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Month: March 2024

Hijra Bank’s Leap of Faith Pays Off

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Hijra Bank has overcome its founding year losses, marking a notable turnaround in the nascent interest-free banking industry. The Bank reported a net profit of 27.8 million Br in its 2022/23 operation year, which tells a robust recovery and places it ahead of its competitor, ZamZam Bank, by 3.7 million Br. The achievement is particularly notable considering ZamZam’s one-year lead in the market.

Industry observers saw Hijra’s tough beginning during its inception and profitability as a cue to the potential of Sharia-compliant banking models. They believe Hijra Bank’s financial performance and strategic decisions manifest a broader trend in the banking industry, where interest-free banking gradually carves out a niche. Its successful rebound from an initial loss to a profitable position within a relatively short time illustrated the potential for Islamic banking in a diverse and evolving financial sector.

Hijira Bank’s success is underpinned by a considerable surge in all income streams—financing and investment income, fees and commissions, and other operating income. However, the result came with its set of challenges, including a marked rise in operational costs due to an aggressive expansion strategy. Over the year, Hijra Bank opened 31 new branches, bringing its total to 71.

A driving factor in Hijra’s revenue boost was the substantial increase in financing and investment income, which soared to 336.68 million Br, powered mainly by a significant supply of Murabaha financing—a sales contract arrangement common in Islamic banking. This figure was shy of ZamZam’s 337.57 million Br but marked a dramatic increase from Hijra’s previous year’s income of 19.1 million Br. Income from fees and commissions jumped to 66.9 million Br from 7.44 million Br, and other operating income increased to 19.46 million Br from 1.04 million Br.

Despite the income boosts, Hijra Bank also saw its expenses skyrocket, mainly due to its expansion efforts and a surge in wages and operational costs. Wages and staff benefit alone climbed by 128.5pc to 222.45 million Br, while other operating expenses surged by 134.5pc to 161.6 million Br. Despite these increases, Hijra’s spending remained 73.15 million Br lower than ZamZam’s, which reported 295.96 million Br in expenses.

At a shareholders meeting held at the Millenium Hall back in December, Abduselam Kemal, Hijra’s Board Chairman, outlined ambitious plans for further branch expansion and considerable investments in digital banking. He told shareholders the aim is to improve service accessibility and foster a deeper penetration of interest-free banking services across Ethiopia. In a vote of confidence from the shareholders, the Bank announced plans to increase its paid-up capital to six billion Birr over the coming years from the current 1.27 billion Br.

Hijra was incorporated three years ago with a subscribed capital of 1.3 billion Br.

According to Dawit Qeno, Hijra Bank’s founding president, his Bank overcame numerous obstacles, such as a lack of skilled workforce, limited social awareness of Islamic banking, unhealthy competition, and a difficult economic environment. Despite these challenges, Dawit remains upbeat about the Bank’s potential to distribute dividends to its shareholders as it consolidates its position in the banking industry.

London-based financial analyst Abdulmenan Mohammed (PhD) praised the Bank’s performance, urging patience among shareholders for returns as the Bank works to recover from a 123.8 million Br loss of the preceding year. He attributed the turnaround in profit to efficient resource utilisation, particularly as new entrants in the financial sector face inevitable soaring expenses.

“Executives should work hard to shorten the loss recovery period,” he said.

Dawit, the Bank’s president, concurred.

“We’re aggressively working to reverse previous losses,” he told Fortune.

Dawit is an alumnus of Addis Abeba University and former vice president for resource and credit management at the state-owned Commercial Bank of Ethiopia (CBE). He took over the top position at Hijira Bank two years ago, steering it through a demanding operating environment marked by low awareness about interest-free banking, the effects of political instability on customer activities, and the Central Bank’s 14pc credit cap loom.

He stated inflation and foreign currency shortages were setbacks that Hijra overcame. However, he is optimistic about Hijra’s capability to pay dividends to shareholders as it further solidifies its place in the sector. The Bank’s strategic location and the optimism of its management and shareholders promise a bullish year ahead.

Hijra Bank’s total assets increased significantly by 178.4pc to 6.18 billion Br. It disbursed Murabaha financing worth three billion Birr, marking an exceptional 850pc increase from the previous year.

“It is impressive growth,” Abdulmenan lauded.

The aggressive growth strategy also included beefing up its Mudaraba investment, which stood at 400 million Br in the preceding period. According to Abdulmenan, the Bank’s ability to mobilise savings, which surged by 263.9pc to 4.84 billion Br, clearly indicated growing customer trust and the successful appeal of its interest-free banking model.

Despite this, its financing-to-savings ratio, a key performance indicator, stood at 62pc, significantly lower than commercial banks, presenting an area for improvement. According to Abdulmenan, Hijra Bank needs to work forcefully to improve this performance.

“We’re working on disbursing what we mobilised,” said Dawit.

Hijra Bank’s liquidity metrics show a healthy position. Cash and bank balances increased to 2.4 billion Br, representing 38.8pc of its total assets and 48.1pc of its total liabilities. The liquidity level is considerably higher than that of ZamZam, alongside a robust capital adequacy ratio (CAR) of 38.6pc, well above the regulatory minimum of eight percent and the 26.7pc average for the 16 top private commercial banks.

Ali Mohammed, one of Hijra Bank’s 9,000 founding shareholders, with 1.3 million Br in shares, echoed a sentiment of patience and long-term vision. He stated that dividends might take time as the Bank recovers from its initial operating loss and navigates the regulatory and economic environment. His faith in the Bank’s growth trajectory, despite regulatory caps on credit growth, illustrated a shared optimism among shareholders about Hijira Bank’s future profitability and its role in expanding the reach of Sharia-compliant financial services in the market.

“Perhaps next year there will be dividends,” he told Fortune.

The Bank’s strategic initiatives, particularly its investment in digital banking solutions to enhance customer accessibility and service efficiency, further enlivened optimism. Abdulmenan urged the executives to use the liquid resources for multiple income-generating activities over the coming years.

Ali Hassen, manager of Hijra’s Ehilberenda Branch, acknowledged that operating in a market afflicted by political instability and economic turmoil remains a concern. However, he remains buoyant in the strategic locations of branches, especially in regions with significant Muslim demography, which is seen as a key advantage.

“Our branch benefits from its strategic location,” he told Fortune.

According to Abdulmeman, such moves are vital for Hijra Bank as it seeks to consolidate its market presence and compete effectively with conventional and interest-free banking institutions.

Renewable Energy Push Meets Infrastructure Hurdles

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Ethiopia’s decades-old energy policy is evolving rapidly, opening doors for private sector involvement in renewable energy and clean technology. Spearheaded by the Ministry of Water & Energy, the policy targets two vital goals of meeting the growing energy demand with renewables and unlocking investment and exports.

By diversifying energy sources like solar, wind, and geothermal, the Ministry’s officials aspire to increase energy production by 30pc annually and meet the rising demand for clean power. They believe their newly designed policy aligns with the country’s “Green Economy” strategy to reduce its carbon footprint. The draft policy also seeks to attract foreign investments by creating opportunities for hydrogen and ammonia exports and generating foreign currency.

“It goes in line with recent transport initiatives,” said Mesfin Dabi, the Ministry’s lead executive of electrification and energy information.

He called for the private sector to contribute to achieving the objectives outlined in the draft, particularly in expanding the infrastructure for electric vehicles, including charging stations and power sources.

Minister of Transport & Logistics, Alemu Sime (PhD), recently enforced a ban on imports of gas-powered automobiles for personal use. However, the policy has raised concerns about Ethiopia’s current electricity infrastructure capacity to handle an increase in electric vehicles. Alemu’s vision for green transport extends beyond electric cars, embracing a five-year strategic plan his Ministry designed with the support of the United Nations to promote non-motorised mobility in urban centres.

Alemu said in an interview released last week that he is keen to see a culture of walking, cycling, and the use of horse-drawn carriages within cities. According to him, the policy reduces vehicle dependence, improves air quality, and creates a more pedestrian-friendly urban environment.

Mesfin observed that progress proved to be slow. He sees a recent agreement between a Dubai-based company and officials of the Ministry of Finance as a positive step but pointed to the lack of an enabling policy as the primary stumbling bloc holding back multinational companies from investing. The recent success of Australian firm Fortescue Future Industries in extracting hydrogen from the Omo and Awash river basins demonstrated the country’s potential.

“There is a lot of untapped potential,” said Mesfin.

It has been five years since the Parliament ratified a bill to increase energy production through Public-Private Partnership (PPP) arrangements. While a few companies have embarked on large-scale projects since then, notable progress was marked in December when the United Arab Emirates-based company, AMEA Power, signed a deal with the Ministry of Finance to construct a 300MW wind farm, representing one of the most significant private sector entries into the energy landscape.

Energy experts have long called for a revision of the policy, arguing the existing policy is struggling to meet growing demand and relies heavily on inefficient practices.

Yemaneberhan Kiros, founder of Yomener Energy Auditing & Engineering PLC, echoed these concerns. He observed that a rapid shift to electric vehicles would be incompatible with the current infrastructure limitations.

Research revealed that nearly 50pc of factory energy is wasted due to lax follow-up on past energy-saving initiatives. Yemaneberhan believes improving efficiency through regulatory overhauls can significantly reduce the strain on the power grid. Increasing tariffs to incentivise investment from large energy companies, implementing regulatory reforms to boost efficiency, and establishing legal frameworks to unlock Ethiopia’s vast energy potential are some of the ideas experts urge the authorities to consider.

“Energy efficiency matches a new hydroelectric dam,” Yemaneberhan told Fortune.

A recent policy change by the central bank, allowing foreign currency repatriation, offshore accounts, and profit convertibility in large-scale projects, has removed a bottleneck for foreign companies seeking to invest in the energy sector. Ethiopia boasts immense potential for renewable energy generation, with around 5,200MW of energy available, but limitations remain—existing infrastructure struggles to meet existing demand, particularly in rural areas.

Clean energy deficits are particularly acute for household cooking, with less than 10pc of the population having access. A significant segment still relies on coal and other highly polluting sources for their energy needs. The Ethiopian Clean Cooking Alliance, established five years ago, has struggled to onboard only two tier-III companies since its inception. It reflects a national shortage of efficient energy options for households.

Dawit Tibebu, head of the 85-member Association, hopes the federal government will play a critical role in incentivising private sector investments in the development of clean cooking options. He blames the government’s lack of attention to progress in this area.

Despite the persistent energy shortage, Ethiopia has earned 47.5 million dollars through electric exports to neighbouring countries Kenya, Sudan, and Djibouti. The state-owned Ethiopian Electric Power, has ambitious plans to expand its reach farther to the southern corners of the continent.

The latest policy document attempts to address regulatory overlaps and improper mandates between different agencies.

The state-owned utility monopoly, the Ethiopian Electric Utility (EEU), purchases bulk power and distributes it. It was formed 13 years ago following the dissolution of the Ethiopian Electric Light & Power. Last year, it distributed electricity to 4.6 million households across the country.

Melaku Taye, the communications director, identified gaps in prioritising distribution lines as a major impediment to achieving universal electric access. Concentrated energy demand in rapidly expanding urban centres has resulted in power outages, exacerbated by the lack of targeted investments contributing to the grid’s poor reliability.

“Several complex components are at play,” Melaku told Fortune.

EEU has launched massive renovation works, including installing 674 km of transmission lines, three switching stations, and 2,000 transformers, financed by the World Bank.

Despite these initiatives, legislative progress has been slow in allowing companies to sell their excess energy from renewable sources. While private sector involvement has been urged over the past five years, regulatory hurdles continue to impede progress in this area.

According to Dereje Walelign, the general manager of Lydetco Plc, the prevalence of laws pulled the development of diversified energy sources. He argued that a 15pc tax imposed on solar home appliances undermined access to power for energy-deprived households.

“Urbanites pay less for electricity than their rural counterparts,” Dereje observed.

His company, specialising in off-grid solar power and offering clean energy solutions, has pioneered an energy system solely reliant on solar power. The company’s headquarters in Lemi Kura District, near Hill Bottom Restaurant, is the first to get powered off-grid, sourcing energy from sunlight. The project demonstrated the potential of renewable energy, with the building fitted with 108 solar panels, costing 2.5 million Br to design and install. The system generates sufficient power to meet the needs of a couple of dozen households at its peak – five times more than the building consumes.

Dereje looks forward to a future where solar-powered charging stations, like the ones his company plans to build, will be permitted to sell energy to the public.

“I hope the policy shifts address the demands effectively,” he told Fortune.

In Addis Abeba, Progress Measures Success in Square Metre, Lost City Soul

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Arada District Land Management & Administration Bureau, on Adwa St., near Berhanena Selam Printing Enterprise, was not just a place for paperwork last week. It was a venue where the drama of a city in transition played out, one story at a time.

The corridors embodied the vibrant marketplace of Piassa, a microcosm of Addis Abeba itself – now caught in the throes of a dramatic transformation. Residents’ faces, etched with a mixture of anxiety and hope, filled the waiting area. Most were there to receive the 50,000 Br compensation package, a meagre consolation prize for the upheaval in their lives.

Weary elders occupied a few chairs, their bodies slumped under the weight of the wait. Others sprawled on the floor and stairs leading up to the office, the scorching sun sapping their already dwindling strength. They had been waiting since the morning for the updated list to make its way down from the wereda offices.

Aside from the crowd stood Shemima Redi, a lone figure in her mid-40s. Anticipation crackled in the air around her, unlike the worn file box clutched in her weathered hands. This seemingly ordinary file box held her future – or at least a part of it. Her home, nestled in the warren alleys of Piassa for 27 years, was slated for demolition.

The day, however, held a glimmer of hope.

Shemima had just learned that she had secured a ground-floor flat at the Fanuel condominium site, on the city’s outskirts.

“I’m fortunate,” Shemima told Fortune.

A hint of a smile evidently played on her lips.

Shemima’s story mirrored 2,035 households in the Arada, one of the 11 districts of the capital.

Data on the housing stock in Addis Abeba is notoriously absent. The last population census was conducted in 2007, registering close to 629,000 houses, 24pc of them under wereda administrations. Over a million people have registered to receive public-funded condominium houses since, although the city administration could not meet half the demand in the subsequent years. However, private real estate companies have chipped in, raising the housing stock that experts still believe is less than a million units.

At the Arada District’s Land Bureau last week, each resident carried their burdens laced with hope – the emotional strain of displacement, the uncertainty of a new future, the fear of losing social ties and the dream of starting afresh. They faced a different reality.

For 54 homeowners, a lottery was drawn to allocate plots ranging from 75Sqm to 450Sqm along with financial packages. Half of those who live in public houses were relocated to a condominium built by the Belayneh Kinde Foundation within the District.

Addis Abeba Housing Development Corporation, which began providing housing on sale a month ago to pay back a staggering debt of 37.2 billion Br, has transferred around 716 condominium units in the past few weeks. About 1,100 residents, including Shemima, opted for this scheme, which offered a path to homeownership at either Furi, Hana Mariam Jemo, or Fanuel sites, albeit with the burden of scheduled financing.

According to Shimelis Tamrat, head of the Corporation, the condominium entrants will be part of the same financial model extended to prospective residents who have been saving up for nearly two decades.

“It’s a business, after all,” he told Fortune.

However, the excitement of owning a property was tempered by concerns about affordability. Shemima planned to relocate with her five children, and she is currently finding temporary refuge at a relative’s home in Bishoftu town, Oromia Regional State. While the promise of a new home with potentially better living conditions brought joy, the logistics of fitting her entire family into a one-bedroom flat worries her deeply.

More pressingly, she needed to figure out how to finance the finishing touches required to make the bare-bones condo remotely habitable.

“I saw the place,” she said.  “Only its skeleton stands.”

Her soon-to-be-gone neighbourhood, Piassa, was once a vibrant landmark humming with history. It was built by the occupying force of the Italians during the early years preceding the Second World War, where Benito Mussolini’s Fascist Party’s East Africa headquarters still standing but serving as a branch office of a private bank, ironically facing the newly built Adwa Museum.

The neighbourhood has become another casualty in the grand corridor development project, a multi-billion Birr behemoth reshaping the city’s landscape. The allure of modernity, championed by Prime Minister Abiy Ahmed (PhD), promised a gleaming network of corridors pulsating through the city’s heart. Night-time videos showcased Mayor Adanech Abebie outlining the project’s purpose, her voice unwavering. Addis Abeba, she declared, needed to shed its “substandard skin” and embrace a global standing.

The solution – a network of gleaming corridors inspired by the Prime Minister’s call to connect the beautification projects scattered across the city.

The first phase is an eight-kilometre stretch beginning at the recently inaugurated Adwa Zero Kilometre Museum in Piassa. It would snake towards Friendship Park in Arat Kilo before looping back through Ras Mekonnen Bridge and returning to the Museum’s site. The Mayor justified the project by arguing that the area surrounding the Museum was not up to standards, with outdated sewerage lines and telecom installations.

“There might be casualties,” she had warned.

The second 10 km corridor encompasses an extensive stretch from Arat Kilo, passing through Friendship Park and Abrehot Library and extending across the renovated Mesqel Square to Bole International Airport, bulldozing sideways on Africa Avenue. A 6.4Km pathway commences from Megenagna Square near the Chaka Satellite City, an outskirt of the city developing under the auspices of the Prime Minister’s development initiatives through the Museum, culminating at Arat Kilo, where amphitheatres and plazas are envisioned.

Officials disclosed that Addis Abeba Finance and Trade bureaus are also slated to move from the iconic Arada Building, at the heart of Piassa. Bereket Takele, a press secretariat for the mayor’s office, revealed that several bureaus under the city administration, from the Mega Project Office to the Green & Beautification Bureau, would be included in the development.

“No institution can complete the project independently,” he told Fortune.

While he declined to disclose the project budget, he acknowledged that foreign financing would be included. External consultants were hired last year to find ways to connect passion projects that have developed since the current administration took office.

According to Germew Worqu, deputy commissioner of the Addis Abeba Planning Commission, the conception of the new corridor aligns with the master plan developed in 2017, which incorporates bicycle lanes, pedestrian walkways, green spaces, and public amenities to enhance the livability of the capital.

For Germew, lacking basic amenities like toilets in certain residential areas is a pressing concern. He lamented the lack of proper planning evident in various parts of the city, characterising them as squalor-like urban settings.

It is a legitimate concern that no less than 75pc of the city’s houses were made of wood, and half were more than 30 years old. City authorities often claimed to have covered 98pc of the city with access to tapped water. But only 32pc of houses have private connections, while 15pc have no toilets, and 62pc have shared lanterns. More than 80pc have no bathing facility, and 20pc have no kitchen.

“A properly planned city is essential,” Geremew told Fortune.

The construction of pedestrian walkways and bicycle lanes has already begun.

According to an official from the city’s Roads Authority who requested anonymity, unlike other road projects, the corridor development would occur in phases without pre-feasibility studies. He revealed that expanding the four-metre width of the roads would be essential for meeting their target.

“We‘re expected to finish in three months,” he told Fortune.

The rush is evident in the short notice given to residents relocated or property owners whose landholding is sliced to give way for the roads’ expansion. Guided by a two-year-old compensation directive, relocation procedures prioritise “equitable allotments” based on land grades and the initial construction materials used. City officials believe this could ensure affected individuals receive fair compensation and comparable accommodations in other parts of the city.

Last week, a proposed amendment on the expropriation of land for public purposes, compensation, and resettlement was introduced in Parliament. It will shift the responsibility for compensation payments from the federal to city administrations and regional authorities when ratified.

According to Tesfaye Beljege, the incumbent’s chief parliamentary whip, the process is burdensome and time-consuming. However, some Parliamentarians express doubts about regional governments’ financial capacity, given their occasional struggles to pay salaries.

Wondwossen Admassie, an MP from the incumbent Prosperity Party (PP), advocates the idea of shared responsibilities. He raised concerns about the Ethiopian Roads Administration’s outstanding debt of 14 billion Br over the past decade, warning of the potential for project delays if compensation payments are not effectively managed.

With a 1.1 billion Br compensation package approved by the City Cabinet to the Finance Bureau for Arada District, Addis Abeba is poised for a multi-billion Birr transformation. Land Development & Administration Bureau officials have begun gathering data and determining eligibility.

Desta Meriga, head of Land Preparation & Transfer at the Bureau, revealed that a team of 150 experts has been deployed solely for the District, acknowledging the magnitude of the task.

He oversaw lottery draws for approximately 66 individuals seeking resettlement within the same neighbourhood. Anticipating the relocation of around 188 businesses to nearby areas shortly, Desta disclosed that the Federal Housing Corporation has agreed to provide most of the alternative housing.

Nonetheless, the Grand Corridor Development Project (GCDP) has sparked a fierce debate within Addis Abeba. Some hail it as a necessary step towards modernisation, envisioning a city with improved infrastructure and a more aesthetically pleasant appearance. Others, however, raise concerns about the human cost. The displacement of thousands, the disruption of communities, and the potential loss of the city’s historical character are downsides that should be considered.

Marco Di Nunzio, an anthropologist at the University of Birmingham, authored a book on Addis Abeba’s marginalised communities during expansion. He lived in the Piassa area for two years while researching for the book he titled, “The Art of Living.” He is concerned that beyond physical displacement, the demolitions represent an assault on the residents’ sense of belonging and ownership over their city’s present and future. His recent post on X, a social media platform formerly known as Twitter, says the fate of a neighbourhood resonated deeply with many.

Businesses that have flourished in the area for decades now find themselves having to relocate. Cherished establishments like the renowned dating spots Mekonnen Bar on Eden St., and Inter-Langano Hotel on Hailesellasie St., beloved by residents, as well as relatively recent hangouts like Mesi Gebeta and Dave Grocery, frequented by younger generations, have all been paid tribute to on social media platforms.

Of the jewellery stores, Anbessa Jewellery is one of the demolished shops that has been around for nearly three decades. Renowned for its custom designs chosen by couples for their prenuptial ceremonies, the family-owned establishment has been in business since the price of gold stood at 120 Br a gram, now hovering around 8,000 Br.

It has settled in the second shop at the Sapphire Hotel, on Namibia St, for now.

“We’ll be back once rebuilding is done,” Fiseha Abay, the proprietor, told Fortune.

While the rhetoric of a modern metropolis, with its vision of uniform colours and expansive boulevards, struck a chord with some, for a single mother of two and a custodian at a nearby commercial building, Tizita Begashaw, it was a harsh reality to confront.

She feels that the compensation offered—a modest sum along with a condominium flat located far on the outskirts—feels like a meagre consolation prize. While the prospect of a larger living space initially seems appealing, it is overshadowed by the financial strain of furnishing the new flat and the looming fear of losing her job.

“I’ll have to find another work within the vicinity,” she said.

Experts offer alternative approaches to urban development that may address the need for extensive demolitions. Adem Kedir, a lecturer in urban governance at Addis Abeba University, proposes the potential benefits of distributing development initiatives across cities. According to Adem, the City Administration’s objectives of regenerating the capital can be achieved without resorting to large-scale demolitions.

“It seems that the primary objective is to attract tourists,” he told Fortune.

The capital’s historical development, which lacked centralised planning in its formative years, resulted in a dispersed settlement pattern as more people migrated in search of better economic opportunities.

Adem urged accelerating development in other cities to address high migration levels while concurrently enhancing infrastructure in the capital.

“Other regional capitals should be considered,” Adem said.

The development project has far-reaching economic implications. While the immediate focus is on resettling displaced residents and businesses, officials believe the project’s long-term vision promises a revitalised city centre brimming with economic potential. Meanwhile, with mixed feelings of hope and uncertainty, relocated residents like Shemima and Tizita are determined to land softly – one brick at a time, in the unfamiliar corners of Addis Abeba

Fed Procurement Push Aims to Fuel Industrial Growth

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Minister of Finance Ahmed Shide has intensified efforts to enforce mandatory domestic procurements across federal government institutions. He issued directives to 169 federal agencies two weeks ago, urging them to prioritise local suppliers and swiftly dispose of outdated equipment, to boost economic growth and promote domestic industry. Underpinning this initiative is a broader strategy targeting import substitution and public property management.

Price ceilings for domestic procurements have been raised to a staggering 150 million Br, signalling the support for local industries while construction projects have a ceiling of up to 600 million Br.

For Eyob Tekalegn (PhD), state minister for Finance, the importance of aligning import substitution goals with the country’s evolving economic policy, particularly under the second Homegrown Economic Reform Agenda, is essential. He said local manufacturing role is paramount to achieve broader macroeconomic objectives.

“Structural changes are crucial to meet import substitution targets,” Eyob told Fortune.

Government is the country’s largest buyer of goods and services, with annual expenditures totalling close to 150 billion Br. However, a significant portion of these procurements involve international suppliers.

The electronic procurement system introduced three years ago, has also become compulsory for most public purchases and is deemed as vital for reducing corruption and speeding up procedures. Nearly 70 institutions engaged in e-procurements last year, with bids totalling over 42 billion Br. The shift is projected to reduce expenditures by an average of 6.57pc, illustrating the cost-saving benefits.

However, most foreign companies participate in government procurements through arrangements with local firms, which result in additional commissions and service fees being tacked onto the final price of products.

Gebeyaw Yitayew, head of the Public Procurement & Property Authority, stresses the importance of transparency and fair competition in creating a procurement landscape conducive to supporting local industries. He believes introducing a mandatory e-procurement system has played a vital role in reducing corruption.

“It helps manage public resources efficiently,” he said.

The Ministry of Industry plans to conduct a comprehensive study aimed at assessing the capacities of local manufacturers and their ability to meet the requirements for government purchases. Netsanet Abebe, the Ministry’s head of Chemical Products Promotion & Competitiveness, highlights the need to increase the productive capacity of local manufacturers. Many firms operate below their full capacity, facing stiff competition from foreign counterparts.

“Industries have barely reached their potential,” she said, highlighting the untapped growth opportunities.

Manufacturers have underperformed for several reasons such as access to forex, crippling their operational capacities. The ‘Let Ethiopia Produce’ initiative aimed at reviving the sector is considered a step forward by Minister Melaku Alebel who recently appeared before Parliament pushing for government agencies to source at least some of their procurements domestically, a move towards import substitution.

However, experience of other African countries tells a different story. Countries like Ghana, Tanzania, and Zambia, which had once championed industrial import substitution, found themselves in fiscal deficits, escalating external debt, and economic stagnation. A myriad of factors, including geopolitical shifts, inefficiencies, technological stagnation, fiscal burdens, and macroeconomic missteps, influenced the outcome with industries, once shielded by protective policy measures, languished in a state of stagnation, failing to innovate or expand.

While protectionist policies hold promise for nurturing domestic industries, concerns linger over potential compromises in product quality and fair competition. According to Shiferaw Mitiku, a logistics and supply chain management lecturer at Addis Abeba University, while the initiative is exciting, there is room for exploitation of the policy, which may use preferential access to bid and raise prices.

He recommends maintaining a delicate balance between a desire to boost domestic industrialisation and competition with quality foreign products.

“Healthy competition is beneficial,” he said.

Manufacturers are upbeat. Awash Melkassa Chemical Factory, a chemical producer with an annual output of 36,000tns, finds its warehouses filled to the brim with hydrogen peroxide, aluminium sulfate, and sulfuric acid. While claiming to offer quality products, the company continues to lose ground to international competitors.

Ahmed Motuma, the Company’s General Manager, voices frustration over government agencies’ reluctance to embrace domestic products from local chemical producers.

“We’ve felt the impact of being consistently overlooked,” he said.

Ahmed took the concern to the Ministry several months ago, highlighting their dwindling access to government contracts. He expresses relief, stating, a significant uptick in production capacities and market share for local manufacturers: “Our prayers have been answered.”

New procurement rules did not shake up those already getting a slice of the pie like Repi Soap & Detergent Plc, in business for over 50 years. With a 48,000tns annual production, the Company had gained good momentum over the years supplying its products to different public agencies.

On the other hand, Beta Lab, a chemical and lab equipment supplier, is reliant on imports for their wide selection of chemicals and equipment from Chinese and Switzerland manufacturers such as BIOBASE and Mettler Toledo. General Manager Dawit Gebremarim said the dearth of manufacturers, and the absence of standards in their domestic products, will not affect their market share.

“We’re not apprehensive at all,” he said.

Government agencies frequently justify their preference for foreign companies in procurement by citing concerns about quality. Ethiopian Construction Authority, responsible for overseeing 5,000 federal projects across the country, involving substantial procurements worth hundreds of millions of birr, seldom collaborates with domestic contractors.

According to Abebe Banjaw, the Authority’s Building Regulation deputy head, the absence of adequate standards for locally produced materials is the primary reason behind the lack of trust.

“Most materials don’t meet the requirements,” he told Fortune.

Ethiopian contractors currently account for a mere three percent of federal projects in the country. Abebe expressed his dismay towards local contractors, attributing it to a prevalent deficiency in professionalism and technical proficiency. He emphasised that establishing material standards and improving professionalism among contractors are essential steps toward increasing the involvement of local firms in government procurements.

“These factors significantly contribute to project delays,” he said.

Steel Industry Seeks Way Out of Policy Coil

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A policy measure that favoured steel importers over manufacturers was laid out as the major issue for the industry tethering on the brink of collapse. Following discussions at the Prime Minister’s Office with Girma Birru, advisor to the macroeconomic committee, leaders from the Association of Ethiopian Basic Metals & Engineering Industries took swift action, enlisting the expertise of Ruhe Long & Flat Products Consultancy Plc to probe into the industry’s woes.

Under the stewardship of Belete Sirabizu (PhD), the study analysed the four-year performance of 19 steel manufacturers, uncovering a litany of issues plaguing the sector. From excessive stockpiles to glaring policy deficiencies and foreign currency shortages, the findings told a tale of underachievement lingering at less than 20pc capacity.

At the heart of the industry’s woes were importers enjoying clear advantages, courtesy of duty-free privileges and opaque incentive mechanisms. Manufacturers tackled a shortage of inputs to remain competitive in the market, accessing only a fraction of their 1.5 million tons monthly demand.

According to Belete, the acute shortage of scrap metal clogged production capacities and led to inflated market prices. He highlights the glimmer of hope, suggesting that manufacturers retained the potential to ramp up annual output to 5.3 million tons under conducive conditions, doubling the demand. However, existing policies heavily favoured importers, exacerbating the influx of duty-free steel imports.

Over 1.25 million tons of steel valued at 600 million dollars were imported predominantly from China last year. This marked a significant increase compared to the previous year, which saw imports at 201,000tns, and an even greater leap from two years prior with 263,000tns from Turkey.

“Control mechanisms should’ve been in place,” Belete told Fortune.

Belete suggests redirecting efforts from imports through franco-valuta measures towards using the scheme for importing raw materials. This shift aims to boost domestic production while curbing the reliance on imported finished goods. The abundant potential of unexplored iron ore reserves in the northern region, according to Belete, signals an opportunity for economic growth.

While the source of illicit imports remains elusive, over 56 million Br worth of contraband steel was confiscated by the Ethiopian Customs Commission in the past six months. Tegegene Derese, head of Inspection at the Commission, acknowledged the rigorous inspection procedures but emphasised the need for a comprehensive investigation to uncover the true extent of illicit activities.

The findings were submitted to the macro-economic committee three weeks ago. Representing 76 members, Solomon Mulugeta, the Association’s general manager, said the study has exposed policy gaps that pose imminent threats to the industry that endured longstanding neglect.

“We need urgent remedial action,” he said.

The plight dates back to when the Ministry of Industry was responsible for steel manufacturers until a few years ago. The role was transferred to the Ministry of Mines. Responsible for overseeing 34 steel manufacturers, the Ministry’s attempts to address input shortages by granting manufacturers direct access to scrap metal from public institutions yielded limited success; the scrap metal found in public institutions was less than 3000tns while the manufacturer’s monthly demand stands at 1.5 million tons.

Companies like Sentinel Steel Plc struggled to remain operational with a fifth of their yearly 120,000tns capacity. Demisse Shibiru, the Company’s director, expressed the difficulty of remaining competitive, citing significant price discrepancies of up to 30 Br between imported steel, largely driven by soaring production costs.

He remains optimistic about the potential for reform to breathe new life into the industry. He believes that forthcoming policy changes will provide a much-needed boost, urging policymakers to prioritise the revitalisation of the steel sector.

“Our industry deserves the proper attention,” he said.

Price disparities between domestically manufactured and imported rebars were observed, with the latter enjoying up to a 30pc price advantage. Birtukan Yenealem, head of the metallic mineral desk, cited loose coordination among customs authorities and control mechanisms as contributing factors exacerbating the situation.

According to Birtukan, efforts were stepped up to explore new iron ore reserves in the Amhara and Oromia regional states, with hopes of reducing import reliance. She said attempting to attract investors to develop the country’s iron ore resources could boost long-term health that hinges on the completion of feasibility studies.

“Exploration needs a large amount of investment,” she said.

The study serves as a clarion call for decisive action on the steel industry, underscoring the coherent policy frameworks and strategic interventions. The industry’s woes were compounded by foreign currency constraints and the proliferation of contraband steel, undermining domestic producers’ competitiveness. Short-term measures such as incentives for quality material imports and scrap market regulation are recommended, alongside long-term strategies like bolstering domestic steel mining capabilities.

Ambitious plans to explore iron ore reservations seem far-fetched for Abebe Dinku (Prof), a veteran civil engineer, who cautioned against the slim plans for any investor to be interested in joining in. He advises against knee-jerk reactions like outright import bans, advocating instead for a balanced approach.

He says, “Liberalised markets tempered with prudent oversight.”

Trump’s Chess of Brokering Deals, Stirring the Pot, and Eyeing Nobel Glory

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Former President Donald Trump’s legacy in the Horn of Africa, particularly his policies towards the Ethiopia-Eritrea conflict and the Grand Ethiopian Renaissance Dam (GERD) dispute, personified the blend of contradiction and assertiveness characteristic of his foreign policy position. His tenure, marked by a significant yet contentious attempt to influence the geopolitics of the Horn of Africa, showed a departure from what he perceived as the missteps of his predecessors, aiming instead for a proactive, albeit controversial, engagement in regional affairs.

The deployment of Donald Yamamoto, a seasoned diplomat with extensive experience in East and Central African affairs, to facilitate the resolution of the ‘no-peace-no war’ engagement between Ethiopia and Eritrea was evidence of Trump’s White House intent to encourage a peaceful resolution of disputes in the region. Yamamoto’s assignment could be taken as a sincere commitment to resolving the conflict, signalling a moment when Trump’s foreign policy seemed poised to leave a positive mark in the Horn of Africa.

However, his diplomatic efforts in the region also encompassed a controversial position on the GERD, a monumental hydroelectric project by Ethiopia that has been a source of tension among Nile Basin countries, particularly Egypt. Trump’s apparent support for Egypt in the dispute, which included a brash suggestion that Egypt might “blow up” the dam, contradicted his peacemaking efforts between Ethiopia and Eritrea. It alienated Ethiopia and seemed to undermine the cooperative spirit of the Nile Basin Initiative, a regional partnership promoting sustainable water sharing and management among the basin countries.

Critics argue that while Trump’s motions on the GERD were contentious, the Ethiopian government’s diplomatic missteps also exacerbated the situation. The failure to effectively engage in the Nile Basin Initiative’s cooperative framework may have contributed to escalating tensions over the dam, suggesting a shared responsibility for the diplomatic impasse.

Beyond the Horn of Africa, Trump’s influence on global politics was pronounced, notably in his approach to nuclear diplomacy. His historic meeting with North Korean leader Kim Jong Un to denuclearise was a bold departure from traditional U.S. foreign policy. Despite some scepticism, this initiative represented a significant effort to address nuclear threats. In contrast to President Obama’s Nobel award for his vision of a world free from nuclear weapons, Trump’s disappointment at not receiving the Prize for these efforts showed the controversial nature of his legacy in international diplomacy.

As Trump postures himself for a return to the political arena as the Republican candidate in the upcoming presidential elections in November this year, his past and proposed policies continue to provoke debate. His pledge to reform the CIA and FBI has sparked concern within the U.S. intelligence community, reflecting his enduring antagonism toward what he perceives as a deep-seated bias against him, particularly about the “Russiagate” investigation.

Trump’s position on NATO and the ongoing war in Ukraine signals a potential shift in U.S. foreign policy should he return to office. High-ranking officials, including former National Security Adviser John Bolton, have expressed concerns about Trump’s intentions toward NATO, suggesting that his election could threaten the alliance’s future. Trump’s claim that he could resolve the Ukraine conflict “in one day” sharply contrasts with the Biden administration’s strategy, which views support for Ukraine as a moral imperative and an economic benefit, as Secretary of State Antonio Blinken believes in the positive impact of defence investments on the U.S. economy.

As Trump’s potential return to the presidency looms, the debate over his foreign policy legacy and future intentions intensifies. His past actions in the Horn of Africa and his positions on vital international issues show his controversial approach to diplomacy. Whether his “blood path” slogan will resonate with voters remains to be seen. But, for better or worse, Trump’s impact on global politics is indisputable.

Trapped in Transition of Addis Abeba’s Rebuild

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The morning sun, usually a harbinger of a vibrant day, dawned on a Saturday destined for disarray. My first task – renewing my car insurance, expiring that very day – was a reminder of my procrastination woes. My leisurely 10 a.m. departure, coupled with the looming closure of offices for the weekend, only heightened the urgency.

The dwindling gas gauge added another stress. A few kilometres from my house near CMC Michael, a gas station emerged as a potential solution. However, this hope was dashed as a crucial flaw became apparent: my preferred mobile banking app malfunctioned. Repeated attempts yielded only frustration. The news detailed a severe system malfunction that had plagued the Commercial Bank of Ethiopia (CBE) the previous day. This glitch caused a temporary freeze of digital financial services industry-wide, impacting essential services like ATM withdrawals and mobile transfers, leaving many, scrambling for alternative ways to pay.

Hoping to avoid running on fumes, I pressed on towards the insurance office in the Sar Bet area, estimating a one-hour drive. However, Addis Abeba’s notorious traffic had different plans. Gridlock near Megenagna forced a detour to Gerji, which proved equally frustrating, necessitating a maze of shortcuts. Finally, after a circuitous route past the Bulgarian Embassy and the African Union (AU) headquarters, I reached the insurance office with a mere five minutes to spare.

Relief washed over me when one of the young men, after a cursory system check, confirmed functionality. But it was momentary. I reached for my debit card, only to be met with news of a malfunctioning POS machine. Cash, my only remaining option, was absent. With persuasive pleas, I convinced them to hold on while I raced to the nearest ATM – a futile exercise at Gidey G/Hiwot, King’s Hotel, and the AU.

When I reached Pushkin Square, a relentless string of misfortunes began to plague me. The ongoing construction activity from the AU to Sar Bet had crippled the entire area’s network and power supply. The situation worsened at Mexico Square, where drilling choked one side of the road, creating a monstrous traffic jam. With the dream of a peaceful weekend now a distant memory, the question loomed – can this ongoing construction be done less haphazardly?

It reminded me of a friend, visiting from abroad and eager to see the AU facilities, who witnessed this chaos firsthand. Our attempt to reach the newly built Adwa Museum from Arat Kilo proved equally baffling – bulldozers and round-the-clock construction obstructed access. Witnessing this simultaneous, seemingly overambitious construction spree, I questioned the lack of measures to mitigate disruption to infrastructure like power and networks. Safety for motorists and pedestrians also seemed a secondary concern.

Finally, a glimmer of hope! A private bank that still served customers the traditional way – at the counter! Despite a daunting queue of bank books, the insurance office waiting for me after closing time compelled me to plead for leniency. Thankfully, the young manager and the queue patrons allowed me to be served first.

The teller, however, struggled to complete the transaction via phone just as the building plunged into darkness. Unable to bear another misfortune, I implored them to hand me the cash and finalise the transaction later. The teller hesitated, but the manager authorised the exchange with a reassuring smile. Relief flooded me as I clutched the much-needed cash.

I raced back to the insurance office. Their door hung ajar, a sign they were no longer accepting customers – except me. After completing the formalities, I finally had my renewed insurance certificate. My profuse thanks to the young men were heartfelt as I went back to the Bank to settle the transaction. Power outage persisted, validating my decision to convince the bank officers to give me the cash. While the manager was gone, the teller, with a trusting expression, assured me they would reconcile the transaction later.

By the time I reached the gas station, I was exhausted by the ordeal. Then the inevitable happened. My car came to a grinding halt a few metres from the station. I had to push it to the tank. The heat, the frustration, and the push left me utterly drained, which led me to cancel my remaining plans and head straight home. Sleep consumed the next couple of days. A cocktail of ailments – tonsillitis, severe flu and gastritis – were my unwelcome souvenirs.

Undeniably, Addis Abeba’s development efforts, spearheaded by the government, are commendable. A city, which was once marred by sprawling squatter settlements, is transforming into a gleaming metropolis. The skyline, ablaze with lights, evokes a picture-perfect postcard, while the zeal and energy in achieving this rapid transformation are truly admirable. However, my experience serves as a glaring reminder that justified growth aspirations and maintaining basic amenities of life should not be competing, but rather be complementary interests. Rallying behind one cause should not be misconstrued as denouncing the other.

Uncoordinated development, much like my debilitating combination of illnesses, risks unforeseen consequences. The City’s aspirations should not come at the compromise of its citizens’ well-being. Basic amenities and resident safety should remain paramount. My biggest fear is the construction extending into the rainy season, amplifying the chaos I witnessed. Imagine navigating flooded streets amidst monstrous traffic jams – a recipe for utter gridlock and misery.

A city’s growth should be a source of pride for its residents, not frustration. While aspirations for rapid growth require accelerated activity, maintaining existing infrastructure is equally crucial. A phased approach to development with less disruption to daily life would be far less taxing. The inconveniences caused by this haphazard strategy exact a hidden tax on the overall economy, potentially outweighing the benefits.

Addis Abeba’s fast transformation reflects a global look better than the past sleepy third-world capital. The construction standards and practices should also reflect values and self-perception which will indeed be a source of pride for the residents.

A Global Assault on TB Through AI, Partnership Within Reach

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Groundbreaking new technologies seem to be emerging with increasing frequency. Since its launch in November 2022, OpenAI’s generative artificial intelligence chatbot, ChatGPT, has become a global sensation, attracting over 100 million users and inspiring numerous imitators. The technology’s fast-evolving capabilities have also commanded the attention of world leaders, dominating discussions at the United Nations Climate Change Conference in Dubai (COP28) and the annual meeting of the World Economic Forum in Davos.

It is not difficult to understand why. By harnessing AI tools developed by private companies like OpenAI, governments and civil society organisations could make significant strides toward tackling global challenges like climate change and economic inequality. They could also revolutionise how we fight infectious diseases, ensuring that life-saving care reaches those most need it. AI tools could play a major role in the global effort to end Tuberculosis (TB).

A preventable and curable disease, TB claims an average of more than 3,000 lives a day. Although the mechanisms of TB transmission are well understood, and highly effective treatment regimens – including new and improved medications – are available worldwide, TB still led to 1.3 million deaths globally in 2022.

The Global Fund to Fight AIDS, Tuberculosis & Malaria is pursuing public-private partnerships to develop and deploy innovative digital public health tools. During a recent trip to Bangladesh, I encountered a team of healthcare providers from the public and private sectors, along with local community partners, using digital X-rays, AI, and telemedicine to facilitate rapid TB screening. Patients whose X-ray results show signs of TB could immediately submit sputum samples for analysis and receive treatment at the community level, free of charge.

Similar initiatives are being launched around the world.

In Pakistan’s Punjab province, the humanitarian aid organisation Mercy Corps uses AI tools to identify “hot spots” – remote or rural areas where TB cases might go undetected – and set up mobile health camps to deliver diagnostic and treatment services directly to residents. In Paraguay’s Padre de la Vega prison, healthcare workers use Fujifilm ultralight portable X-ray machines and AI technology to provide rapid and precise TB screening.

Physicians at Cambodia’s National Center for Tuberculosis & Leprosy Control in Phnom Penh bring portable Delft X-ray machines to nearby provinces to screen individuals unable to travel to the capital. In Indonesia, a new partnership between the Global Fund, Siemens Healthineers, and the country’s national TB program aims to scale early detection efforts by combining deep-learning AI technology and X-ray analysis to enable radiologists to read scans remotely.

Targeted, innovative projects such as these are crucial to overcoming persistent inequities that fuel the spread of infectious diseases: poverty, conflict- and weather-related displacement, overcrowding, and limited access to health facilities. They are laying the groundwork for resilient health systems that meet every person’s needs. In addition to TB screenings, Pakistan’s mobile health camps offer essential services focusing on women and young children.

These examples underline the importance of advancing collaboration among companies, industry leaders, governments, and local health providers to devise innovative ways to address solvable problems like TB. That is why the Global Fund, contributing 76pc of all international financing to end TB, also allocates more than 150 million dollars annually to develop digital tools promoting equity and helping remote communities access critical healthcare services.

Much more is needed, however. Devising targeted, effective, and sustainable solutions requires active engagement with local communities to respond to a wide range of other public health threats, such as pandemics and antimicrobial resistance. It is crucial to have committed partners who can envision and develop cutting-edge digital tools. By leveraging AI to augment local medical expertise, we have an opportunity to overcome TB.

In a world brimming with innovative ideas and emerging technologies that until recently were beyond our imagination, ending this global scourge, and perhaps others, is finally within reach.

Why Have Developing Countries Soured on Multilateralism?

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Multilateralism is waning, and one of the world’s leading multilateral institutions, the World Trade Organization (WTO), is in a crisis because the United States has been blocking new appointments to its dispute settlement mechanism’s Appellate Body since 2018. In the run-up to the WTO’s 13th Ministerial Conference last month, some optimists hoped to see progress on specific issues, such as an agreement not to impose tariffs on digital commerce, but expectations were generally low.
The pessimists were right. India led the charge against extending a moratorium on e-commerce tariffs, and only a last-minute deal prolonged it for another two years. After that, it is expected to expire. India and its allies celebrated the outcome as a victory. For the first time in years, the culprit undermining the WTO was not the US but developing countries (including Indonesia, South Africa, and Brazil).
True, what happened with digital commerce is characteristic of the usual conflicts that play out during trade negotiations. Free trade always produces winners and losers.
Digital commerce may be in the interest of businesses in advanced economies as well as consumers and businesses in low- and middle-income countries; users of an app, game, or other software product made in a different country may pay lower prices in the absence of tariffs. But domestic producers will reliably demand protection from imports, and governments will see tariffs as a promising way to boost revenues.
While these issues are typical, developing countries’ opposition to an extended digital tax moratorium is emblematic of a deeper problem: the growing impression that the WTO has nothing to offer them anymore. The assumption is that it unilaterally serves the interests of big businesses rather than the average person in a low- or middle-income country.
But is this true?
Recent research shows that poverty reduction in the past three decades has been more likely in developing countries well integrated into the international trade system – as measured by the number of signed trade agreements and access to large, lucrative export markets. In this sense, the multilateral trade system has, indeed, benefited the developing world. International integration is particularly important for smaller economies.
Unlike India and China, countries such as Thailand, Kenya, and Rwanda cannot fall back on large domestic markets. No wonder opposition to trade deals so often comes from larger developing countries such as India, Indonesia, and Brazil. They can afford to turn their backs on international trade if the terms of the proposed deal are not enticing enough. But even these countries appreciate the benefits of participation in global trade.
India, for example, used the closing of the Ministerial Conference to reaffirm its commitment to negotiation and multilateralism, in principle. The question, then, is why developing countries have such a negative view of the WTO specifically.
Their dissatisfaction dates back to 1995, when the WTO succeeded the General Agreement on Tariffs & Trade (GATT). At the time, developing countries felt that they had just been pressured into signing a trade-related intellectual property rights (TRIPS) agreement that would yield big payoffs for multinational corporations without offering many benefits to their populations. Another ongoing source of tension is agriculture, where developing countries traditionally have a comparative advantage.
Existing trade agreements continue to permit high-income countries to subsidise local producers and impose tariffs on imports. Various other rules, escape clauses, and notification requirements have created de facto loopholes that only countries with abundant resources can exploit.
For example, fishing subsidies (another area of major contention) are permitted under certain conditions. However, monitoring fishing stocks to prove that such conditions are being met is prohibitively expensive for most developing countries. They, therefore, have good reason to complain that international trade rules are biased against them.
Looking ahead, a potentially bigger issue concerns advanced economies’ efforts to link trade agreements to labour and environmental standards, such as through the European Union’s proposed Carbon Border Adjustment Mechanism (CBAM). While well-intentioned, advanced economies must recognise that their efforts to address climate, labour, and human rights issues could have serious distributional consequences, potentially coming at the expense of many developing countries.
This is especially true of climate change. Low-income countries may have the most to lose from the consequences of climate change, but they are understandably reluctant to impede their own growth to fix a problem caused by richer countries’ past sins. Combine these concerns with high-income countries’ push toward “friend-shoring” (which implies more trade among rich countries, given the current geopolitical map), and today’s world starts to look even more like one where advanced economies are pitted against developing ones.
Ironically, the obvious way to avoid such division is to revive multilateralism. Now more than ever, our challenges are global, calling for global solutions. But shared objectives, by definition, must account for the concerns of developing countries. That is what successful multilateralism has always demanded.

For Global Tax Reform, the Devil in the Details

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While the technical details of international agreements may seem arcane or even trivial, they often commit governments to policies with major economic consequences. This is especially true for low—and middle-income countries, which have long been the recipients of unfair treaties.

International tax agreements are a case in point. Bilateral tax treaties are rife with inequalities. They tend to be more advantageous for the home countries of multinational companies (MNCs), diverting much-needed resources from developing to developed countries.

Multilateral agreements are not much better. For example, the OECD’s Inclusive Framework on Base Erosion & Profit Shifting (BEPS) was supposed to ensure that multilateral companies could be taxed in countries where they operate (as opposed to shifting profits to low-tax jurisdictions). After nearly eight years of tedious negotiations, however, the process has yielded only modest results: a global minimum corporate tax rate of 15pc, well below that of most countries.

According to the South Centre, developing economies will derive few gains from this global minimum tax, which will mainly benefit tax havens.

And now, developing countries must decide between two different versions of a subject-to-tax rule (STTR), a provision that will be added to existing tax treaties to combat tax-base erosion and profit shifting. The first is from the OECD, with advanced economies leading discussions as part of the BEPS process, while the second is from the United Nations Committee of Experts on International Cooperation in Tax Matters (UNTC).

An STTR is an obvious way to eliminate the “double non-taxation” of certain intra-group payments, including interest, royalties, and service fees. Most tax treaties restrict the source country’s right to apply a withholding tax to these payments, generally deductible from the payer’s business income. This, in effect, erodes the source tax base. Multinational companies can then channel this income to affiliates that act as conduits and are resident in a country that applies low or zero taxes to such income and, crucially, is a treaty partner with the source country.

Including an STTR in all treaties would allow the source country to tax a recipient of such income if the other country does not tax it at an agreed-upon minimum rate.

This may seem straightforward, but the devil is in the details.

According to the BEPS Monitoring Group’s comparison of the two agreements, there are crucial differences in the degree of complexity and the scope of taxation rights. The OECD’s STTR is complex and limited, applying only to specific income types and payments between connected legal persons, which could exclude many services in an increasingly automated world. By contrast, the UNTC’s model STTR is simpler and gives significantly broader taxing authority to source countries, as it covers all forms of income – including capital gains – regardless of whether it is paid to a related or unrelated entity.

The OECD version further reduces the potential for taxation by requiring thresholds (the UNTC version does not contain such a requirement).

The rules apply only to connected recipients with aggregate annual covered income of at least 1.1 million dollars in the jurisdiction or at least 250,000 euros if either jurisdiction has a GDP of less than 40 billion dollars. It adds a further mark-up threshold, which specifies that the income (other than interest and royalties) must be higher than the direct and indirect costs incurred by the recipient, plus 8.5pc. There is no logical – or, indeed, economic – reason for any of these thresholds. They would shrink the tax base and limit revenue potential for the source country, thus serving the interests of multinational companies.

The OECD’s STTR would be more complicated for tax authorities because it specifies that collection would occur only in the year “following” that the tax applies, based on tax returns. The UNTC’s STTR, however, proposes that the tax could be deductible directly from payments on a current basis. Lastly, the OECD version fixes the minimum tax rate at nine percent, considering the tax paid by recipients, whereas the UNTC version leaves the rate open to negotiation between countries.

Undoubtedly, the UNTC’s model STTR would be easier for developing countries to administer and, more importantly, would enable them to generate more revenue. The choice should be a no-brainer, especially because the provision could eventually become part of the multilateral tax convention currently under discussion at the UN.

But despite the UNTC version’s obvious advantages, the OECD version is already complete and ready for implementation. The OECD is anxious to get as many countries as possible to sign on to the proposed multilateral instrument at a ceremony planned for mid-2024. Once again, developing countries are coming under pressure to agree to a treaty that appears favourable but, in reality, reduces their potential for revenue generation.

Signing this treaty would prevent governments from adopting a simpler and more effective instrument, like that proposed by the UNTC. Low- and middle-income countries must be aware of these nuances and their implications. The differences between the two treaties may be technical, but they are not minor. If these countries are to benefit from a more just international taxation framework, they must be willing to fight for a better alternative.

The Big Push African Women Need to Escape Poverty

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Poverty, climate change, and conflict are among the biggest challenges confronting Africa, and they all disproportionately affect women living in poverty or on the margins of society. Both research and experience have demonstrated that these women have enormous potential to improve the well-being of their families and communities.

African countries seeking to drive sustainable development – and address the triple challenge of poverty, climate change, and conflict – must help women in poverty realise their potential. By investing in and scaling up evidence-backed interventions that increase women’s control over income, ownership of productive assets, and decision-making in the household, policymakers can boost human capital, improve gender equality, and expand inclusive economic opportunities.

One approach that has been working in several countries is providing people living in extreme poverty with a productive asset (such as cows, goats, or supplies for small-scale trade like a sewing machine), support to meet their basic needs, and intensive coaching for roughly two years. Often referred to as the Graduation approach, this set of interventions was developed by the Bangladesh-based NGO BRAC to give people the multifaceted “big push” they need to escape poverty and build long-term resilience.

Women, in particular, have benefited greatly from the Graduation approach. For starters, rigorous evidence shows that it can increase women’s productivity.

In Sub-Saharan Africa and South Asia, Graduation interventions contributed to an increase in women’s off-farm enterprise employment and, thus, the labour supply. In Bangladesh, they significantly increased earnings from women-led income-generating activities. Research has also demonstrated that enabling women in extreme poverty to build sustainable livelihoods can encourage positive behaviour changes that help households prepare for and cope with temporary shocks.

A multifaceted approach that includes gender-sensitive coaching, life-skills training, and community engagement can help women in poverty overcome the psychological and social challenges stemming from gender-based discrimination, social exclusion, and limited education. Women who received psychosocial support through the Sahel Adaptive Social Protection Program reported improvements in psychological well-being and social cohesion, as well as a reduction in domestic violence. After a Graduation pilot in Kenya provided women in poverty with mentorship and training (and engaged with male community members to assuage concerns about shifting gender roles), women’s empowerment – as measured by confidence, leadership, and local committee membership – increased significantly.

Such progress in social and economic empowerment has had positive spillover effects.

In Kenya, the two-year Rural Entrepreneur Access Program (REAP) – which provided training, mentorship, and asset grants to small groups of women to start businesses – yielded substantial economic benefits for participants and their non-enrolled neighbours. This is partly because REAP increased participants’ value for economic advancement, which they passed along to other women in their communities.

Recognising the importance of a big-push approach, several African governments, including Kenya, Rwanda, and South Africa, are exploring Graduation-style programs and how to incorporate them into existing systems. For example, the government of Rwanda launched a national Graduation strategy in 2022 to empower people in more than 900,000 households in poverty to develop sustainable, long-term livelihoods, as part of a broader strategy to eradicate extreme poverty by 2030.

Another evidence-backed BRAC initiative that shows promise at scale is the Empowerment & Livelihood for Adolescence (ELA) model, whereby young women and adolescent girls work with “near-peer” mentors who provide training sessions on life skills, including reproductive and sexual health, as well as financial literacy and entrepreneurship. In Uganda, adolescent girls in communities with ELA programs were more likely to earn a livelihood, while their rates of teen pregnancy and early marriage fell sharply.

The community-based model has already reached more than 200,000 participants across Liberia, Sierra Leone, South Sudan, Tanzania, and Uganda, and it is continuing to expand.

Building on these proven approaches, BRAC, in partnership with the Mastercard Foundation, has devised Accelerating Impact for Young Women. This five-year program aims to equip adolescent girls and young women with age-appropriate entrepreneurship, employability, and life-skills training, as well as the tools they need to start and scale up their businesses. In 2023 – the first year of implementation – more than 70,000 participants enrolled in the program in Liberia, Sierra Leone, Tanzania, and Uganda, and more than 630 savings groups were formed. Participants have collectively saved 140,000 dollars, and nearly 20,000 have received support to start their livelihoods.

The evidence is clear. Investing in marginalised women and girls can lead to transformative change. By embracing proven approaches, African countries can improve their economic future and help build a better, more equitable world. They already have the resources, the evidence, and the technical knowledge. All that is needed now is the political will to act.

Zooming in on Health Center Hygiene Reality

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My visit to district health centres in search of a second dose of the polio vaccine for my daughter turned out to be an unexpected experience. From rude encounters to falling ill due to unhygienic environments, it was far from what I had anticipated.

After finding that a couple of private hospitals nearby were consistently running out of the vaccine, my husband and I decided to try our luck at health centres. Initially, we visited a nearby institution where we obtained a treatment identification card without any payment required. Unlike private hospitals where we had to pay for every service, the vaccine at the centre was provided completely free of charge.

However, our hopes were dashed when we were abruptly turned away. The healthcare worker told us those who began immunisation at a private hospital were not eligible to receive the second dose there, despite referrals.

Disheartened by this experience, we embarked on a journey to explore the others. After much effort and pleading, we finally got our baby vaccinated. Amidst the stress of these expeditions, I could not help but notice the alarming state of hygiene in the health facilities.

Instead of being places of healing and safety, the health centres fell short of meeting basic hygiene standards.

There was a glaring lack of proper sanitation. Toilets lacked water for washing and flushing, some were outright unusable. Stored water was often contaminated, posing a greater risk of infection. Examination rooms and floors appeared cluttered, with broken benches and hazardous debris. Waste was improperly managed while foul odours filled the corridors.

Healthcare workers had long nails that were not clean, which they constantly scratched while handling fragile newborns. The absence of running water, soap, or hand sanitiser compounded the problem. Crowded conditions, combined with foul smells, made it unbearable to be in these facilities for extended periods, especially with infants.

The lack of organisation and record-keeping further exacerbated my frustration. Mothers and newborns were crammed into overcrowded rooms for vaccinations, with pregnant women struggling to access vaccines. I observed that without proper checks or records, nurses administered vaccines based solely on verbal information.

It was a different experience. In contrast to private hospitals where nurses and doctors assist parents in comforting their children, healthcare workers in these public facilities resorted to anger. Perhaps they are overworked and handle more than their fair share of patients.

This disregard for hygiene and patient well-being is not only unacceptable but also poses a significant risk of disease transmission. Contaminated hands and environments contribute to the spread of infections, including antimicrobial resistance, endangering both patients and healthcare workers.

When entering a healthcare facility, everyone deserves to receive quality care in a dignified and hygienic environment.

My experience revealed our facilities are a far cry from the safe and healing environment. Its impact extends beyond aesthetics and is not limited to our country. A joint study by WHO and UNICEF found that half of healthcare facilities worldwide lack basic hygiene services, putting billions at risk of infection and death. In sub-Saharan Africa, where these conditions are most prevalent, nearly a million neonatal deaths occur annually due to sepsis.

The lack of safe water and sanitation contributes to preventable diseases and deaths. Handwashing alone could prevent sepsis, a major cause of mortality worldwide. According to the study, solving these life-threatening dangers within the next six years would cost under 10 billion dollars, a fraction of what individuals currently pay for substandard care in health centres.