning 16,599Km under the Administration face additional difficulties arising from a shortfall in financing from the Chinese Exim Bank and Saudi Arabia. Compounding the issues is a sharp increase in construction input costs, soaring by 263pc over the past three years.

“We’ll have to revise how our contracts handle these kinds of price changes,” said Mohammed.

Exit strategies are currently under formulation as the Administration endeavours to finalise projects either lagging for an extended period despite nearing completion or those de facto terminated.

Sisay Bekele, deputy director of Corporate Services, observes a sharp rise in prices of steel and the underproduction of cement as pressure points delaying project completion dates. He observes a potential remedy in joint ventures such as Lemi National Cement Factory. With a budget of 600 million dollars, the factory constructed under East African Holding and the Chinese West International Holding is touted to boost the country’s cement supply if it begins operation.

“It’ll address most of the shortage,” Sisay told Fortune.

Annual demand for cement in Ethiopia hovers around 36 million tons, with the existing 18 cement factories supplying less than half of that amount due to input shortages and obscure distribution channels.

While the Administration’s operating budget reached a record high of 75.6 billion Br, the proliferation of compensation disputes further constrains its efficacy. It is facing 635 compensation cases valued at 13.5 billion Br, with 49 right-of-way cases valued at around 191 million Br ruled against the Administration.

The report further alleges that groups in Qelem and Horo Gudru towns in Wellega Zone, Oromia Regional State have been taking advantage of the security gap to have court decisions ruled in their favour and subsequently withdrawing money from the Administration’s accounts.

“There seems to be more of a desire for compensation than infrastructure in some areas,” said Dejene Fekadu, deputy director.

This sentiment was outright rejected by Teshome Wale, deputy chair of the Standing Committee, who, in contrast, observed an ever-increasing demand for development across the country.

“People are willing to relocate even without compensation,” he underscored.

Dejene emphasised the challenge of staff abductions and significant transportation hurdles faced by the 25 project offices. He revealed that Administration staff work under constant threats, opting to use public transport to avoid detection.

“Getting construction input to sites is quite challenging,” Dejene told Fortune.

Despite the myriad of challenges, the Administration built around 279Km of new roads and provided strengthening and renovation to approximately a quarter of its targeted 1,564Km. However, 41pc of projects operated at less than half of the planned capacity, with 20pc lacking both planning and implementation.

Renovations in the Kombolcha town, Amhara Regional State, which suffered severe damage from the conflict in the north were not able to commence while those in Debre Markos town faced delays due to ongoing instability. Similar projects in Shashemene town Oromia Regional State were pushed back due to heavy rainfall over the past six months.

Out of the 36.61 billion Br budget for spending in the first half of the year, the Administration managed to utilize around 63pc, which did not sit well with the Committee chair. Shewit urged better resource utilisation and a need to squeeze the maximum out of its allocated budget.

While acknowledging efforts in engaging stakeholders, digitisation and asphalt procurement, Shewit stressed the importance of enhancing research and training capabilities for improved project management.

“Some issues like security might be out of your control,” she said, “but identical excuses should not be forwarded for every project delay.”

An MP from the incumbent party in Gatra town Oromia Regional State was the only member who forwarded questions. Nurzeman Jebril implored the Administration to reimagine strategies to meet evolving setbacks.

“Why don’t you prioritise projects in relatively peaceful areas?” he asked.

Dejene responded that prevailing security conditions and the aftermath of war have forced a revision of previous procedures.

“We’re currently managing crises, not projects,” said Dejene.

A pervasive lack of capacity in contractors, with 25 domestic and 11 foreign contractors performing at less than 50pc of the scheduled plans was cited as another predicament.

The urgent need for strategic reevaluation, enhanced professionalism, and a holistic approach to address the issues facing Ethiopia’s road infrastructure development becomes increasingly apparent.

Experts such as Abebe Dinku (Prof) underscored a lack of professionalism among consultants, contractors, and the Administration as a major cause of project delays. He emphasised the need for realistic contracts and highlighted the problematic relationship between professionals, which usually leads to impractical terms.

According to Abebe, most public construction contracts are defined by government budget schedules of less than 18 months, avoiding possible price revaluations. He said most of the contracts mediated by consultants lack basic theoretical considerations of right of way, time and budget, fueling project delays.

“Unrealisable targets are set seemingly on purpose,” he told Fortune.

Global Bank Ethiopia Faces Escalating Labor Dispute

Posted on January 28, 2024January 27, 2024 by Tizita S.

In a brewing labour dispute at Global Bank Ethiopia, tensions are on the rise as 315 employees including union leaders find themselves terminated by the management. The discord revolves around the Board of Directors’ decision chaired by Bikila Hurissa to outsource certain services and concerns over unmet educational qualifications.

Formerly known as Debub Global Bank, the 12-year-old financial institution has its workers, trade union leaders and management failing to see eye to eye.

Daniel Mamo, the human resource manager, attributes the terminations to a mere preference for outsourcing and the necessity of meeting educational qualifications. The letter dispatched to employees was penned last month and was brought to the attention of the Addis Abeba Labor & Skill Bureau, the Confederation of Ethiopian Trade Unions (CETU) and Ethiopian Financial Trade Unions (IFEFTU) with efforts for mediation by labour advocates hitting a roadblock.

Union leaders are considering taking the case to court. Desta Berhe, president of the Ethiopian Financial Trade Unions, reveals that despite informing the bank management about the legal implications of terminating union leaders, a resolution remains elusive.

“Only the courts will resolve this issue,” he told Fortune.

The labour dispute traces its roots back to changes made in May 2023, where amendments to working conditions and overtime payment modalities sparked grievances among workers. A union was formed in response, countered by management with a Worker’s council. Despite a ruling by the Addis Ababa Labor Relation Wage Board to merge the two unions three months ago, tensions persist.

Abebe Meknonen, head of the former union, alleges that the terminations are a consequence of advocating for better working conditions.

“We were let go for attempting to bargain on behalf of workers,” he said.

The city Labor & Skills Bureau received a complaint from the Global Bank’s original trade union four months ago. It alleged being forced to migrate from its current union to a new one under the management’s influence, failure to fork up legally stipulated monetary contributions and refusal to appear for meetings from the management side.

As the dispute escalated, a meeting comprising union leaders, employees and the Bank’s management staff was called by the Bureau two weeks ago to carve out amicable terms.

Kassah Seyoum, head of the Industry Relations Directorate at the Bureau who chaired the meetings, emphasised the need to exhaust all avenues of settlement through negotiation and talks before moving up further in the legal ladder. He believes to have made a small headway towards resolving the sources of contention. But the sentiment is not shared by the Union leaders.

“The last thing we want is for them to end up in court,” he said.

Global Bank managed to net 523 million Br profit for the ended year 2023. It has 2,391 employees across 152 branches. President of the Bank Tesfaye Boru (PhD) indicated that the Bank will be focusing on repositioning its brand, committed to “upskilling and reskilling employees.”

Binyam Fikadu, communication director of Global Bank, dismisses the claims as a smear campaign against the Bank. He said the terminations are performance-based and part of a strategic plan to enhance efficiency by weeding out underperforming workers, which is well within its legal right.

“The claims are groundless,” Binyam told Fortune.

Legal experts indicate the need to reconcile corporate decisions with workers’ rights. Mehari Redae, the international law expert, affirms an employer is allowed to let any staff go to improve its efficiency, as long as the process takes place strictly adhering to the law.

“How they were let go is the source of the problem here,” Mehari told Fortune.

Mehari said trade union leaders should be the last ones to be let go under the law. He suggests that court proceedings may be necessary to bring a resolution to the complex labour dispute.

As the standoff between the Global Bank of Ethiopia and labour advocates continues, the fate of the terminated employees hangs in the balance. Aregash Urisha, 39, is the sole breadwinner for her four children with 7,000 Br monthly wage. Terminated a month ago from a security guard position, she is distressed over the abrupt job losses and the financial challenges that accompany her.

“Nothing has been the same since,” she said, with teary eyes.

According to Aregash, there was no performance evaluation before the termination letter. She said: “The Association was viewed as a threat from the start.”

Cloudy Horizons in the Digital Ecosystem

Posted on January 28, 2024January 27, 2024 by Tizita S.

With a background in cybersecurity, CEO Charly Bahaous is from Israel and relocated to South Africa in 2006. Under his watch, Touchnet has grown to encompass over 300 employees across various sub-sectors. The Company’s portfolio includes a fibre management and construction business, cybersecurity sourcing and distribution, and a recently initiated remote hand’s smart driving system with approximately 250 personnel on board. There is a 40-member staff based in South Africa dedicated to the Internet Service Provider (ISP) operations, complemented by numerous partners such as 251 in Ethiopia and Wasp in Ghana.

Fortune: The global cloud service is dominated by centralised systems. Competing with giants like Google and Amazon. What do you plan to do to penetrate the market share as a decentralised service provider?

Charly Bahaous: We bring proximity. Falling within the standards and regulations of the country while being easily accessible to local clients addresses latency and data protection. Decentralised clouds also spare expenses. Having access to localised mini-cloud environments will give businesses the flexibility to scale on demand, instead of laying out capital investments and waiting for long-term returns.

Q: TouchNet is operational in eight African countries. Does the underdeveloped digital infrastructure in most parts of the continent affect its services?

It is tough, but we are hopeful. ICT hubs, undersea and terrestrial expansion of fibre and increasing content are all planting the seeds to slowly make the change. We are observing the emergence and expansion of data centres; Raxio in Ethiopia, Paratus in South Africa, Pikes in Ghana and others in northern Africa represent hope. We depend on their expansions but patience is crucial.

Q: What parameters led you to recognise the Ethiopian market as promising?

We sensed the liberalisation following Safaricom Ethiopia’s traction and started setting things into motion as of January 2023; here we are 12 months later. The ability to provide local sovereign cloud while paying in Birr makes the services convenient and affordable with access to global markets for software service providers.

Q: Evolved threats are challenging the cybersecurity with development of Artificial Intelligence. What strategies does your service employ for data protection?

There are compliance issues in any infrastructure as a service; from both data protection and a privacy perspective. Most controls were already enabled from the access control perspective while we have added certain anti-ransom technologies. Our minimum requirements are ISO 27001 from a standard perspective and the GDPR in terms of data privacy. There are additional requirements in each country which we happily adjust to. Countries like South Africa have introduced the Protection of Personal Information Act (POPIA), which adds layers of protection.

Q: With the pending Data Protection Proclamation law, do you rely on local partners to analyse new markets or conduct independent analysis?

As a responsible business, we check and verify the direction a country is heading through publications and available statistical data. However, partnerships play a major role where enabling growth would be beneficial for both.

Q: What benchmarks do you apply when selecting partners?

People and values make or break a business; there is no other way. We also try to give smaller Internet Service Providers (ISPs) and telecoms a fair fight in competing.

Q: Data sovereignty is an essential part of the business. Has the African Union’s Data Protection Act factored into your operations?

Having control measures is very welcome and the AU policy hit the sweet spot. It allowed for building blocks and modelling capabilities that can slowly grow to unlock the full potential of a covering cloud without the massive capital expenditure associated with it. That is exactly what we did.

Q: What is your value proposition in terms of interoperability?

We are agnostic when it comes to co-existing with other cloud providers in parallel, on-premise, in the data centres. We do not plan to charge for migrating own data from one system to another, which is a major sticking point for businesses alongside Application Programming Interface (API) integration with other service providers one might already be using.

Q: What potential market segments do you seek in Ethiopia, observing other countries you operate in?

A big growth has been witnessed around sports betting platforms recently as they need local data for their transactions in other countries. Manufacturers, financial institutions and insurance companies desire secure, encrypted services with anti-ransom capabilities with growing threats to cybersecurity. E-learning is also massive. Most businesses with high hardware costs are inclined to adopt cloud services in software provision. Content creators are also a big part of our strategy in 2024-25 for self-service, as the number of our nodes has increased to 500 globally.

Q: Ethiopia has been making headway in digitisation. Where do you see your business in the next couple of years?

Keep opening up and the sky is the limit. The ICT space is expanding with more programmers and a large youth demographic which is an immense potential.

Q: Are you still optimistic about the growth potential considering the proliferation of conflict and economic instability in parts of the continent?

Why not? Look at Europe and the Middle East. There is instability, but I am always optimistic if tomorrow is guaranteed. I trust my people and what I observe on the ground. Rolling out into eight countries in a single year is unheard of; people need these services and we will give them a technology that works.

Using cloud service as an entry point, 251 Telecom under Addis Alemayehu is venturing into the telecom sector. He recounts a journey spanning 25 years, initiated by the signing of an MoU with Vodacom in 1998 when the Ethiopian telecom market was closed. The Company had to bide its time until the regulatory environment caught up marked by the entry of Safaricom Ethiopia into the market. Granted a virtual Internet Service Provider (ISP) and mobile services license from the Ethiopian Communication Authority, the company’s plan is contingent upon the ongoing viability of the policy framework.

Fortune: Why did you decide to enter the cloud service provision?

Addis Alemayehu: The main motive, like most businesses, was a point of pain. We invest in technology startups. Paying around 150 dollars for each of our 16 companies to host services has become a burden. Cloud services are in demand, with local companies paying for them in dollars.

Q: Ethiopia’s digital ecosystem has often been criticised for inadequate infrastructure and a bureaucratic maze. What would you suggest?

Long-term investments should be put into consideration when accessing digitisation. Allowing hardware that empowers a generation to come in duty-free needs to happen immediately.

Q: What does the partnership with Touchnet entail?

We are their exclusive partner in Ethiopia. Although our contact dates back to about a year and a half, we had to wait until a data centre was up and running. As Raxio Data Centre launched in November, we started our due diligence with the server and the equipment on the way. I believe we will launch within three months.

Q: How much investment have you made in the business?

This is a shared infrastructure and investment. The server and equipment coming in are a little over 200,000 dollars. The total infrastructure is a huge investment that goes beyond one entity or our little monetary contribution. Raxio has spent north of 80 million dollars on its data centre, and we will be using Ethio telecom’s or Safaricom Ethiopia’s network.

Q: Efficient cloud service will significantly need a network that can handle large amounts of traffic. Will network limitations be a challenge?

I believe we can work with the available bandwidth, speed and reliability. Some companies use the existing network to provide Business Process Outsourcing services for clients abroad.

Q: What type of payment model are you planning to use?

We are studying what the market is looking for and is willing to pay. Looking at our investments in tech companies and their expenses on cloud services for email servers and market studies, we have recognised that being able to pay in local currency alone will be alluring to the potential market.

Q: How significant is the telecom sector compared to your investment portfolio?

It is our fastest-growing business. We are currently working with a 12-member staff as a large labour force will not be required for the service.

Q: Ethiopia’s first Data Protection Proclamation recently made it to Parliament, designating the Ethiopian Communication Authority as the regulator. What do you think that represents in the evolution of the digital ecosystem?

About 27 countries have already ratified their respective data security and privacy laws. It is about time we do the same. This government is a bit more aggressive on the digital front and opening the market. The private sector is also ready to compete globally.

Q: What challenges do you anticipate over the next ninety days?

This is where my appeal for duty-free access comes into play as the equipment to be installed at Raxio comes in. But our license from the Communications Authority should make that less complicated. It is a matter of testing the equipment and optimizing it. We already have local talent and resources. It should be plug-and-play from here on.

Q: Acquiring and maintaining talent is a significant challenge for the tech industry. How do you plan to navigate the skills gap?

No, no. That is a misconception. Ethiopia is filled with amazing talent with companies like Google and Meta already hiring them. They are just quiet about it.

Q: What are your plans to leverage the cloud in your long-term strategy?

It is a largely untapped market. The upsurge of social media influencers signals potential partners while a language barrier leaves a huge portion of content out of reach. We can bridge that gap.

Q: Do you plan on engaging in the E-government space through your cloud service?

If they allow it. But I am confident that the price points, the security guarantee and the reliability we offer will nonetheless attract private sectors. We had a workshop with banks and fintechs this week with promising feedback.

Q: What do you think the realisation of capital markets will contribute to accelerating the financial resources of the nascent digital ecosystem?

I believe it is far too early for a meaningful impact on tech companies. But in the long run, capital markets will give young founders a space to raise capital. There are no venture capitalists, and startups rely on traditional fund-pooling mechanisms like Ekub, which is sad. Allowing foreign capital to invest in local companies is critical for growth.

Football: A Myriad of Passion, Disappointment, Hope

Posted on January 28, 2024January 27, 2024 by Tizita S.

I saw a recent Facebook post by a friend revealing the map of Africa for the 34th edition of the CAF African Football Cup tournament. It displayed a glaring absence of nations from the East and Central regions. Ethiopia and Sudan, once integral to the establishment of the African Football Association in 1957, have been notable absentees for decades.

A champion in 1962, Ethiopia has struggled to qualify since the mid-1970s. The irony is palpable considering their pioneering role in African football’s inception.

I recall a match that did capture attention was the clash between underdogs Namibia and giants Tunisia. The surprise victory for Namibia, with a stunning header by Deon Hotto, showcased the beauty of the game—the unpredictability that allows the unexpected to triumph. However, the euphoria was short-lived as Namibia faced a 4-0 thrashing by South Africa, emphasising the melodramatic nature of the sport.

Namibia drew against the group leader Mali and snatched enough points as they managed to qualify for the knockout stages. They seem to be the surprise team of the tournament alongside Equatorial Guinea leaving me wondering if this is the nation’s cup for the underdogs. Footballing giants underperformed as Tunisia and Algeria faced an early exit while the Ivory Coast managed to qualify for the round of 16 by the skin of its teeth.

Despite Namibia’s precarious standing and eventual triumph in the group, I found myself leaning towards supporting them. It is a sentiment familiar to any football fan—a loyalty that transcends results, supporting the team through thick and thin. With its troughs and crests, the roller coaster of emotions experienced during a game keeps fans engaged until the final whistle.

Football is unifying.

I recall a spontaneous trip to Sebeta town in the newly found Sheger City. It was driven by the adventurous spirit to explore the town. Although the landmark brewery was closed at the time of my visit, the day turned into an enjoyable experience when the local community gathered to watch an Arsenal match at the Grand Dima Hotel. The electric atmosphere both in the Hotel and inside the Emirates Stadium through the TV was contagious and a place where perfect strangers became friends.

It brought a memory when I watched the Netherlands play against Uruguay in the World Cup 2010 tournament. I was in Hong Kong and the bar was filled with Dutch fans who dressed in the unmistakable orange jersey of their team. Sitting next to a gentleman, we exchanged words about the famous Dutch striker Arjan Roben moments before he scored a game-changing goal when the house erupted with screaming. He shook me with both his hands on my shoulder shouting “Roben scored! Roben scored!”

For many, football is not just a sport. It is an emotional journey through societal dynamics and national identity. Usually referred to as the beautiful game, it has the uncanny ability to transcend boundaries, forge connections and create indelible memories.

In Ethiopia, where the fervour once echoed in the founding footsteps of the Confederation of African Football (CAF), the reality tells a different story—one of passion dwindling, disappointments lingering and a glimmer of hope for the future. The advent of premium cable TV services, offering access to top European leagues, has shifted viewership preferences. The paradox is evident—African stars originating from the continent’s western part dominate European leagues, while interest in the continental tournament wanes. Whether it is the allure of European football or a resignation to Ethiopia’s slim chances in the Cup of Nations, many, including me, seem to have forgotten the tournament is even taking place.

A key figure in establishing the Confederation and advocating for African football on the global stage was Yidnekachew Tessema. His contributions, from leading the CAF for decades to supporting the struggle against apartheid, deserve acknowledgement. The Stad Yidnekachew in Morocco stands as a testament to his enduring legacy, though it remains overshadowed in contemporary discourse.

In the digital age where information flows abundantly, the African Cup of Nations struggles to compete with global football spectacles. A bygone era was when people were glued to the black and white TV screen during the tournament. Today, with the world more connected, accessing sporting events worldwide is easier, but it comes at the cost of diminishing local fervour.

My friend quipped in his Facebook post that the East African countries that founded the CAF and contested in the first African Nations Cup are in the headlines of news channels for all the wrong reasons, football not being one. I yearn for the day when Ethiopia’s national team becomes a formidable force in the tournament. For the time being, even qualifying is an uphill battle.

I remember the only one time in the last decade Ethiopia made it to the tournament. Even though our team made an early exit at group stages, the excitement and enthusiasm of the fans show that, maybe, just maybe, if Ethiopia made it to the tournament, viewership would spike overnight. Despite the trend of highlighting difficulties rather than achievements on the football pitch, its power to captivate hearts will endure.

Ethiopia’s Foreign Policy Paradox

Posted on January 28, 2024January 27, 2024 by Tizita S.

Ethiopia recently reaffirmed its commitment to the “One-China” policy through its Foreign Ministry Spokesperson, Meles Alem (PhD). Ironically, it coincided with China’s assertion of Somaliland as part of Somalia, a position echoed by Mao Ning, spokesperson for the Chinese Ministry of Foreign Affairs. These statements underline a shared emphasis on states’ sovereignty and territorial integrity while also emphasising the intricate regional diplomacy in which Ethiopia is entangled.

Historically centred on strong relations with neighbouring countries, Ethiopia’s foreign policy has been a foundation in the fight against terrorism, particularly in collaboration with Somalia. Various foreign ministers have endorsed this policy, and it was recently reasserted by President Sahlewerk Zewde, who stressed Africa as the focal point of Ethiopia’s diplomatic endeavours. This orientation was evident during the Ethiopian Diplomacy Exhibition held last week.

Notable successes mark Ethiopia’s diplomatic history in Africa.

A key example is the June 2004 decision to keep the African Union (AU) headquarters in Addis Abeba. Despite Libya’s push and its leader’s lobby for relocation, most African leaders sided with Ethiopia, proof of its diplomatic clout on the continent. Another significant diplomatic achievement has been garnering support from Nile Basin countries for constructing the Great Ethiopian Renaissance Dam (GERD), a project of economic and geopolitical significance.

However, recent developments suggest a shift in Ethiopia’s traditional diplomatic approach. Prime Minister Abiy Ahmed’s (PhD) Administration appears to explore new political and diplomatic avenues. The change in direction is evident in Ethiopia’s engagement with Somaliland, a move that has raised eyebrows domestically and internationally. Critics from various political spectrums have voiced concerns over this engagement, viewing it as a departure from Ethiopia’s longstanding commitment to regional unity and stability.

Even the United Arab Emirates (UAE), a key ally of the Abiy administration, has expressed reservations about this approach.

The core of the controversy lies in the perceived contradiction between Ethiopia’s support for the “One-China” policy and its dealings with Somaliland. While the former shows respect for territorial integrity and sovereignty, the latter undermines these very principles in the Horn of Africa. Ethiopia’s arrangement with Somaliland, a region seeking independence from Somalia, is viewed as a potential breach of its commitment to the territorial integrity of Somalia. It has led to controversies about its foreign policy’s consistency and principled position.

Ethiopia’s need for port access, crucial for its economic and geopolitical interests, is often cited as a driving force behind its Somaliland engagement. Taye Atske Selassie, the foreign policy advisor to the Prime Minister, has advocated for peaceful means to secure sea access, a view conveyed to the diplomatic community. However, scepticism abounds among diplomats about the sincerity of this approach.

The scepticism was echoed in recent regional forums, including an emergency meeting of IGAD held in Kampala and the African Union’s Peace & Security Council meeting, both of which addressed the growing tension between leaders of Ethiopia and Somalia. These meetings brought to focus the regional concern over Ethiopia’s foreign policy direction and its implications for stability in the Horn of Africa.

The central issue, therefore, is the apparent disconnect between Ethiopia’s traditional diplomatic principles and its current foreign policy manoeuvres. While it has historically been a champion of African unity and stability, its recent actions have raised questions about its commitment to these ideals. The engagement with Somaliland, in particular, has been criticised as deviating from a principled foreign policy, possibly motivated by short-term geopolitical gains rather than long-term regional stability.

The Electric Vehicle Revolution Hits a Speed Bump

Posted on January 28, 2024January 27, 2024 by Tizita S.

In the early 1990s, every self-respecting American yuppie and retired suburban couple bought an electric bread maker, with sales hitting four million units. But the fad soon faded as these amateur bakers discovered that stuffing a precise quantity and ratio of flour, eggs, butter, yeast, and salt into a metal box takes time and costs much more than strolling to the corner bakery.

Are plug-in electric vehicles (EVs) the bread-makers of our day?

Despite Tesla founder Elon Musk’s entrepreneurial brilliance and billions of dollars in government subsidies to support EVs, it appears that consumers still prefer to drive to a gas station for a five-minute fill-up than to retrofit their garage and suffer the range anxiety that comes from hunting for a charging station in the parking lot of an abandoned shopping mall. J.D. Power reports that 21pc of public chargers do not work in any case. As consumers start to shy away from EVs, their choice will affect not just the car industry, but US-China relations, state budgets, and commodity prices.

The evidence is rolling in fast.

This month, Hertz, which purchased 100,000 Teslas to great fanfare in 2021, executed a squealing 180-degree turn and began dumping one-third of its EV fleet, taking a 245 million dollar charge against its earnings. Its pledges to buy 175,000 EVs from GM will likely go up in smoke, too. Outside of wealthy, trendy communities, consumers are walking past plug-in EVs and snapping up hybrids and gasoline-powered engines instead.

In the fourth quarter of 2023, EV sales crawled up by 1.3pc. According to “Edmunds”, EVs tend to sit on dealer lots for about three weeks longer than gasoline-powered cars. With Mercedes Benz EQS units languishing for four months, the company’s chief financial officer recently acknowledged that the market is a “pretty brutal space.” Customers are staying away despite a price war in which Ford, Tesla, and General Motors (GM) slashed EV prices by 20pc, on average, leading Ford to lose 36,000 dollars on each unit sold.

At the same time, state governments have been pumping EVs with enormous subsidies, even as their budgets are bleeding red. California still pours 7,000 dollars into each new EV (on top of the maximum 7,500 dollars federal credit), despite reporting a record 68 billion dollars budget deficit. Despite shrinking revenues, New Jersey sends a 4,000 dollars check to EV buyers.

How long can these states keep the money spigot open?

EV doubters like Toyota – which instead bet on hybrids – now look prescient. Over the past year, Toyota’s share price outperformed GM’s by 40pc. After taking flak from enthusiasts and Wall Street analysts, Toyota Chairman, Akio Toyoda, declared last October that people are “finally seeing reality.” Automobile unions are relieved, considering that EVs require 90pc fewer parts and 30pc fewer manhours to manufacture.

None of this diminishes the ingenuity of EV engineers and designers. Watching smart cars race and then parallel park themselves, it is hard to believe that they were once dismissed as golf carts with hood ornaments. Musk has been called many things – some unprintable – but his cars outrun Porsches, his rockets soar past NASA’s, and his brushes with insider trading leave Securities & Exchange Commission lawyers in the dust.

Still, that does not mean he always wins.

EVs face obstacles beyond physics and consumer inertia: a faulty electrical grid. More Americans today are spending more hours sitting in the dark. The US Energy Information Administration reports that between 2013 and 2021, the average blackout duration doubled, from 3.5 hours to more than seven hours, while their frequency jumped by nearly 20pc. No wonder people are reluctant to tie their mobility to a wall plug, especially given doubts about the reliability of renewable energy sources like solar and wind, which will always be vulnerable to clouds and stagnant air.

The US is not alone, of course.

China’s BYD (“Build Your Dreams”) automaker recently earned headlines for selling three million EVs last year, compared to Tesla’s 1.8 million. Yet the wobbly Chinese economy is vulnerable to weaker US sales. The Chinese government and private sector have bet big on battery production and countries like Zimbabwe, the Democratic Republic of the Congo, Cuba, and Russia, which mine lithium, cobalt, cadmium, and other vital minerals.

But will China continue to buy off African political leaders as these commodity prices slump? How long will that spigot stay open?

The 1990s bread-machine fad never benefited from public subsidies, government mandates, or furious discounting to gain market share. If it did, perhaps it would have continued for a few more years. EVs have been promoted by presidents, governors, the IRS, and tech wizards. But the public is not listening. President Dwight D. Eisenhower, who looked great in a 60-horsepower jeep, warned that “you don’t lead by hitting people over the head: that’s assault, not leadership.”

The internal combustion engine is still in the lead in the automobile market.

Groundbreaking Global Tax Reform Ahead

Posted on January 28, 2024January 27, 2024 by Tizita S.

Corporate taxation is on the cusp of a seismic shift as countries line up their financial calendars with the Gregorian year, particularly in January.

This is a critical period for fiscal policy, marked by the introduction of national budgets and the struggle with the new tax year. The coming two years are crucial in this transition, mainly due to implementing the Pillar Two provisions of the Base Erosion & Profit Shifting (BEPS) project, an initiative spearheaded by the Organization for Economic Cooperation & Development (OECD).

In October 2021, the OECD’s international tax plan, endorsed by 137 countries, marked a groundbreaking step in global fiscal policy. The crux of this plan is to ensure that multinational corporations (MNCs) pay a minimum effective tax rate of 15pc on their profits, not where they are registered but in every jurisdiction where they operate. It is an approach aiming to recalibrate the global tax regime, levelling the playing field that has long been skewed by countries vying to attract investments through tax incentives and holidays.

Profit shifting, a practice where multinational firms, especially tech giants, sell their products and services globally but channel profits into tax havens to understate their tax burdens, has been a persistent issue. These corporations, often benefiting from tax breaks and concessions from jurisdictions eager to attract foreign investment, have historically paid meagre taxes. A notable example is a leading global company known for its technological products, which, despite its worldwide presence, limits its tax rate to about five percent by concentrating its revenues in a low-tax country.

According to an OECD working paper published last year, up to 37pc of global net profits MNCs earn are taxed below an effective 15pc rate. This disparity contrasts with domestic firms, which typically face an average income tax of 30pc on their domestically generated profits. This imbalance not only skews investment and returns but also favours multinationals over local businesses. For instance, American and British companies selling products from smartphones to gasoline in Africa often pay less than 15pc tax on their income, while a domestic manufacturer might shoulder a 30pc tax rate on its profits.

Studies estimate that over 125 billion dollars in MNC profits annually should be reallocated to market jurisdictions, rather than their places of registration. The primary beneficiaries of the current system are countries like the United States (US) and some European nations, while the losers are often impoverished African and Asian countries, extending development incentives without realising the significant tax drain on their national budgets.

The OECD’s two-pillar solution, backed by the International Monetary Fund (IMF), represents a major stride in international taxation.

Pillar One outlines methods to allocate profits to countries where MNCs have significant business activities but limited or no physical operations. This is particularly beneficial for underdeveloped countries struggling to tax MNCs operating digitally or indirectly. Pillar

Two, kicking off in 2024, focus on implementing the new effective minimum tax regime. Under this pillar, signatory countries must enact ‘top-up’ tax rules, allowing MNC headquarters to collect additional taxes to meet the minimum if the taxes in the operating country fall short. This pillar also introduces the Domestic Minimum Tax (DMT), ensuring that taxes are retained within the country and not redirected through top-up mechanisms.

These reforms initially target large MNCs but are laden with complex operational rules. Tax analysts predict potential new disputes, double taxation issues, and sub-political trade conflicts. However, these reforms mark a significant step towards addressing the competitive tax offers driven by politics in developed and developing countries, including those with aggressive tax systems such as Ireland, China, and India, as well as numerous underdeveloped nations.

The consulting firm KPMG noted that these international tax reforms could neutralise the era of low tax incentives and potentially lead to tax exports. If a country offers a low tax rate to an MNC, the corporation may need to pay additional top-up tax from its income in the parent jurisdiction. Consequently, countries with lower headline tax rates might need to elevate their minimum effective tax rates to 15pc. On the other hand, countries with broader tax bases, like the UK and USA, could potentially face losses.

The stakes are high for African countries, the majority of which are signatories to the OECD’s global tax regime. The International Institute for Sustainable Development (IISD) reports that Africa loses approximately 23 billion dollars annually in public revenue due to wealth imbalances and loopholes in domestic tax regimes favouring MNCs. For Sub-Saharan countries, numerous questions surround the BEPS initiative, but most economists view it as a positive development.

The new tax regime is likely neutral for countries like Ethiopia, which have a broad-based, high domestic effective tax rate. However, countries with free zones and differential or aggressive tax systems may need to increase taxes or await the repatriation of top-up taxes to their treasuries. The African regional trade block, ACFTA, will need to align its trade rules with an annual minimum effective tax rate of 15pc.

African countries must develop and implement robust, formal tax regimes to consolidate taxes and curb evasion. This entails leveraging technology, expanding the tax base to sectors serviced by MNCs, implementing value-added tax systems to prevent double taxation, and enhancing the capacity of tax administrations with qualified accountants and economists. This comprehensive approach aims to raise public funds for sustainable development.

The prospect of a uniform global tax regime by the next decade presents opportunities and crises for underdeveloped African countries. The region’s public finance systems face a crucial decade of reform. The outcome of these changes will significantly impact the ability of these countries to attract investment and sustain economic growth, setting the stage for a potentially transformed global economy.

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Month: January 2024