FORTUNE+ VIDEO SPONSORED CONTENTS ADVERTORIALS FORTUNE AUDIO Fortune Careers New TRADE AFRICA New

Fortune Logo

Month: July 2024

Customs Defers Duty-Free Privilages as Bureaucracy Tightens Grip

Posted on by Web Master

Officials of the Ethiopian Customs Commission have drastically tightened the rules for duty-free import privileges. According to Commissioner Debele Kabeta, only army and national intelligence chiefs, along with the Minister of Finance, would retain granting these benefits. Effective July 22, 2024, the Commissioner ordered his subordinates to halt processing duty-free imports, reserving the right of final approval solely for his office.

The decisive action disrupts a broad array of incentives instituted for alluring domestic and foreign investors.

Customs officials say they want to impede the widespread misuse of duty-free privileges, claiming it has created systemic and regulatory issues in revenue collection. According to Mengistu Gizaw, a senior team leader at the Customs Commission, the tightening measure responds to long-held abuse of the privileges. He attributed the entry of various machinery and goods in the market to the pretext of duty-free imports, causing revenue losses.

Ethiopia offers several incentives to domestic and foreign investors, such as importing duty-free capital goods and construction materials deemed necessary to establish businesses or expand existing enterprises. Businesses with investment licenses could import vehicles duty-free depending on the areas of their investments. Three years ago, duty-free permits were granted by city and regional investment commissions before being approved by the Ministry of Finance. During this period, illicit goods flooded the market, exacerbating the problem.

“The country has been losing a lot of revenues,” said Mengistu, whose Commission disclosed last week that it has collected nearly 200 billion Br in duty tax in the past budget year.

Beginning last week, duty-free privileges for investors were suspended pending an investigation into recent allegations of illicit imports of two weeks. The Commission’s investigators were gathering information from 16 customs branches and two branches in Djibouti.

“Requests from investors are put on hold in the meantime,” disclosed Mengistu.

The online duty-free request platforms run by regional investment bureaus have been frozen, causing delays for investors.

Hailesellassie Tadele, director of the One-Stop Service Directorate at the Tigray Investment Commission, noted that the past two months have been difficult for investors who could not import duty-free goods. Only seven investors have received permits for the privilege.

“Our online system has been frozen,” he told Fortune. “We’re not fully operating.”

Officials at the Ethiopian Investment Commission confirmed that their system has also stopped working, leaving them unable to process any requests. With the approval left to federal customs officials, the embargo is feared to create backlogs at Djibouti and Mojo dry ports, a situation mismatched with the Ethiopian Investment Commission’s (EIC) strategic plans. Commissioner Hanna Arayasellasie was not available for comment last week, despite repeated attempts.

A week before the embargo, Hanna announced over 3.8 billion dollars in foreign direct investment (FDI) in the past fiscal year, an 11.5pc growth compared to the previous year. She unveiled a two-year strategic plan to improve logistics operations and rolled out competitive incentives to attract foreign investments. However, her predecessor, Abebe Abebayehu, expressed scepticism about the effectiveness of granting full authority to customs and federal officials, citing the need for proper supervision mechanisms.

“Busy officials won’t have time to assess applications properly,” said Abebe. “They’ll eventually delegate someone else.”

He believes the issue lies in the construction and raw material imports, which are prone to misuse and corruption. Abebe urged reinstating the EIC’s authority over duty-free grants, supported by a technological system for transparency and security. He would rather see the Finance Ministry and Customs Commission monitor imports through timely audits.

Ketema Adane, a tax expert and partner at Ethio-alliance Advocates LLP, concurs with Abebe’s view. He believes duty-free incentives have been crucial for attracting FDI since the 1990s.

“It absolutely needs to be regulated,” said Ketema, recalling past abuses of duty-free privileges. “These incentives could lead to manipulation and economic disruption without adequate oversight.”

However, he questioned whether moving the mandate to higher officials in the three federal agencies would stop misuse and corruption, suggesting that control mechanisms must be in place.

“It will only make investors suffer,” he warned.

Domestic manufacturers were seething over what they alleged was unfair competition from imports, taking advantage of duty-free imports.

Leaders of the Ethiopian Basic Metals & Engineering Industries Association, representing 76 members, have been voicing concerns over the misuse of duty-free imports, which they alleged distorted the market. Its General Manager, Solomon Mulugeta, welcomed the suspension, as the Association has long been calling for a crackdown and to address policy gaps that deter their industry’s growth.

“We’ve been asking customs officials for proper control for months,” Solomon said.

However, not everyone in the private sector is on the same page in their responses.

Leaders of the European Chambers have been called in for a discussion on the issue next week with officials from the Ethiopian Investment Commission . According to Bahiru Temesgen, the Chamber’s executive director, they are currently compiling the concerns of their members who the freeze has impacted. He said the sudden and abrupt policy change has confused most investors while assessing the impacts on the industry.

“We’ll know more as we go on,” Bahiru told Fortune.

Part of the confusion includes whether the suspension affects goods already in transit. Commissioner Debele instructed his subordinates last week that such matters should be brought to his attention for a decision on a case-by-case basis.

One of the largest flower companies, Sher Ethiopia, is one of the investors affected by the decision. Members of its senior management have disclosed that their duty-free application system has not been working for the past two days.

“We don’t know what is happening,” a manager told Fortune. “We’re confused.”

BREWING DISCONTENT

Posted on by Web Master

Unhabitual, perhaps too many, Samuel Gebreyohannes, 38, used to occasionally enjoy a couple of beers at breakfast. However, he recently switched to local brews following a 20 Br increase in beer prices at his usual spot. He humorously compared his changes to the escalated gas prices, quipping, “Do people stop driving when gas prices escalate?”

For him, motorists find alternatives.

Running a neighbourhood corner liquor store, Godoliyas, he reflected on the changing business environment while looking out late an afternoon a fortnight ago at the streets of Summit Road in northeastern Addis Abeba. Lately, sales have been dwindling by as much as half, and the price of a crate of beer has been running high. His store has seen better days. Nostalgic of the past, his worries used to focus on profit margins rather than sustaining the business.

“It has changed now,” he said. “There are days when I don’t even make sales.”

Unbeknownst to him, breweries have increased their factory gate prices by 200 Br for a crate in the last month. Anticipating the collection of 24.4 billion Br from excise tax this fiscal year, with over 37pc expected from the brewery industry alone, the Ministry of Finance adjusted the excise tax only a year after the previous changes. Beverages with up to five percent alcoholic content are now subject to a 40pc excise tax or 28 Br a litre, resulting in at least 9.24 Br increase for each beer bottle.

Excise tax is commonly levied on luxury items, products deemed harmful to public health, and non-mandatory consumer items. Governments often use it as a policy tool to shield domestic industries from external competition, imposing this form of tax on imported items. If imposed on domestic producers, their products are taxed at the factory gate. The recent excise tax adjustment is expected to have a three billion Birr impact on the beer industry, where four breweries dominate the market.

Executives of these companies, already burdened by restricted promotions of their products in the public sphere and heavy taxation, are fretting about another impending tax item: the excise stamp.

The Finance Ministry issued the excise stamp directive a year ago, following a four-year proclamation. The directive’s authors claim to create “a robust and transparent excise tax management system” to prevent counterfeiting, track goods, verify stamps, and follow international standards.

The latest excise tax stamp management system has stirred considerable attention. To some, it suggests another shift in the federal government’s fiscal framework. To others, it represents a potential opportunity for the government to mobilise revenues, arguing that it effectively helps control illegitimate markets. Tax officials could easily discern which goods comply with tax regulations by placing a stamp on products. This, the authorities hope, would increase tax revenue – a notion that has piqued the interest of many fiscal conservatives.

In a recent budget speech before Parliament, Ahmed Shide, minister of Finance, stressed the excise tax stamp system is crucial for enforcing the excise tax law by stunting tax evasion and fraud while collecting more revenues. His supporters resonate with him, believing that it provides a more transparent and traceable method of taxation. They hope the sharpened level of transparency could reduce the chances of tax evasion, further increasing the state’s tax income.

An anonymous source within the taxation system heralded the proposal as a “game-changer,” a sentiment many within the government echoed.

However, not everyone is convinced by these assumed benefits.

Critics argue that introducing an excise tax stamp system could increase costs for businesses, particularly small ones. Additional expenses could arise from buying the stamps and adapting their production lines to accommodate the new system. This, they assert, could stifle expansion and growth.

Two years ago, the Ministry requested expression of interest for prospective supplies of technology solutions for the excise stamp and excise management system, attracting 18 bidders. The bid review process has narrowed them to eight, disclosed Abraham Rega, a legal expert at the Ministry.

“It’s still ongoing,” he said.

The bid involves supplying an excise stamp system that manages from the creation, production, and storage to the distribution and authentication of excise stamps. It includes a web-based ordering system with electronic communication and reporting modules, verification tools for stamp authentication, and accounting for the entire lifecycle of excise stamps. An optional track-and-trace system is also part of the package.

“We’ll ensure the right solution will selected,” Abraham told Fortune.

Critics fear that implementing such a system could inadvertently create a new parallel market — this time for counterfeit tax stamps. An industry insider pointed to examples in other countries where this had occurred, adding gravely, “The road to hell is often paved with good intentions.”

The brewers are not pleased with the new demand in their industry, supporting their scepticism based on a study they commissioned from an independent consulting firm.

Conducted by HST Consult Plc, a private audit firm run by Solomon Gizaw and Tekeste Gebru, the study warns that the proposed system may cause more harm than good to the industry. It argues that the risk of counterfeit products in the beer industry is almost nonexistent, making the discernible benefits of the excise tax stamp system insignificant compared to the substantial costs. The firm finds that the brewers may face costs of 372.3 million dollars, including an acquisition cost of 21.8 million dollars and operational costs potentially reaching 223 million dollars.

It also argues that the brewery industry’s excise tax compliance is already very high. It had an excise tax return of 4.99 billion Br in 2019/20, which grew by 59pc and 52pc in the consecutive years.

The Ethiopian Brewers’ Association, an industry lobby group, hopes to reach a deal favourable to its members: Heineken Ethiopia, BGI Ethiopia, Dashen Breweries, and Habesha Breweries.

These companies produce approximately 15.15 million hectoliters of beer annually. The industry traces its roots back to 1922 when Emperor Hailesellasie’s endowment company launched St. George Beer. Since then, the industry has grown substantially, with five leading breweries operating 13 plants nationwide. The four major breweries together produce at least 20 different brands, with Heineken having the highest number of brands at nine, followed by BGI Ethiopia’s six.

Despite the industry’s growth, the brewers see the proposal to implement an excise tax stamp system as unwarranted and costly.

Many in the industry find the recent excise tax amendment unexpected and sudden.

“We were never consulted on this directive,” said Herve Milhade, CEO of BGI Ethiopia, who is currently assessing its impact on the company’s sales.

He believes it is unfortunate that the cost should be transferred to consumers.

“We need to maintain our margin to continue financing our investment,” he told Fortune.

BGI Ethiopia, known for its leading brand, St. George, and premium brand, Castel, is in an expansion strategy slated for 2028. Herve foresees that the implications will include a margin decrease, more undersized financial capacity to invest, potentially lowering volume, and impacting tax collections. He expects budget beers to be more affected as price-sensitive consumers may reduce their consumption or switch to other alternatives.

“With the steep price increase, we hope our consumers will not lower their consumption,” he told Fortune. “It puts the larger industry at risk.”

The consultants direct the Ministry’s officials to reckon the vulnerability of excisable products to illicit trade, counterfeiting, and tax evasion, particularly in the tobacco industry. They urge considering the brewery industry’s volitional tax compliance level to avoid imposing a blanket system and proposed producing the excise tax stamp management system locally, partnering with local technology companies and excise taxpayers like breweries.

Ironically, officials and advisors at the Ministry claim they are unaware of the study, but a senior advisor to the Finance Minister expressed confidence in their research.

“We’ve done our own study,” he said. “It’s not like we woke up one day and decided to impose it.”

The directive’s early weeks of enforcement have yet to show marked changes in demand. However, a decline is expected, impacting revenues and, consequently, the federal government’s tax income from the industry. Herve believes the tax base should be broadened to avoid disproportionately impacting breweries with high taxes and duties.

HST’s study shows the need for more comprehensive consultations with operators to ensure that such initiatives do not inadvertently harm the industries they seek to regulate. The directive alludes to inflation adjustments that could be made at least once a year based on the specific excise tax rates.

While tax experts acknowledge the burden of inflation on price tags, they believe an excise stamp is a tax instrument for regulating industries.

For Yohannes Woldegebriel, a veteran lawyer specialising in tax laws, the authorities’ enforcing a proclamation ratified four years ago “seems reasonable.” He would rather see brewery executives argue for transparency during the bid process to install technologies and ease of doing business to increase their overall productivity.

Breweries argue that business decisions should be motivated by economic rather than tax considerations. They warn that a decline in the tax base will have a cascading effect on the supply chain, from farmers to distributors and consumers.

Heineken Ethiopia is one of the country’s top 10 highest taxpayers, recognised as a platinum taxpayer. The company funnelled no less than nine billion Birr in tax in the last fiscal year.

Its Managing Director, Bart De Keninck, also president of the Ethiopian Brewers’ Association, observed that the focus seems to be on generating more from highly compliant businesses in the economy.

“There is zero illicit beer available in the market,” he said, arguing that the excise tax stamp is a track-and-trace system targeting illicit and counterfeit products.

Bart recalled that the beverage industry took three years to recover from the last major tax revision, in 2020, which tripled the excise tax rate.

“We’ve seen a major reduction in economy beer segment volume,” he said.

The stamp tax system’s burden to the industry he leads includes additional investment costs for machinery installation, system integration, and constant running once operational, as well as delays in bottling lines and disruptions during internet interruptions.

“The system can only work with reliable internet access,” said Bart.

He expressed concern that these burdens would impact productivity and government revenue generation.

“We’re worried it will make our products unaffordable for consumers,” he told Fortune. “The sector, in general, will shrink.”

Central Bank Unlocks Interbank Operation for Commercial Banks

Posted on by Web Master

The National Bank of Ethiopia (NBE) Governor Mamo Mihiretu has initiated a new directive allowing commercial banks to trade their liquidity through interbank money market operations, hoping to enhance financial stability in the sector. The directive put forth last week enables banks to access short-term liquidity by borrowing and lending directly from their excess reserves.

The directive outlines regulatory mechanisms for liquidity trade, requirements, trading timelines, platforms, and mechanisms for a safe, efficient, and collateralised interbank market. Until an electronic trading platform is fully implemented, a manual book-entry system will facilitate interbank market trading while physical certificates may temporarily substitute for dematerialised securities.

According to Fikadu Digafe, vice governor of the central bank, this is one of the central bank’s roles to ensure fiscal and monetary stability while opening the door for inter-bank money market rate operation. He said they plan to meet short-term liquidity objectives by allowing finance movement based on demand and supply.

“Financial stability and vibrancy is the goal,” he said.

The central bank had availed a three-year strategic plan, marked by several directives and establishing open market operations to take a shot at inflation. Taking benchmarks from other countries such as Kenya, Uganda and Malaysia, Fikadu said the operation will be a trust-based liquidity swap between the banks, while the fixed-time deposit facilities are ongoing.

Market participants must quote overnight or seven-day tenors, with a minimum deal amount of 25 million Br while the law grants the banks to manage their exchange rate and interest risk.

“We’ve established a regulatory mechanism to monitor fairness,” he said.

Trading hours are restricted to the five working days of the week, and transactions must include the maturity date, interest rate, and price in local currency.

Recently, the central bank set an interest rate of 15pc as the anchor of its monetary policy, three percentage points lower than what it previously lent to commercial banks under liquidity strain. The law also introduces risk management measures, such as a reduction of underlying assets to mitigate market and credit risks. Transactions will be backed by collateral securities similar to those used in the central bank’s refinancing operations.

The interbank lending market will be facilitated through the Central Securities Depository System (CSD), managed by the US-based technology firm Motran, which recently partnered with the central bank. The directive introduces a Real-Time Gross Settlement (RTGS) system to enable the transfer of funds with interest upon maturity.

Another trading platform is under the Ethiopian Security Exchange (ESX) for the upcoming operation in the capital markets. CEO Tilahun Kassahun noted that the exchange will facilitate trading once approvals are granted by the Capital Market Authority. He said that interbank operations are foundational for other financial instruments such as bonds, securities, and derivatives.

“Enabling banks to operate without the need to match loans to deposits will give them flexibility,” he said.

The Ethiopian Securities Exchange (ESX) began its capital-raising activities last year, attracting interest from the private sector, including commercial banks and insurance companies. It exceeded its initial capital requirement, raising a subscribed capital of 1.51 billion Br and a paid-up capital of 800 million Br.

Banks express a positive outlook. The Ethiopian Bankers Association praised the directive as a substantial step toward financial stability, addressing longstanding concerns.

According to Melaku Kebede, president of Hibret Bank, the liquidity boost is crucial for maintaining stability and growth. He noted that interbank operations will allow banks to play both lender and borrower roles, enhancing flexibility in managing liquidity.

“The industry has faced a huge liquidity burden for the past year,” he said.

He also considers that inter-banking can only work if there is a bank that will pick up the slack when another one falls.

“All of us can’t be in trouble at the same time,” he said.

The mismatch between deposits and loans has created liquidity risks for banks. According to a financial report published by the central bank last June, 56.3pc of total banking sector deposits are held by only 0.5pc of depositors. The report also highlighted a decline in the liquid assets to deposits ratio, indicating potential challenges for banks to meet short-term obligations.

A major portion of the banking system is exposed to liquidity risk. The report revealed that if the 10 largest depositors were to withdraw funds simultaneously, nearly two-thirds of commercial banks would be unable to meet their regulatory liquidity obligations which indicates a potential for systemic instability. It also revealed that a mere 0.5pc of borrowers with a credit exposure above 10 million Br held nearly three-quarters of the banking sector’s loans.

Eshetu Fantaye, a veteran financial expert, believes the central bank is implementing a more cautious monetary policy by reducing its lending to commercial banks. This shift, he argues, is intended to encourage interbank lending and borrowing while curbing inflation. Eshetu observes the decision to limit interbank loan maturities to seven days as a prudent step to stabilise short-term liquidity.

However, he also observes potential risks. A fully-participated interbank market could increase systemic risk. Eshetu notes robust regulation and regular CAMEL ratings for banks, as important to mitigate these risks. Transparent disclosure of bank ratings, he suggests, can foster a more informed lending environment.

“The central bank should not hesitate to publicly recognise both strong and weak performers,” Eshetu told Fortune. “This transparency is crucial for maintaining market discipline.”

Soaring Costs, Security Threats Cripple Alcohol Producers

Posted on by Web Master

Alcohol manufacturers including the known Balezaf and National alcohol brands are entangled in a web of macroeconomic and external pressures that have plagued their industry. Substantial price surges in raw materials, security concerns, lack of market access, and illicit traders have undermined their production and sales.

Molasses, an essential input for alcohol production, has doubled in price to 2,691 Br a quintal, while ethanol (technical alcohol) has also seen its price increase by half to 212 Br, impacting production.

Mesfin Abate, CEO of the National Alcohol & Liquor Factory and president of the Alcohol Manufacturers Association, said factories are forced to operate at low capacity while struggling to stay afloat. Established in 1905 with an annual revenue of 1.2 billion Br, the state-owned Factory has had to cut its production by half. According to Mesfin, the rise in raw material prices, security concerns, and illicit traders supplying products at cheaper prices, disrupt the market.

“The whole industry is in peril,” he told Fortune.

Another prominent alcohol manufacturer, Balezaf Alcohol & Liquors Factory, has been compelled to uphold intermittent operations for the past six months, primarily due to the surge in raw material prices and lack of market access due to security concerns. According to Belay Tekle, the general manager and one of the shareholders, unprecedented price hikes of molasses, which comprises 90pc of its input, have severely impacted the production capacity.

“It’s more than what we can handle,” he said.

Belay notes that operational fluctuations in recent months have led to dwindling sales and revenues. Lack of market access is another concern, with 55pc of the demand in regional states, and 25pc in the Amhara Regional State, facing security issues.

“Our operation has been on and off,” he said.

Spanning 38,000Sqm and employing 580 workers, Balezaf has been forced to slash its production by a quarter from its 30,000ltr capacity. This brought about a 60pc revenue decline in the past three years. Company executives then decided to double the price, which had a reverse effect on demand, declining by 30pc. Belay cites illicit marketers with low-quality outputs at cheap prices disrupting the market share of legally operating manufacturers.

“We are struggling,” he said.

The industry’s struggle mirrors broader challenges within Ethiopia’s manufacturing sector, which remains below five percent of the GDP. Security deterioration, particularly in Oromia and Amhara regional states, has substantially affected business operations.

Alcohol manufacturers are experiencing these issues in the wake of price increases by the five sugar factories: Wonji, Metehara, Fincha, Omo Kuraz II, and III, which supply technical alcohol and molasses. They attribute their adjustment to up to 300pc production costs on their part.

Industry leaders from the 33-member strong Association have been holding prolonged discussions with the Ethiopian Sugar Industry Group (ESIG). However, they have seen little success in addressing the issue of raw material prices.

According to Reta Demeke, public relations director of the Group, the rise in prices to import machinery, coupled with foreign currency shortages, is a concern for factories. He acknowledged that sugar factories have struggled to meet supply targets in the past year. However, he attributes security issues as the major culprit. He said if economic factors and demand warrant it, they are open to considering lowering the price.

Wonji Sugar Factory supplied 10,000tns of molasses and around 300,000Qtl of sugar in the past year, falling short of its capacity by 700,000tns. Aklilu Haile, the communication director, said market access was a big issue this year, while difficulties importing spare parts and machinery have also contributed. Spanning 5,700hct, the factory faced operational disruption due to security concerns, halting operations and requiring recovery time.

“We are hanging in there,” he said.

About 350Km from the capital, Fincha Sugar Factory, located in the Horo Guduru Welega Zone of Oromia Regional State, has faced similar challenges. Mengistu HaileMariam, the general manager, said high production costs, with spare parts and machinery rising by threefolds, the factory was forced to opt for price increases to curb inflation and sustain production. Fincha has supplied an average of four million litres of technical alcohol and requested price increments due to surging production costs.

“We couldn’t operate with the current price,” he said.

The timeline of Finchaa Sugar Factory has been marred by challenges. Suspension of operations in May 2023 left around 9,000 employees idle for seven months following an attack by armed forces causing damage worth 400 million Br. Mengistu said they have prepared a five-year strategic plan targeting the annual production of 2.7 million quintals of sugar and 20 million litres of technical alcohol, quadrupling its current production.

“We have big plans in the industry,” he said.

Economists such as Arega Shumete (PhD) believe unstable policies and domestic market fragmentation have impacted the industry, increasing prices and decreasing demand. With demand concentrated in the northern part, logistics constraints have affected transaction and input costs.

“Different issues have added fuel to the fire,” he said.

He observes the alcohol industry is controlled by a few, requiring government intervention to regulate market structures and profit margins and ensure long-term stability.

Lack of Credit Stifles Tigray Region’s Economic Resurgence

Posted on by Web Master

In the aftermath of a devastating war that severely impacted its economy, investors in Tigray Regional State face difficulties to resume operations due to financial shortages and the inability to import duty-free materials. For more than 10 million Br loan requests, around 22 investors have been required to appear in person at the bank headquarters without any progress. About 25 others have struggled to access duty-free privileges necessary for importing machinery to rehabilitate their operations.

Tigray Chamber of Commerce has voiced profound concerns, requesting special attention for businesses recovering from the war. According to Haftey Hagos, the secretary-general, businesses have suffered unprecedented damages and face acute difficulties in returning to normalcy.

“A huge amount of finance is needed,” he told Fortune.

He noted that loans, interest waivers for three years, duty-free imports, and life insurance for investors are needed. Members convened in the capital with officials from the Ministry of Finance and the National Bank of Ethiopia (NBE) to address the 5.1 billion Br interest accruing annually. They had requested the central bank consider interest waivers from 18 banks and two microfinance institutions, urging loan reschedules and financing.

“Businesses couldn’t begin operation,” said Haftey.

Frezer Ayalew, head of Banking Supervision at the central bank, said they asked commercial banks a few months ago to consider allowing investors in Tigray easier access to loans and rescheduling for the long term.

“We have done what we could,” he said. “Banks must follow their prudent strategies.”

Ethiopia’s 31 banks, which have issued nearly two trillion Birr in loans and advances as of June 2023, maintain a Non-Performing Loans ratio of around 3.6pc, below the regulatory five percent threshold. Commercial banks are now implementing strict risk management policies due to the high number of non-performing loans in Tigray Regional State. Demsssew Kassa, secretary general of the Ethiopia Bankers Association, said the state-owned Commercial Bank of Ethiopia (CBE) started offering loans at the corporate level.

Executives from Birhan Bank are preparing critical risk-mitigating strategies for another round of loan disbursement. Desta Bekalo, vice president for Strategy & Marketing at the Bank, said they are working on restructuring and cash injections to prepare for new loans. The Bank disbursed 27.35 billion Br in loans and advances, a 30.6pc increase from the previous year. Birhan Bank in 2022/23 generated a 4.39 billion Br in income from interest and loans.

“We have been preparing ourselves for some time,” Desta told Fortune, noting that economic activity in the region is a crucial prerequisite for loan financing.

Business consultants believe it is unwise to expect commercial banks to reopen their doors to investors after suffering from unpaid loans. Millon Kibet, a partner at BDO Consulting Plc, suggested that the government could establish a development bank to revive the businesses and the economy. He cited the establishment of the World Bank after World War II as a model for economic recovery.

“Banks have no room for risks anymore,” he said.

Tewodros Mekonnen (PhD), a venerated macroeconomist, concurs. The probability of commercial banks rescheduling loans while financing new investments is questionable according to him.

“They can’t afford to do that,” he told Fortune.

He suggested a recovery budget from the government and prioritising recovery in development financing, emphasising the need for external intervention.

“Their productive capacity has also been hurt,” he said.

Investors have voiced their concerns to the Tigray Investment & Export Commission. Kassahun G.Egziabher, deputy head of the Commission, said they are negotiating with officials at the Ministry of Finance and executives of commercial banks to provide financial relief and duty-free import permits. He said the financial strain was exacerbated by unrequited demurrage costs at Djibouti ports, where machinery is being held.

“They are struggling,” Kassahun told Fortune.

Existing and new investors planning to start or restart their businesses after receiving licenses from the Commission have been hindered by the absence of finance, according to Kassahun.

One such company, Selam Terrarrzo Factory Plc, has faced severe financial issues. The company could not secure the 800 million Br it requested from a commercial bank to restart and expand its operations. Despite multiple attempts to visit the headquarters, Alemseged Adnew, the general manager, said he was unable to obtain a loan for months, further hampering the company’s ability to import machinery.

Established in 2006, the factory in Mekelle City suffered damages worth millions of Birr during the war. Two years later, it remains unable to resume normal operations due to financial and import difficulties.

“We couldn’t get back to our business,” Alemseged said.

Officials from the Ministry of Finance assert that business is proceeding as usual on their end. Gossa Tefera, head of the Tax Policy Directorate, noted that those who fulfilled the investor criteria have received services without special treatment.

“Nothing out of the ordinary has happened,” he said.

FSD Africa Predicts Green Jobs Boom for Ethiopia

Posted on by Web Master

Ethiopia is poised to become a key player in Africa’s green economy, with a new report forecasting the creation of up to 3.3 million direct green jobs across the continent by 2030. The report, “Forecasting Green Jobs in Africa (2024),” highlights Ethiopia’s potential in hydroelectric, solar energy, and climate-smart agriculture sectors, positioning it as one of the promising countries.

Produced by FSD Africa and experts, the report underscores Africa’s overall potential to generate between 1.5 to 3.3 million direct green jobs across key sectors such as energy, agriculture, and manufacturing. This potential is attributed to the continent’s abundant natural resources, renewable energy prospects, and the world’s fastest-growing workforce, which can allow Africa to leapfrog directly to renewable energy technologies, bypassing traditional carbon-intensive infrastructure.

Ethiopia, along with four other countries— the Democratic Republic of Congo, Kenya, Nigeria, and South Africa— is projected to contribute up to 720,000 jobs by 2030. Large-scale projects, such as the Grand Ethiopian Renaissance Dam (GERD) have made hydro projects the leading sector with up to 33,000 jobs projected. Ethiopia’s substantial hydroelectric potential, coupled with emerging opportunities in solar energy and climate-smart agriculture, solidifies its role in Africa’s green economy.

The report lists sectors such as solar energy, power transmission, climate-smart agriculture, aquaculture, and waste management as priorities. Energy and power are expected to generate up to two million jobs, primarily driven by solar energy projects, which alone could create up to 1.7 million jobs. Agriculture and nature are forecasted to create up to 700,000 jobs, with contributions from climate-smart agricultural technologies and aquaculture.

Achieving this green job potential requires a concerted effort in policy support, infrastructure development, and substantial financial investments estimated at over 100 billion dollars annually.

Generating around 5,200MW of energy from hydroelectric sources, Ethiopia finds itself contemplating a complex yet crucial aspect: financing the green economy. A new bill aimed at establishing a special fund for green legacy initiatives and land restoration was presented to the Parliament last month. The bill, co-authored by the Ministry of Finance and the Ethiopian Forestry Development, proposes creating a fund, envisioned to constitute up to one percent of the federal budget, to provide sustainable domestic financing for these critical projects.

“Supportive policies and targeted investments in high-potential value chains are crucial,” he told Fortune.

Gossaye Mengiste, chief consultant at the Ministry of Water & Energy, highlighted the focus on solar, wind, and geothermal energy sectors under the green legacy policy. He said the Ministry plans to leverage hydro resources, and modernise and scale up projects to meet energy demands.

According to Gossaye, attracting investment by creating a conducive environment is equally important. He believes drafting detailed policy, strengthening public-private partnerships, and measures to alleviate the forex issue, is considered by the federal government.

The report serves as a foundational step towards a comprehensive understanding of labour demand in Africa’s green sectors, aiming to guide educators, policymakers, and investors. By focusing on immediate job creation and skill development, Africa can lay the groundwork for a sustainable and prosperous future, ultimately leading to an estimated 100 million new and improved jobs by 2050.

Artificial Intelligence (AI) is poised to be a game-changer for hydropower in its ability to optimise energy storage integration. Experts believe it enhances grid stability, ensures a consistent power supply, and boosts the value of hydropower generation. However, realising the full potential of AI in hydropower is not without its challenges. High-quality data is essential for AI algorithms to produce accurate and reliable results. Ensuring data security and privacy is also paramount.

Equally important is the development of human capital. A skilled green workforce is essential for both driving and benefiting from this growth, yet talent demand and supply dynamics have been largely overlooked until now.

Tigabu Atalo, energy expert, recommends enhancing formal education programs, vocational training curricula, and on-the-job skills development to meet the demand for specialised and advanced green jobs. He calls for fostering cross-sector collaboration between governments, private sectors, and educational institutions to create a supportive environment.

4185005000

Posted on by Web Master

The value of external debt in Dollars advanced to the agricultural sector in March 2024, increasing sharply from three billion dollars in 2022. The notable rise could indicate a surge in loans directed towards agricultural projects, potentially driven by government initiatives or international funding programs.

Mirror, Mirror on the Queue

Posted on by Web Master

While I was patiently waiting in line for a taxi the other day, a lady suddenly appeared out of nowhere and hopped into one, causing an uproar. I was quite upset by this blatant disregard for the queue. She seemed oblivious to the chaos she caused and simply stated that she did not realise there was a line. Since the taxi stopped in front of her, she decided to take advantage of the situation.

The very next day, I spotted the same lady waiting in line. Her bright attire makes her easily recognisable. As we all waited for our turn, a man slyly pretended to inquire about the taxi’s destination and swiftly boarded the approaching cab, leaving her fuming. I could not help but chuckle at her reaction. When she questioned my amusement, I pointed out that she was now experiencing the frustration she had caused the day before. She fell silent, glancing around to see if anyone else remembered the previous incident, only to find one person nodding in agreement.

This incident served as a reminder of the double standards, particularly when it comes to issues of fairness and justice. It showed how individuals tend to only take notice of injustice when they are affected by it, showcasing the hypocritical nature. This phenomenon is supported by psychological research on the “actor-observer bias,” where people attribute their actions to situational factors but others’ actions to their character flaws.

A key element in this struggle is the concept of mental accounting, introduced by Richard Thaler. People tend to categorise their experiences and actions based on the stories they tell themselves. For instance, a negative encounter at a restaurant is labelled as “poor customer service,” while a similar incident at a friend’s gathering is dismissed as a “one-time mistake.” This mental accounting helps to uphold a positive self-image and offers a shield from the discomfort of acknowledging one’s own hypocrisy.

The complexity of motivational dissonance arises when our beliefs clash with our actions, causing inner turmoil. This discomfort prompts us to either adjust our behaviour or find ways to rationalise our choices, such as downplaying the consequences, blaming external factors, or using moral justifications. Social influence impacts our perception of fairness, as we tend to conform to the norms and expectations of our surroundings. In environments where overworking is normalised, individuals may not realise the unfair distribution of workload because it aligns with the established practices, even if it leads to imbalance.

System justification theory suggests that humans have a natural inclination to view the social systems we are part of as just and fair. This inclination can result in us justifying inequalities and turning a blind eye to the injustices present. For instance, individuals benefiting from inherited wealth may struggle to acknowledge the privileges it affords them over those from less advantaged backgrounds.

We tend to overlook the broader implications of our actions, focusing only on immediate consequences. A small act of bias can contribute to larger systems of oppression, yet this connection eludes us at an individual level. Unravelling these layers of influence is essential to breaking down the barriers that prevent us from recognising injustice within ourselves. To bridge this gap, we must question the narratives we create around our behaviour and challenge our biases.

Embracing discomfort as a catalyst for growth allows us to reassess our actions and realign our values. We need to analyse and critique societal structures for biases and unfair practices.

Through these practices, we can move beyond reacting to injustice and instead cultivate a proactive understanding of fairness in both external situations and our conduct. Recognising injustice within ourselves demands a commitment to continuous learning and a willingness to confront uncomfortable truths. It is a journey of self-discovery and social responsibility, where we acknowledge our imperfections while striving to create a world where fairness is a universal right for all.

Landslide Disaster Calls on Urgency

Posted on by Web Master

The landslide in the Southern part of Ethiopia’s Gofa Zone last week has claimed over two hundred lives, leaving communities devastated and in mourning. The traumatic task of recovering the bodies of loved ones has left a lasting scar on the survivors. With limited support, the community faces immense grief and unimaginable pain.

The human suffering and economic losses from the disaster are profound, disrupting humanitarian efforts, displacing populations, and halting economic activities without warning.

Ethiopia’s vulnerability to natural disasters such as landslides, floods, and droughts is exacerbated by the lack of established emergency relief systems. These calamities not only claim lives but also worsen economic conditions and livelihoods.

It is troubling to learn that it took almost five days for leaders to address the public and declare a national day of mourning. Emergency relief and medical professionals should be dispatched to the affected region as early as possible.

The absence of excavators to expedite the search for survivors is concerning. The lack of impact-based forecasting and early warning systems leaves Ethiopians exposed to full-scale disasters. According to the World Meteorological Organisation, timely early warnings can reduce the damage caused by natural disasters by nearly a third. To address this, the organisation has initiated efforts to provide early warning systems for impending natural disasters in Africa.

Many African countries are unprepared for natural disasters. Recent floods in Kenya, which claimed close to two hundred lives and destroyed infrastructure, highlight this vulnerability. Tanzania and Somalia have also faced floods, displacing thousands. Without proper systems to manage natural hazards, communities in Africa must fend for themselves during sudden calamities. Recurrent disasters force them to recover from one tragedy only to be struck by another.

Environmental experts link many natural disasters to climate change. However, the lack of preparedness in emergency response and inadequate weather data collection are national issues. An effective early warning system could help people evacuate danger zones in time.

Experts note that many natural disasters in Africa are predictable and can be mitigated through informed planning and preparation. Strengthening public institutions to manage natural disasters better equips them to assist communities in need.

Implementing disaster laws clearly defines the roles and responsibilities of public institutions and government levels, establishing accountability. Engaging communities and nonprofit organisations create a supportive environment for managing disasters and their aftermath.

Without comprehensive disaster management legislation, disaster risk reduction is challenging. Government unpreparedness and competing priorities complicate disaster prevention and recovery efforts.

Regulatory frameworks are essential for facilitating international support when disasters exceed domestic capabilities. These guidelines ensure smooth coordination and distribution of emergency relief, including shelter solutions for affected citizens.

Training communities in high-risk areas can reduce their vulnerability and damage from disasters. South Africa’s Disaster Management Act empowers communities by law to reduce disaster risks, demonstrating the value of public knowledge and input in disaster management.

South Africa has successfully integrated traditional weather observation methods from the community into its official assessments. Community insights on cloud formations and bird flight patterns serve as early warnings of flooding.

Community knowledge is invaluable. Ethiopia can learn from South Africa’s example to prevent extensive damage from natural disasters. As the climate worsens, hands-on training, public engagement, and preparedness are crucial to mitigating the impact of future disasters like the recent tragedy in Gofa Zone.

Rebooting the Sustainable Development Goals (SDGs)

Posted on by Web Master

It is a truism in the business world that vision without execution is a hallucination, and execution without vision is futile. The same principle applies to global policy: ambitions without solutions are just hopes, while solutions without ambition lead to stagnation.

The Sustainable Development Goals (SDGs) for 2030 are a case in point. All United Nations member states unanimously adopted these 17 objectives and 169 underlying targets in 2015. They constitute an ambitious agenda to address global challenges like poverty, health, gender equality, labour, education, and climate change. With six years remaining until the deadline, the world is far from achieving most of these goals. Despite significant improvements in some areas – such as a million more children reaching their fifth birthday each year – progress has been too slow in many others.

While financing gaps are rightly often cited as a key factor, the biggest obstacle to achieving the SDGs is the lack of systematic approaches to creating scalable solutions. Slow and steady gains can lead to significant advances over time, but if progress becomes too slow, the sense of achievement and hope for the future can dissipate. Achieving systemic gains requires boldness.

In 2015, the SDGs were launched with a call for transformation. But calling for transformative solutions is easier than developing them. Although markets are powerful drivers of innovation, we need solutions capable of tackling broader public interests. Progress often requires new forms of collaboration between public, private, scientific, and civil society institutions or even the creation of new ones. But, many organisations have difficulties updating their goals or building partnership strategies.

Siloed professional communities are difficult to unite, leaving vested interests and the forces of inertia to crowd out innovation. Consequently, partnership remains more an aspirational value than a skills-based discipline, and policy debates often prioritise ideology over practical solutions.

Against this backdrop, achieving the SDGs by 2030 requires new approaches that are audacious enough to inspire but also practical enough to be viable – concepts that capture the imagination while steering implementation debates toward tangible results. This could mean anything from a new global fund designed to ensure that digital cash transfers reach the world’s poorest communities, or an “interspecies money” mechanism that leverages artificial intelligence to provide animals with a say on how digital currencies can be spent on their protection.

It could also mean developing a public data tool to help investors identify and avoid companies that use forced labour.

New technologies, institutions, and approaches all have the capacity to mobilise energy and expertise to achieve common, quantifiable objectives. Crucially, the fresh approaches we have in mind must convince people to abandon current practices and pool their creativity and resources toward a greater goal.

But big ideas rarely emerge on their own. Our respective professional experiences and collaborative efforts have taught us that innovative SDG solutions must be encouraged, cultivated, and supported. As co-chairs of 17 Rooms, a partnership between the Brookings Institution and The Rockefeller Foundation, we have worked with several dozen groups of extraordinary professionals around the world on initiatives related to all 17 goals.

Watching them experiment with various approaches taught us a few lessons about driving positive change.

Venues for cross-sector cooperation on sustainable development remain too rare. We have been struck by the sense of novelty leaders from all sectors frequently express when encouraged to craft bold actions together to achieve even individual SDG targets. How ideas are shaped matters. To create platforms for the best ideas to emerge, the world needs tools, processes, and systems that can bring together diverse views, and yet the lack of available tools for developing multi-stakeholder solutions is startling.

The development and adoption of big ideas should be interlinked. Too often, experts devise new solutions without understanding the realities faced by those responsible for implementing them. Conversely, policymakers often fail to seek out innovative ideas and are rarely held accountable for not doing so. Another lesson concerns the need to determine early on who will pay and how. Regrettably, the SDGs were launched without sufficient agreement on funding, making even small amounts of money difficult to secure.

Without adequate financing, big ideas will remain just that – ideas.

There is no substitute for leadership. Institutions and systems are crucial for large-scale deployment, but the passion and dedication of individuals championing big ideas are much more important than a perfect strategy or project. Since roadblocks are inevitable in an age of technological disruption, policy entrepreneurs must be as agile as their counterparts in the business world in navigating constantly shifting terrain.

To be sure, some may argue that the current geopolitical climate makes it too challenging to pursue big ideas or develop systematic approaches to achieving the SDGs. We disagree. If anything, today’s heightened tensions emphasise the need to chart a better path forward. Policy tweaks are unlikely to have a significant impact when the world seems stuck or off course. New ideas, on the other hand, can foster a sense of opportunity and combat despair.

Private-sector and civil society leaders are as vital to generating big ideas as public officials. Big ideas can drive change at every level, from local councils to international forums. But, achieving the SDGs requires new platforms to encourage innovation across sectors and empower relevant actors to independently advance solutions.

At 17 Rooms, we have learned from our successes and missed opportunities. With six years remaining until the deadline to achieve the SDGs, we are actively seeking big ideas. We hope others will adopt a similar approach and help us build platforms to facilitate innovative solutions.

New Central Bank Strategy to Tame Inflation’s Wild Ride

Posted on by Web Master

Two weeks ago, the National Bank of Ethiopia (NBE) introduced a new monetary policy framework, marking a notable shift from a decades-old monetary targeting strategy to an “inflation targeting lite” policy strategy. Spearheaded by the newly appointed governor, it is underpinned by the NBE’s medium-term strategic plan, which hopes to bring price stability to Ethiopia’s turbulent economy.

The central tenet of this new regime is the NBE’s overriding objective of price stability, achieved through implementing a benchmark policy interest rate — the national bank rate (NBR). It is also implemented via interbank money market interest rates as the operating target and open market operations as the primary policy instrument.

As the NBE navigates this new terrain, it faces several critical decisions. One of the foremost challenges is determining the appropriate measure of inflation to target. The debate centres on whether to focus on headline inflation, which encompasses all items in the consumer price index (CPI), or core inflation, which excludes certain items with highly volatile prices, such as food and energy.

Historically, the NBE has targeted headline inflation. However, this measure is notorious for its volatility, often influenced by temporary factors that do not reflect the underlying economic conditions. In Ethiopia, where food prices constitute a large portion of the consumption basket — accounting for 54pc of headline inflation — the volatility of these prices presents a particular problem. Temporary supply shocks, such as droughts or conflicts, can cause substantial fluctuations in food prices, impacting the overall CPI.

If the NBE were to react aggressively to these temporary price spikes by raising the policy rate, it risks destabilising the economy. Core inflation, which excludes these volatile prices, provides a more stable and reliable measure, helping to address the effects of supply shocks and better reflecting the actual supply-demand conditions in the economy.

However, choosing which core inflation measure to adopt is not straightforward.

The traditional measure of core inflation excludes food and energy prices from the CPI. Yet, there are instances when other items within the core measure experience price surges. An alternative approach is to exclude items based on statistical criteria, such as those whose prices change by more than a specified percentage point. The choice can also be informed by the measure’s ability to forecast headline inflation over a given period.

For the NBE, a reasonable starting point might be to target the standard core measure by excluding food prices, as this would be relatively easy for economic actors to understand and would help guide inflation expectations.

In addition to selecting the appropriate inflation measure, the NBE should enhance its economic forecasting capabilities.

Inflation-targeting regimes require forward-looking and preemptive monetary policy due to the well-known “long and variable” time lags in the effects of monetary policy. To set the NBR effectively, the NBE’s monetary policy committee needs to forecast key variables, including interest rates, commercial banks’ liquidity, inflation, real economic growth, and public spending. This demands the use of sophisticated economy-specific models and state-of-the-art software to process information, as well as an accurate appraisal of risk factors.

While the NBE claims to have the necessary technical capacity, its credibility will be tested when these forecasts meet reality.

Transparency and communication are crucial components of the new policy framework. In the past, Ethiopian monetary policymaking has often been shrouded in mystery, to the economy’s detriment. To encourage greater transparency, the NBE should clearly define its inflation target, moving beyond the vague “single digits” goal of the past. The central bank should also make its economic forecasts more transparent through appropriate communication channels, ensuring that the general public and financial markets understand monetary policy decisions.

It is essential to publicise monetary policy committee meetings and decisions on time. The NBE should engage in public information campaigns to educate the public about its role and objectives, emphasising that it is more than just an organisation with a large vault to store cash. Clear communication helps stabilise inflation expectations, promoting economic stability. Enhanced transparency and communication also improve the NBE’s accountability to the public and reduce political pressures that may lead to inflationary monetary policy.

It would be difficult for the central bank to pursue policies that contradict societal interests when it is transparent and accountable.

Another critical challenge for the NBE is establishing long-term credibility, which depends on the central bank’s commitment to consistently achieve its inflation targets over time. Building a good track record is essential for reducing inflation expectations, but it requires systematic thinking and continuous monitoring to avoid pitfalls. The NBE could learn from the experiences of neighbouring countries like Kenya and Uganda, which have successfully implemented similar policies.