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Month: April 2024

Betting on Virtual Solutions for Real Impact

Posted on by Web Master

Since graduating from law school, I have attended countless women’s conferences and workshops. These gatherings offer valuable learning opportunities and connections with inspiring people and organisations. However, a common thread weaves through these in-person events is hefty price tags.

High-star hotels usually host these conferences, and the costs associated with venue rentals, catering, and breaks seem excessive for resource-strapped organisations. Logistics consume a major portion of time, with tea and lunch breaks disrupting the flow and exhausting participants. Security measures for high-ranking officials further eat into valuable conference time – a hurdle easily avoided with virtual meetings.

Organisations pay speakers and paper presenters sometimes, even those incurring minimal travel costs within the city. I once presented research at a conference, receiving a substantial honorarium that I had to donate back to the organisation.

Leaders working for women’s justice, equity, and opportunity spend a surprising amount of time planning frequent conferences. Resources are poured into designing and printing banners, roll-ups, stage covers, flyers, and booklets – all to attract women who are already successful.

These resources could be far better used to empower vulnerable women seeking justice and opportunities. Conference budgets could be directed towards those who need them most. Open, strategic virtual campaigns and meetings, inclusive of both genders, can be more effective than closed-door hotel discussions with a select group.

The pandemic highlighted the power of virtual gatherings. Online conferences and workshops offer a cost-effective way to connect large numbers of people. Virtual platforms offer wider reach, easier information dissemination, and more equitable speaking opportunities. This approach attracts a broader audience, including potential supporters of their mission.

Virtual meetings remove geographical limitations, allowing regional and global participation. Experts and mentors can share educational content, research, and projects online, making it easier for the public to learn and contribute as allies. Recordings of virtual sessions further enhance information transfer and accessibility.

Networking remains effective online. Most virtual platforms display participant names, contact details, and business cards, facilitating connections during and after the conference. Going virtual offers substantial value for managing tight budgets.

Virtual meetings provide dynamic solutions for collaboration, ideal for large groups. They empower organisations and individuals to connect effortlessly across financial and geographical barriers. Non-profits can significantly reduce travel, accommodation, and venue costs, allowing them to allocate resources more efficiently towards core goals.

This shift frees up valuable time for professionals to focus on solutions rather than logistics. Individuals gain the flexibility to attend conferences from their homes or offices, boosting overall participation. The time saved through virtual meetings translates into enhanced productivity for professionals.

Collaboration tools and screen-sharing features in virtual meetings enable seamless communication and idea exchange. This leads to more focused discussions, faster decision-making, and smoother collaboration without disruptive breaks. It also allows to gather and analyze feedback, leading to improved interaction and progress towards shared goals of expanding human rights.

Virtual meetings open doors for men and women to come together, learn from each other and work towards equality. Networking, discussions, and problem-solving in a virtual space can foster collaborative solutions. Increased interaction and dialogue between genders can lead to a better understanding of historical biases and pave the way for their elimination.

Creating a diverse and inclusive virtual platform is crucial for achieving gender equality goals. Shifting conferences and workshops online requires strategic planning and creativity. Done effectively, this approach can empower non-profit organisations to expand their reach and support to the women who need them most. It is a worthwhile initiative – cost-effective, time-efficient, and a powerful tool for widespread impact.

The Geopolitics of Africa’s Debt Crisis

Posted on by Web Master

The United States has a population of roughly 330 million, while all NATO countries combined have about 975 million. Adding NATO’s major Asian-Pacific partners – Japan, South Korea, Australia, and New Zealand – brings the total to 1.3 billion. By contrast, Russia and China have about 1.6 billion people. The rest of the world, including India and much of Asia, Africa, the Middle East, and Latin America, is home to 5.3 billion people.

Despite representing less than 15pc of the world’s population, NATO countries account for about 31pc of the world’s GDP. Over time, however, the rest of the world’s share of the global economy is expected to increase, and its geopolitical allegiance should not be taken for granted.

Africa, in particular, is expected to become a major contributor to global growth over the coming century. But first, the continent must overcome several daunting challenges. While its population is projected to grow from 1.4 billion today to 3.3 billion by 2075, economic growth has been sluggish, and many African countries are currently experiencing or at high risk of debt crises. Without robust growth, migration pressures will likely increase, exacerbating political instability and leading to widespread state failure.

Conversely, if African countries overcome their current challenges, their growing geopolitical importance could pose a significant threat to Western interests, especially as China and Russia expand their economic footprint across the continent. To be sure, the challenges vary from country to country. Despite its vast oil reserves, Nigeria, Africa’s largest economy and most populous country, has a poverty rate of 38.9pc. Following its second currency devaluation in eight months, with inflation reaching 31.7pc in February, a cost-of-living crisis has driven many multinational companies to exit the country. South Africa, for its part, continues to suffer from an acute energy crisis, with rolling nationwide blackouts. The unemployment rate increased to 34.7pc in 2023, while annual GDP growth slowed to 0.1pc.

Egypt’s growth has also slowed sharply, with inflation running at 36pc amid a protracted foreign-currency crisis exacerbated by the war between Israel and Hamas in Gaza and a subsequent drop in Suez Canal revenues. A recent eight billion dollar loan agreement with the International Monetary Fund (IMF) and a 35 billion dollar investment deal with the United Arab Emirates (UAE) could help stabilise the Egyptian economy. But, with its population growing by 1.4pc annually, Egypt’s projected 2.8pc growth rate for 2024, even if met, is unlikely to be enough to reduce the country’s 60pc poverty rate.

Meanwhile, sub-Saharan Africa’s debt crisis shows no signs of abating. In December, Ethiopia became the third African country to default since 2020. Zambia, which defaulted on its external debt more than three years ago, reached a restructuring deal with private bondholders only recently, having secured an agreement with its official creditors in June 2023.

Ghana, which defaulted on its external debt in December 2022 amid soaring inflation and a rapid depreciation of its currency, has yet to reach a similar agreement with its private bondholders after the IMF rejected its proposed restructuring plan. Zimbabwe, grappling with runaway inflation triggered by unsustainable government spending, has recently introduced its third currency in a decade and is now seeking an IMF loan.

Several factors drive Africa’s ongoing debt crisis: unsustainable debt due to underlying fiscal weaknesses, borrowing for unjustifiable and potentially reckless infrastructure investments, excessive regulation that impedes economic growth, and political pressure for increased social transfers.

The proliferation of civil conflicts is compounding these problems. Ethiopia, for example, experienced rapid growth for more than a decade before its civil war erupted in 2020, forcing the country to seek support from the IMF. Similarly, the ongoing civil war in Sudan has resulted in massive migration and warnings of impending famine.

To mitigate the debt crisis and resume imports of essential goods, policymakers must implement targeted reforms, supported by strategic debt restructuring and short-term financing. Otherwise, excessive spending will persist, and economic prospects will remain bleak. But, the resources and attention African countries currently require far exceed what the IMF and other international institutions can provide, and the mounting discontent over the continent’s lack of economic progress is exacerbating political instability.

Tellingly, Africa has experienced at least 106 successful coups between 1950 and August 2023, with seven – in Chad, Mali, Sudan, Guinea, Burkina Faso, Gabon, and Niger – occurring since 2021. Heightened geopolitical tensions, particularly the escalating rivalry between the US and China, underscore the urgent need to tackle Africa’s sovereign debt crisis and stimulate economic growth.

Historically, most African countries have relied on Western support, but this relationship is increasingly in doubt, as evidenced by the 2023 military coup in Niger. Following the coup, Niger’s new junta terminated key military agreements with the US, which were crucial for tracking extremist activities. Russian forces entered the country in early April, leading experts to conclude that maintaining a US military presence there would be “difficult, if not impossible.”

If low-income, heavily indebted African countries fail to achieve sustainable economic growth, poverty, hunger, and political instability will intensify, increasing the allure of Russian and Chinese overtures. Developed countries, especially the US and the European Union’s members, should support the IMF and the World Bank in assisting African countries and promoting growth-enhancing reforms. Improved economic and political conditions in Africa will be essential to preserving the international order that countries like China and Russia seem determined to overturn.

The Pandemic Financing Developing Countries Need

Posted on by Web Master

Pandemic preparedness was on the agenda at last week’s Spring Meetings of the World Bank and the International Monetary Fund (IMF), held in Washington, DC, a little over four years after the World Health Organization (WHO) declared COVID-19 a global pandemic. Millions of people died, and billions of dollars were spent in the intervening period, but some important lessons of the pandemic remain unlearned.

One glaring example is that low- and middle-income countries (LMICs) are still unable to invest in medical countermeasures before they are approved. The United States (US) and the United Kingdom (UK) employed this “at-risk” strategy to great effect during the COVID-19 crisis. LMICs need the same opportunity.

When a pandemic strikes, governments must act swiftly and invest heavily in technological solutions that may be unproven. Expanding vaccine production when medical trials were ongoing, rather than waiting for regulatory approval, proved critical during the COVID-19 pandemic. In particular, the US and the UK made early and substantial investments in developing and producing vaccines, securing at-risk doses. In exchange for bearing much of the risk of technological failure, these countries were first in line when the vaccines were effective – a boon for their citizens. But, these investments also helped other countries by accelerating vaccine development and production.

At the time, I was working in the UK government, running analyses showing the cost-effectiveness of at-risk investments. America’s Operation Warp Speed, for example, which cost 13 billion dollars as of December 2020, paid for itself if it shortened the pandemic by just 12 hours. Increased investment in production capacity could have sped up global vaccination efforts by a year, saving an estimated 1.75 trillion dollars.

We need to do better when the next pandemic strikes. This could move forward even without a coordinated global investment – a daunting challenge. Instead, our analysis showed that it would have been cost-effective for individual countries, including LMICs, to invest at-risk in expanded vaccine production during COVID-19. Vaccines would have been made available faster, fewer people would have died, and economies would have recovered sooner.

(That said, high-income countries can and should take the lead in research and development spending, which does benefit from coordination.)

I spent much of the spring and summer of 2020 trying but failing to persuade LMICs to follow the UK’s lead; most of these countries did not purchase vaccines at-risk. A World Bank working paper found that 60pc-75pc of the delay in COVID-19 vaccine deliveries to LMICs was attributable to their signing purchase agreements later than high-income countries. While it is undoubtedly difficult to do something new in a crisis, conversations with various stakeholders revealed two problems: politicians feared being accused of corruption if the vaccine failed, and institutions like the World Bank could not provide loans to purchase a vaccine that did not exist yet.

To overcome these problems, multilateral development banks (MDBs) must establish financing mechanisms to enable at-risk purchases in a pandemic and mechanisms for high-income countries to de-risk these loans. Unlike the vaccine donations and pledges during COVID-19, which were too little, too late, these measures would provide LMICs with sufficient resources to respond to the next pandemic.

When LMICs need to purchase vaccines, therapeutics, and diagnostics at the scale required to fight a pandemic, MDBs are their only realistic source of finance. But, current procurement rules prevent purchasing these countermeasures at-risk. The rules must therefore be revised to allow for such purchases, in recognition of the unique challenges of a global health crisis. MDBs can also coordinate with stakeholders to create model procurement contracts and establish indemnity and liability frameworks to streamline processes and minimise delays.

High-income countries can help by guaranteeing these loans in case the vaccine candidates fail. This would reduce the financial risk for LMICs and alleviate politicians’ concerns about their potential liability. In exchange for this relatively modest burden on their balance sheets, high-income countries can facilitate significant investments that promise substantial global health benefits and large economic returns. During COVID-19, many of us in the UK government recognised that this was one of the most effective ways to use our limited aid money and even proposed such a measure, to no avail.

COVID-19 taught us that developing novel mechanisms during a pandemic is practically impossible. International policymakers must establish the necessary frameworks now to ensure that LMICs can purchase medical countermeasures at-risk in the next pandemic in order to shorten its duration and improve equitable access to health care. As our work at the University of Chicago’s Market Sharing Accelerator shows, any delay risks millions of lives and trillions of dollars.

Ethiopia Bets Big on Foreign Capital. Will Local Businesses Pay the Price?

Posted on by Web Master

The recent directive unveiled by the Ethiopian Investment Board (EIB) marks a considerable shift in policy by the federal government. Its timing and scope opened several previously restricted sectors to foreign investors, with foreboding implications for domestic companies and consumers.

The directive notably welcomes foreign capital in the export of essential commodities, including raw coffee, khat, oilseeds, and pulses, albeit under specific conditions. It also allows foreign nationals and companies to engage in wholesale trade across a broad spectrum of sectors, except for fertiliser and petroleum imports, which remain exclusively in the hands of domestic investors. The policy change could not have come at a more critical juncture as Ethiopia strives to stabilise its currency and continues its negotiations with the International Monetary Fund (IMF) for a new loan program. Such economic measures are essential for maintaining the country’s financial stability and promoting an environment conducive to investment and growth.

Drawing on the economic principle of comparative advantage, Ethiopia’s approach mirrors the liberalisation efforts of other African countries like Ghana and Nigeria, which opened their economies to foreign capital to catalyse growth and development in past decades. Ghana’s economic reforms in the 1980s and Nigeria’s in the 2000s reduced trade barriers and encouraged a more attractive climate for international investors. These countries leveraged their natural resources and consumer markets to attract foreign capital, propelling economic diversification and bolstering global competitiveness.

Ghana and Nigeria’s success stories should provide a compelling cue for Ethiopia; embracing its comparative advantages could similarly enhance its economic stature on the world stage. The influx of foreign capital is expected to bring substantial investment and valuable expertise, setting the stage for increased productivity in domestic industries. Companies are now compelled to upgrade their competitiveness and operational efficiencies to thrive amid increased international competition. The environment should encourage a beneficial exchange of knowledge and skills between domestic companies and their foreign counterparts, potentially leading to progress in local expertise and business practices.

The impact on consumers is expected to be no less positive. The entry of foreign businesses will likely lead to greater product variety, enhanced quality, and more competitive pricing. Such changes are anticipated to elevate the consumer experience, providing them access to a broader array of goods at potentially lower prices. The dynamic of increased competition could drive down costs while promoting a culture of quality improvement in production.

However, the long-term effects of this shifting policy on domestic businesses and the broader consumer base are yet to be fully determined. As the market adjusts to the presence of international market actors, the ongoing interactions between investor activities, local economic conditions, and consumer preferences will play a crucial role in shaping the future economic landscape. Monitoring these developments will be key to understanding the enduring impacts of foreign capital on the economy and the public.

As policymakers pursue their ambitious economic reforms, foreign capital’s indispensable role in driving growth and stability remains. This strategic move is expected to unlock numerous economic benefits for local businesses and consumers, setting the stage for a period of robust growth and enhanced competitiveness.

21,740,000,000

Posted on by Tizita S.
The value in Birr of the supplementary budget the Addis Abeba City Councillors approved last week, representing 15pc of the annual budget for the fiscal year 2023/24. The city administration collected 77pc of the 140 billion Br budget from taxpayers during the third quarter of the fiscal year.

Untapped Potential of Online Commerce

Posted on by Web Master

A young woman residing in Addis Abeba, found herself captivated by the potential of online platforms to transform lives and unlock new economic opportunities. Armed with unwavering determination and a keen eye for a niche market, she embarked on a journey that would defy convention and rewrite the rules of entrepreneurship, driven by a passion for cosmetics and a desire to create her own path.
The woman approached a local cosmetics shop in her neighborhood with a bold proposition to leverage the power of digital channels to reach a wider audience. She offered to sell their products through a Telegram channel she would meticulously manage, with a modest markup to generate a sustainable profit.
Impressed by her entrepreneurial spirit and clear vision, the cosmetics shop owner readily agreed to her proposal. With no initial capital to invest, she relied solely on her resourcefulness and the power of social media. She quickly garnered a loyal following on her channel. Customers were drawn in by the convenience and reliability of her service, along with the quality of the carefully curated cosmetics she offered.
Understanding the importance of a seamless transaction process and efficient logistics, she leveraged Telebirr, Ethiopia’s mobile money platform, to facilitate secure and effortless payments with her customers, then partnered with local bike messengers to deliver orders directly to customers’ doorsteps.
In a remarkably short time, the informal e-commerce venture blossomed into a thriving online shop, generating substantial profits and gaining recognition within the local community. What started as a humble endeavor born out of passion and ambition morphed into a testament to the boundless opportunities waiting for those bold enough to embrace innovation and take calculated risks.
Ethiopia is now witnessing a digital renaissance. Technological advancements are shaping its economy, nurturing entrepreneurship, and creating a vibrant digital space. Over the past decade, the transformation with digital platforms playing a pivotal role in driving economic growth and empowering individuals.
A journey that began with smartphones became ubiquitous with simultaneous expansion of internet infrastructure fueled its revolution. The emergence of platforms has been a game-changer, offering consumers unprecedented access to array of products and services. Companies with online market place and food delivery services that are at the forefront, providing convenient experiences.
However, amidst this burgeoning space, hurdles in fully tapping the potential of digital space exist. Until 2023, only one website was legally registered with an e-commerce license in the country leaving out the current online markets unrecognised by the Ministry of Trade & Regional Integration. Limited internet penetration, particularly in rural areas, remains a significant barrier. Logistical constraints and inadequate infrastructure in certain regions, can also hinder timely and efficient deliveries. A lack of widespread digital literacy prevents some from fully embracing online shopping platforms.
However, these are not insurmountable. There lies vast opportunities for innovation and growth. While informal online retail sales currently account for a fraction of total transactions in the country, the potential for expansion is immense with young and tech-savvy population that are comfortable embracing digital solutions.

FACING THE CREDITORS!

Posted on by Tizita S.

Ethiopia’s economic reform negotiations with the International Monetary Fund (IMF) are in their fourth round, taking place in Washington, D.C., against the backdrop of joint meetings with the World Bank and the IMF. Despite having met three times in the past two years, the discussions have yet to resolve “differences” over economic reforms, which the IMF deems essential for advancing loans. The Ethiopian delegation, including Finance Minister Ahmed Shed, State Minister Eyob Tekalegn (PhD), Central Bank Governor Mamo Mehiretu, and Senior Monetary Policy Advisor Teklewold Atnafu, is facing IMF demands for more flexible and market-determined exchange rates. (In the picture: Ethiopian officials meeting representatives of the Paris Club creditors).

Alvaro Piris Chavarri, the IMF’s mission chief for Ethiopia, said last week that although negotiations continue, the gap between the parties persists. “There are still differences,” Chavarri said at a press briefing, voicing cautious optimism about reaching a consensus. He acknowledged that “discussions are time-consuming” but declined to confirm any specifics about potential financial packages, despite reports of a 3.5 billion dollar loan package. High inflation and severe foreign currency shortages compound Ethiopia’s economic challenges, pressuring the authorities to possibly devalue the Birr. The official exchange rate is notably misaligned with the parallel market, where the Birr trades approximately 50pc weaker against the U.S. dollar, inching to 58 Br late last week. The economic strain led Ethiopia to default on its international debt in December last year, marking it the third African country to do so within three years. The default has heightened the urgency of the ongoing negotiations. Ethiopia has been off the IMF’s funding radar since 2020, after the last lending arrangement of 2.9 billion dollars veered off course in 2021 after a civil war broke out in the north. The country also seeks to consolidate its post-civil war recovery efforts, following a peace agreement signed with the TPLF in Pretoria, South Africa, in November 2022.

Ethiopia is also negotiating with the World Bank for about 3.5 billion dollars in support. According to a Western diplomat familiar with the talks, who spoke to Reuters, Ethiopia’s leaders plan to secure three billion dollars through debt restructuring. The potential financial influx is critical as the country looks to stabilise its economy and address structural issues. A spokesperson told Reuters last week that the World Bank, optimistic about the eventual impact of these negotiations, is still working out the details of subsequent phases. A statement by the Ministry of Foreign Affairs said last week that the talks with the Bretton Wood institutions intended to underpin Ethiopia’s ambitious economic program, which includes liberalising the market and correcting foreign exchange distortions.

Governor Mamo Tests Transparency. Will It Pass a Test of Time?

Posted on by Tizita S.

In a departure from its traditionally opaque practices, the National Bank of Ethiopia (NBE), under the stewardship of Governor Mamo Mehiretu, has unveiled a new report mapping the financial sector’s stability—a move signalling a broader commitment to transparency in financial governance. On the surface, the report, dubbed the stress test, details the financial sector’s robustness and vulnerabilities. But more importantly, its release marks a cultural shift towards openness that could set a precedent for other federal institutions to do the same.

Like many developing economies, Ethiopia is exposed to the choppy waters of global economic fluctuations, exacerbated by domestic turmoil such as recurrent droughts and regional conflicts. During such times of uncertainty, the clarity and comprehensiveness of the Central Bank’s report can serve as a crucial navigational aid. By laying bare the country’s financial health, the Governor appears to have decided to inform the market and fortify investor confidence as well as public trust when both are sorely needed.

The report concluded that the banking industry, commanding 96.3pc of the financial sector’s total assets, remains fundamentally sound. It boasts a Capital Adequacy Ratio (CAR) of 14.7pc, although down by 1.6 percentage points from the previous year, it was still well above the eight percent regulatory threshold. Such figures suggest that, while capital buffers are tightening, the banks continue to maintain a resilient position against potential financial shocks.

However, the report uncovered a decline in the liquidity ratio, from 27pc to 24.2pc, and a slight uptick in the ratio of loans to deposits to 60.6pc. These shifts may hint at growing reliance on deposit funding, which, under stress conditions, could exacerbate liquidity risks. Nevertheless, the report takes a tone of cautious optimism, backed by data and a clear outline of regulatory strategies targeting enduring financial stability.

Encouragingly, the Central Bank does not shy away from acknowledging the potential clouds on the horizon. Its stress test report is candid and discusses at length the economic repercussions of international conflicts and geopolitical confrontations, such as Russia’s war in Ukraine, alongside internal pressures from inflation and shortages in foreign currency. Such candour is crucial because it allows domestic economic actors and international investors to make well-informed decisions, potentially promoting a more permissive economic environment.

Governor Mamo’s decision to steer the central bank towards greater transparency can be seen as strategic and indicative of a broader shift in governance philosophy. Historically, the lack of direct and effective communications from the central bank has often led to market speculations and economic uncertainty, eroding public trust and deterring investment. By reversing this trend, the Governor is adhering to his regulatory responsibilities and reinforcing a transparent governance ethos, recognising that informed public engagement is fundamental to accountability.

Continuing with the ethos of transparent governance, the report’s in-depth analysis also opens up conversations about the need for broader economic reforms in Ethiopia. The report goes further, detailing the stress testing undertaken to assess the banking industry’s resilience against adverse economic shocks. The exercise shows that it is poised to withstand potential crises despite global and domestic turmoils, owing to solid capital and liquidity buffers.

However, it also calls for attention to areas of concern, particularly the high concentration of credit among the top 10 borrowers, who account for 23.5pc of total loans. This could mean that, on average, each of these borrowers tapped 42.3 billion Br last year, a lopsided share compared to the 4.4 million borrowers registered in the system, the vast majority of which were serviced by microfinance institutions. It is clear from the data that while the banking sector is stable, its stability hinges on a relatively narrow base. The concentration of loans and deposits among a select few is a financial risk and a barrier to broader economic participation. Its foundations could be brittle if primary borrowers default.

The banking industry is also characterised by a notable aversion to risk, primarily focusing on collateral-based lending. While prudent, this conservative approach has stymied the sector’s evolution, particularly in adopting digital banking technologies and expanding credit to underserved markets.

The state-owned Commercial Bank of Ethiopia (CBE) demonstrates this trend, with nearly half of the banking industry’s assets. Its substantial holdings in government bonds and involvement in a liability corporation created to absorb non-performing loans (NPL) ascertain its systemic importance but also expose vulnerabilities. The report’s characterisation of the CBE as a stable financial institution yet fundamentally entangled with the government’s fiscal health paints a nuanced picture of what stability means in the Ethiopian context.

However, the top 10 depositors hold a disproportionate share of the industry’s deposits. Although a remote possibility, this could lead to instability if these major depositors were to withdraw their funds simultaneously. The stress test report should serve as a timely warning that a more diversified and inclusive banking system that extends services beyond the elite few to a broader population segment is needed.

As the administration of Prime Minister Abiy Ahmed (PhD) continues with its signature zeal of liberalisation, particularly in the financial sector, and the country prepares to welcome foreign capital, the transparency demonstrated in the Central Bank’s report could serve as a valuable practical guide. It demonstrated the necessity of evolving past outdated practices to embrace a more robust regulatory role and diversified banking models consistent with global standards.

The banking industry could benefit from implementing higher capital adequacy ratio (CAR) requirements for systemically important banks and introducing measures like countercyclical capital buffers (CCyB), a regulatory tool critical to ensure a stable and resilient banking environment. Capital buffers can help dampen the amplitude of financial cycles, reduce systemic risks, and support sustainable economic growth by counterbalancing the inherent cyclicality of credit markets. It has been prudent for the Central Bank to push all commercial banks to meet a threshold capital of five billion Br before June 20026, a prudent policy that promotes a stable industry that can withstand economic shocks and support the broader economy in times of stress.

Another wise policy of the Central Bank is its determination to promote financial inclusion by encouraging the transition of microfinance institutions into formal banking. A number of these institutions—such as Shebelle, Sidama, Gadda, and Tsehay—have already graduated to become full-fledged commercial banks. However, their entry into the market has intensified the competition in the industry on several fronts, most noticeably the hardship in mobilising deposits during economic turbulence. Many of them are seen wresting against all odds to remain liquid.

Governor Mamo can adopt liquidity standards such as the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), which could help banks manage cash flows even under stressful conditions. Transitioning to a more risk-based supervisory approach would also enable the Central Bank to tailor its oversight to banks’ specific risk profiles and business models, enhancing the financial sector’s health. Encouraging fintech solutions that expand access to financial services is also crucial.

Governor Mamo’s initiative to bring these issues to light can be seen more than his desire to adhere to modern financial practices. It could also be about his urging for a systemic overhaul of how banking and financial services should be approached. It may signal a move towards a system that not only supports large entities and public projects but also nurtures smaller enterprises and offers services to the underbanked and unbanked segments of the population.

The regular conduct of such comprehensive stress tests and their public disclosure should be encouraged. They can elevate investor confidence and enhance public trust in the financial system.

Double Dealing in Cyberspace

Posted on by Tizita S.

Two months ago, a well-dressed man in his thirties walked into Dawit Basazinew’s furniture store on Africa Avenue (Bole Road) and selected a long list of items worth over 70,000 Br. Dawit, the store’s owner, was accustomed to delivering sold items the day after payment, but the customer’s urgency raised some concerns. The situation became suspicious when Dawit received a screenshot of a payment transfer on his phone.

“I immediately noticed something was off,” Dawit told Fortune.

The fake bank deposit looked like it had been made in Weliso City, Oromia Regional State, a 100-kilometer journey from the capital.

“There is no way he could have travelled that far and in that little time,” the veteran retailer says.

Dawit ordered his employees to pause the delivery of the goods and went to check the authenticity of the bank account, which proved to be fake.

He says without meticulous attention to detail, sellers can easily be swindled by digital transactions in the rush to move inventory.

The rising use of digital financial technologies has simplified transactions, expanded financial inclusion and streamlined commerce while introducing new risks to customers and institutions alike.

A report by the National Bank of Ethiopia(NBE) released two weeks ago highlights increased operational risk for commercial banks with the expanded introduction of new technology-based products and services. It indicates that bank frauds and forgeries, including false texts and calls, withdrawals using stolen ATM cards, false financial instruments, and embezzlement, doubled to one billion birr in 2023.

The Bank for International Settlements(BIS) defines digital fraud as including operational risk, social engineering(phishing emails or SMS), and cyber risk. It has recently extended the scope to include elements of spoofing (impersonation of a bank), fake financial products, and account takeovers.

Nahom Mekbib, a thirty-year-old technician, was contacted by an individual purporting to be from a commercial bank’s digital banking staff three months ago working on ‘system integration’. He was told to open his mobile banking app and given step-by-step instructions, culminating in a request for a PIN.

“I refused to give him the code, which agitated him,” Nahom told Fortune.

Last year, the thirty-year-old was scammed out of 3,000 Br for a fake digital investment scheme on the popular online messaging application Telegram, which made him more cautious.

“I have stopped opening links altogether,” he says

A report on global financial fraud by the International Criminal Police Organization (INTERPOL) released last month reveals a rise in digital scams involving advance payments, investments, and business email fraud. It highlights a growing sophistication of criminals powered by Artificial Intelligence (AI) without the need for advanced technical skills and at relatively little cost.

Ethiopia’s Financial Intelligence Services (FIS) was re-established two years ago to monitor suspicious financial transactions and combat financial crimes across all platforms. It receives around 2,100 reports annually of potentially fraudulent transactions from financial institutions.

Endale Assefa, Communication director of the FIS, points out that aggressive technology adoption will invariably increase potential fraud attempts. He says each financial institution in the country is expected to report any suspicious transaction to the Service within 24 hours of its occurrence through an internal online system.

“We prioritize the reports based on their potential harm,” he told Fortune.

Endale emphasized the importance of coordination between FIS and financial institutions to identify potential fraud before it causes damage.

“If the perpetrators succeed, it becomes a criminal investigation,” he said.

The Federal Police Commission Crime Investigation Bureau brought hundreds of financial fraud cases, a significant portion of which related to digital banking, before courts in 2022, with the majority being in Addis Abeba.

The director indicated that FIS assists in the subsequent criminal investigation and prosecution of fraudsters who are caught.

“Creating awareness will prevent most of the fraud,” Endale says.

He suggested that most fraudsters channel money from victims to fund other criminal activities.

This sentiment is echoed in the Global Scam Alliance’s 2023 report, which indicates that around one trillion dollars was stolen from victims worldwide last year, exacerbated by inadequately supervised financial technologies. As Ethiopia targets a three-year increase in the value of digital payments and financial services fourfold to 17 trillion Br, some financial institutions have begun to strengthen their security protocols.

Sosina Mengesha, Chief Digital Banking officer at the Bank of Abyssinia(BoA), says most incidents of digital financial fraud in Ethiopia arise from unsophisticated perpetrators who exploit people’s lack of financial and digital literacy.

She also noted that poor Know Your Customer(KYC) practices and financial institutions’ eagerness for new customers to open bank accounts have further widened the security gaps.

“Identification problems and improper password managment cause most incidents,” Sosina told Fortune.

The bank employs an AI-embedded system that flags transactions and risk-based security protocols across most services. As digital financial transactions now make up 60pc of total transactions, the exposure to risks has increased.

She indicated that most problems reported by customers are handled at the branches, while an entire department dedicated to digital security exists at a corporate scale. “People need to be very cautious with their financial information,” Sosina says.

Two years ago, the Ministry of Justice(MoJ) report revealed that the banks had suffered around 1.8 billion Br in losses due to fraud over four years.

The Bank, which accounted for 17pc of the losses in the study, has recently begun collecting biometric data on some branches to improve customer identification procedures.

The central bank’s inaugural financial stability report indicates a marked rise, as one billion birr was defrauded within a quarter of the time from 20 banks.

Belte Fola, a portfolio manager at the National Bank of Ethiopia, says reports on attempted frauds and successes are collected from the banks every quarter to understand the scope and extent.

“Successful prevention largely depends on proper coordination,” he told Fortune.

Belete referred to a directive from two years back that requires each financial institution to establish a fraud detection, reporting, and mitigation strategy as the bedrock of the regulatory framework.

“Vigilance is expected from financial institutions,” he says.

Banks in Ethiopia are expected to maintain a fraud register that includes names, addresses, the type of fraud, and the position of suspected employees who are possibly involved.

Tatek Negassa, deputy chief of digital banking at Nib Bank, says financial institutions must attend to upgrading security protocols just as much as they prioritize onboarding new technology to attract customers.

“Every technology comes with risks,” he told Fortune.

Tatek has observed inadequate information delivery from the banks to customers as one factor that needs significant attention to reduce risks for both.

He says customers who have not been informed of the risk are easily swindled by scammers who impersonate bank staff or forge financial instruments. Untrained staff also inadvertently pass on sensitive data to external parties.

“Proper information management is expected of customers and institutions,” Tatek says.

He also pointed out that the technological capabilities across banks are not harmonized enough to track and process suspicious transactions beyond the usual dispute management procedures.

The deputy explains that poor Know Your Customer (KYC) procedures at one financial institution compound the verification difficulties for the other, with customers bearing the ultimate price.

In its 2023 report on Ethiopia, the Global Systems for Mobile Communication Association(GSMA) recommended the accelerated development of digital identification systems and electronic KYC mechanisms to reduce risks of digital financial fraud and increase mobile money adoption.

Fayda, the national ID project with real-time biometric authentication and eKYC for all use cases, with more than 4.6 million Ethiopians registered so far, has been cited as a promising development in the digital financial ecosystem.

Abenezer Feleke, strategic communications adviser at the Tony Blair Institute for Global Change and the National ID program, expects the digital ID to significantly alter the ease and security of financial services within the coming two years.

“The vision towards a cashless society is pinned on proper identification,” he told Fortune.

Abenezer noted the challenges of proper customer due diligence when potential customers have multiple identities that can be used to defraud both financial institutions and the wider population.

Banks will serve as major registration centres for the Fayda project nationwide starting next September and have financed the purchase of over 6,000 kits set to arrive in the coming weeks.

“Frauds will be less likely while possible types of services increase,” Abenzer says.

Digital finance consultants point out that financial institutions’ acquisition, use, and management of technology are underrated risk factors that could increase fraud in the long term.

Yegeremal Meshesha, a digital finance consultant who has advised several fintech startups, has observed that most financial institutions launch digital services without obtaining the necessary international certifications.

He indicated that certifications obtained locally from institutions like the Information Network Safety Agency(INSA) are primarily concerned with the front end, interactable part of a technology product, despite the security risks embedded at the backdrop.

“Some products are risk-prone at the outset,” Yegermal told Fortune.

He noted that the absence of comprehensive frameworks at the enterprise level incorporating regular audits, discrepancy checks, and account reconciliations like manual bookkeeping procedures has heightened risk factors.

“Products are forgotten after they are launched,” the consultant says.

Yegermal expects intense financial and digital literacy campaigns conducted in parallel with the rush to introduce new technologies to close off most windows of opportunity for fraud.

“Sensitivity to financial information needs to be standard practice,” he stressed.

Experts attribute the exposure to financial fraud to a lack of well-designed, user-friendly features, underdeveloped internal risk procedures, and the dearth of human capital.

Tewodros Tasew, one of the earliest entrants into Ethiopia’s financial technology landscape, recognizes negligence in including fraud risk-minimizing user-friendly features at the early stage of the design process as one of the drivers of fraud.

He reasons that the lack of transparent fee structures in some financial technology products creates fertile ground for potential fraudsters to exploit, as users cannot tell why their money was debited.

“A small side window can easily give a cost breakdown,” Tewodros told Fortune.

Tewodros also challenged the idea that digital illiteracy causes most fraud cases, arguing that financial technology companies’ failure to understand their customer segment is a more significant factor. He said companies must design products with security features tailored to their market base.

Management from EthSwitch, the national switch operator, declined to comment on the development of this story.

NBE Skeptical about Melaku Fenta’s Bid to Retain Amhara Bank Chairmanship

Posted on by Tizita S.

An undercurrent of controversy surrounds the appointment of founding members of Amhara Bank after regulators at the National Bank of Ethiopia (NBE) withheld approval for two of the Bank’s nominated board members, including its founding board chairman. They cited the need for an extended investigation before nodding for the appointments of Melaku Fenta, board chairman until recently, and Tewodros Yeshiwass to serve on the board.

Frezer Ayalew, head of NBE’s banking supervision directorate, approved the other 10 nominees three weeks ago; they will undergo training in corporate management, internal control, banking laws, and risk management before officially taking their positions.

Tewodros, a significant shareholder in Gomeju Oil, has come under scrutiny for allegedly using a loan of 125 million Br disbursed to Quara Manufacturing PLC — a company in which he also holds a substantial stake — to cover half of his subscribed capital in Amhara Bank. Despite denying owning shares in Quara Manufacturing Plc when these allegations first surfaced four months ago, the controversy, however, persisted.

“I’ll wait for the final decision,” Tewodros told Fortune, in response to questions to address the controversy.

Melaku Fenta, another nominee, is also embroiled in controversies.

The allegations against Melaku Fenta centred around a criminal conviction six years ago, which the petitioners argued should prevent him from serving as board chairman. He was charged in a Federal High Court and imprisoned in a high-profile corruption case based on allegations during his tenure as head of the former Ethiopian Customs & Revenue Authority (ERCA). Although many believed the criminal charges were politically motivated during political unravelling within the now-defunct EPRDF, the banking law prohibits individuals with such convictions from holding leadership positions in financial institutions. Attempts to reach Melaku for comment were unsuccessful.

According to Gobena Worena, deputy head of banking supervision at NBE, the regulatory bank’s reluctance to approve these nominations has not stalled Amhara Bank’s functions. He asserted that “enough members have been approved for the board to continue operations”. He argued that the ongoing probe should not delay the board’s activities, as nine approved members meet the requirements set forth by the country’s corporate governance laws.

Hizkias Tafesse, the secretariat of Amhara Bank, confirmed that the approved board members are gearing up to begin their mandated short-term training at the central bank.

“We’re adhering to the central bank’s rules,” he told Fortune.

Remaining optimistic about the Bank’s future, Hizkias believes calling a general assembly would likely be unnecessary, as stand-by appointees have been ready should the authorities decline Melaku and Tewodros’s nominations.

Amhara Bank’s shareholders have not been passive in the unfolding saga. In December, over 20 shareholders petitioned the NBE, objecting to the appointment of nine out of the 29 board nominees, such as Melaku, Mesenbet and Tewodros, placing a series of allegations, including violations of banking laws, inappropriate use of the Bank’s credit line, and nepotistic practices. The petition prompted regulators to engage with the signatories and launch probing over the credibility of these claims.

The newly composed board includes Gashaw Debebe, Berhanu Haile, Berhanu Taemalew, Ewentu Alene, Biyadeglegn Sheferaw, and Abebaw Geta. Three nominees – Mesenbet Shenkute, president of the Addis Abeba Chamber of Commerce & Sectoral Association (AACCSA); Hailmeariam Temesgen and Eden Ashenafi – have received NBE’s approval despite being the subject to complaints by the petitioners. These directors are expected to oversee the Bank’s committees on risk, audit, strategy, and human resources.

The contentious atmosphere was discernible during Amhara Bank’s general assembly held at the Golf Club near Mauritania Street. Shareholders learned of a 460 million Br loss days after the departure of the Bank’s founding president, Henok Kebede. The meeting, marked by the indignation of shareholders angry over the negative three percent Earnings Per Share, gave way to new board members under the watchful eye of the NBE. The revelation came as a blow to an institution that had debuted with a record subscribed capital of 6.5 billion Br, 75pc of which was paup by 150,000 shareholders, setting high expectations for its financial performance. Upon incorporation, Amhara Bank was shy of less than 200 million Br to meet the regulatory threshold of five billion Birr NBE set for all commercial banks before the end of 2026.

Legal experts have weighed in on the situation, emphasising the delicate application of the commercial code in the financial sector.

Yehualashet Tamiru, a corporate lawyer with extensive experience, argued that NBE should prioritise shareholders’ interests and maintain the integrity of the financial system. He believes that an established procedure for replacing board nominees who fail to secure approval from authorities could offset the need for a general assembly.

“The minute from the general assembly will colour what happens next,” Yehualashet said, forewarning the potential for disputes as the Bank moves away from its tumultuous early days.

Yehualashet also raised concerns about the board’s governance dynamics. He advocated for an odd number of directors, which he argued would ensure smoother decision-making during strategic disagreements.

“An odd number board is better suited for decision-making,” he said, stating that such a configuration could help prevent deadlocks and facilitate more efficient governance.

Promised Homes Turn to Paper Castles In Addis Abeba, a Housing Plan Builds Frustration Instead

Posted on by Tizita S.

An ambitious cooperative housing initiative designed to provide thousands with affordable homes is mired in a complex web of legal, logistical, and bureaucratic hurdles, demonstrating the difficulties of urban development in fast-growing cities like Addis Abeba.

Launched two years ago by the Addis Abeba Housing Bureau, the project aspired to ease the city’s severe housing shortages, enabling residents to build their own homes through cooperative unions. Approximately 4,500 residents, organised into 54 unions, were granted access to six sites in the Kolfe Keranyo and Aqaqi Qality districts after many had spent years saving to afford subsidised condominium apartments. Despite their efforts, none of these unions have commenced construction.

The city allocated 27hct of land to the unions that had successfully saved up to 70pc of the construction budget, expecting the balance to be covered by loans from the state-owned Commercial Bank of Ethiopia (CBE). However, a litany of issues, including right-of-way disputes, lack of essential infrastructure, and a series of court injunctions, have stalled progress.

Surafel Girma, who leads a 73-member union that raised 81 million Br for its project, voiced concerns over the diminishing purchasing power of its savings due to ongoing delays.

“We’ll be unable to dig in the winter,” Surafel told Fortune.

He fears that continued delays, exacerbated by a recent court injunction halting work on their 3.9hct site in Berta Sefer, Qality District, might lead to members withdrawing their funds out of weariness and frustration. Legal challenges from existing landholders (farmers) aggravate the delays.

“Some unions have conducted soil tests under police protection,” Surafel said.

Legal experts point to systemic issues in the way land disputes are handled. Arba Beyene, an experienced lawyer in property cases, believes the implementation gaps in the legal framework lack functionality despite its strengths. He attributed poor enforcement to a three-year-old directive intended to facilitate the relocation of affected landowners.

“Compensation should be based on potential earnings,” said Arba, alluding to the fact that most right-of-way disputes stem from inadequate compensation and insufficient information provided to those displaced.

However, officials challenge the notion of inadequate compensation payments, as at least five rounds of discussions were held between district officials and residents in the areas before hundreds of millions of Birr were paid out. They claim further compensation payments would be made under the revised crop valuation rates.

The complexity of these disputes is evident in the story of Alemnesh Hunde and her brothers, who have been embroiled in a legal battle over their property for eight months, spanning more than 6,000Sqm and around 25 homes. Alemnesh, involved in a lawsuit against the Housing Bureau and local administrative bodies, stated her demands unapologetically. The Federal First Instance Court passed the latest injunction two weeks ago.

“I’m not against development,” she told Fortune. “I just want to be fairly compensated.”

Infrastructure challenges further complicate the situation.

Mezgebe Alemu, head of an association with 78 members, pointed out the unresolved issues related to a plot in Chaffee of Aqaqi-Qaliti District, which was assigned to them eight months ago.

“They should have cleared these issues before giving us the plot,” said Mezgebe.

A nearby gorge and disputes with a local mosque that allegedly lost about 5,000Sqm due to improper fencing added to the unresolved issue. The 17 associations looking to build 11 housing blocks have pressured the District officials to resolve the mosque’s case.

Prospective homeowners, who have collectively raised nearly four billion Birr, are not as optimistic as the officials. Representing another union, Yared Tefera bemoaned the stalled progress due to inadequate road infrastructure.

“Our soil test and design mean nothing without a road,” he said, encapsulating a sentiment echoed across the project’s sites.

Some cooperative unions that have started to float tenders around the Hana Mariam area have yet to finalise demarcations as right-of-way disputes brew with nearby developers.

Despite the array of obstacles, some officials remain hopeful.

Mekonnen Bejina, deputy head of the capital’s Housing Bureau, has engaged with the Addis Abeba Roads Authority to request essential services like road access and drainage systems.

“The courts are handling the legal matters,” said Mekonnen, noting a separation of jurisdiction in resolving these issues.

Mekonnen has petitioned the Addis Abeba Planning Commission to consider relocating some of the housing projects to more suitable sites. He assured that individual title deeds would be issued upon the completion of construction, a crucial step in securing homeowners’ investments.

According to Takele Luluna, deputy director general of regulatory at the Roads Authority, the infrastructural issues, such as the precise width of roads, are pending further expert review but should be resolved shortly.

Even as officials ponder the procedural and legal mazes, the residents’ patience appears to wear thin.

Abay Seifu, head of the directorate in charge of right-of-way and land transfer at Aqaqi Qaliti District, acknowledged the ongoing resistance from some farmers who were previously compensated between 286 Br and 491 Br for a square meter, depending on the type of crop they used to cultivate, when their land was incorporated into the city’s land bank. He noted that despite past discussion rounds and compensations, some landowners had reconstructed their homes on the disputed plots.

“Everything will not be solved overnight,” he told Fortune.