Ethiopia’s ambition to host the 2029 Africa Cup of Nations (AFCON) is seen as a bold bet that contrasts with the struggling state of its domestic football league and inadequate infrastructure. The excitement about the bid is perceptible, but the reality is grim. Clubs are wrestling with financial constraints, and fans are frustrated by the lack of viable stadiums in the capital. The Addis Abeba Stadium, the central venue built in the 1940s, has been under renovation since 2020, forcing six premier league clubs into a costly nomadic existence. Matches that once drew massive crowds and substantial revenues have seen dramatic declines. The rivalry between the Ethiopian Coffee S.C. and St. George S.C. used to fill Addis Abeba Stadium, generating entrance revenues of up to one million Birr a match. Now, with home games played in distant regional stadiums like Adama, Dire Dewa, and Hawassa, revenues rarely cross a quarter of it.
The national team, the Walias, faces a similar affliction. With no certified stadium in the capital, the Ethiopian Football Federation (EFF) has been compelled to host international fixtures abroad, spending 630,000 dollars over two years on stadium rentals and travel expenses. Sponsorship has also dwindled due to poor attendance and low visibility.
Hopes were pinned on the completion of Adey Abeba Stadium, on Djibouti St., near Bole Secondary School, to respond to these anxieties. However, the project, projected to be completed nine years ago with a budget of four billion Birr, has been beset by delays due to foreign currency shortages, labour issues, and the pandemic. Despite consuming 64 million dollars (7.65 billion Br in last week’s Central Bank exchange rate for buying) so far and receiving a 50 million dollar infusion from the United Arab Emirates (UAE), the stadium remains a slow work in progress.
Officials, however, remain optimistic. The recent visit by Prime Minister Abiy Ahmed (PhD) and CAF President Patrice Motsepe to Adey Abeba Stadium offered a glimpse of hope, demonstrating the federal government’s commitment. Yet, the country’s grand vision may remain out of reach without decisive action to address the financial strains and management inefficiencies plaguing Ethiopian football.
Month: October 2024
Mercato Inferno Lays Bare Ethiopia’s Vulnerabilities to Disasters
When flames devoured parts of Mercato, residents watched helplessly as decades of toil turned to ashes. The inferno, one of nearly 200 reported in the city this year, consumed more than stalls and merchandise. It exposed the fragile underpinnings of Ethiopia’s disaster preparedness and the vulnerabilities of a rapidly expanding metropolis.
For millions, Mercato is more than a marketplace. It represents the heartbeat of a vibrant community of artisans, merchants, and traders. The recent fire illuminated the dangers of inadequate planning and insufficient safety regulations, revealing critical gaps in early warning systems, emergency response plans, and necessary infrastructure of a city that prides itself on being the diplomatic and political capital of Africa.
Addis Abeba, contributing nearly half of Ethiopia’s GDP, is racing toward megacity status, with its population projected to double to over 10 million by 2030. Yet this rapid growth brings a web of vulnerabilities threatening its preparedness against disasters, a concern exacerbated by unchecked urbanisation.
The panic induced by a series of earthquakes in the Awash Valley further exposes the city’s unpreparedness. Disaster drills and simulations are nearly nonexistent, depriving millions of critical preparedness skills. A World Bank report paints a troubling picture. Close to 60pc of hospitals in Addis Abeba lack earthquake-resistant designs, a critical vulnerability in a city along the tectonically active East African Rift Valley. Other structural deficiencies — lack of reinforced emergency exits, unreliable electrical systems, and subpar medical storage facilities — could cripple operations during a disaster.
Natural calamities do not discriminate. From the densely populated capital to regional towns, floods, earthquakes, droughts, and fires wreak havoc at an alarming rate. The urban population across the country, projected to reach nearly 40 million by 2037, faces increasing risks from climate and environmental shocks. Yet disaster preparedness remains an elusive priority. In a country where infrastructure is expanding, and urban populations are booming, the costs of inaction should not be understated.
A World Bank diagnostic revealed that many cities and towns are ill-prepared to manage disasters. Cities like Adama (Nazareth), Bahir Dar, and Dire Dawa face escalating flood risks. Settled on the banks of Lake Tana, rapid expansion in Bahir Dar has encroached on high-risk flood zones, with over 25pc housing developments exposed to flooding. Flood-prone cities like Adama and Hawassa demonstrate the consequences of clogged and poorly maintained storm drains turning rainfall into catastrophes.
Weak infrastructure — poor roads, inadequate drainage, overloaded systems — aggravates these risks. Only 35pc of roads in urban centres are paved, impeding emergency vehicles and delaying evacuations.
Despite such looming threats, cities lack a centralised coordination unit for disaster response, a necessity for adequate preparation and emergency management. However, disaster risk management should not only be about fiscal efficiency. It should be a matter of social justice. Vulnerable populations often reside in the most at-risk zones, including informal settlements housing over 60pc of urban dwellers in cities like Mekelle and Addis Abeba. These residents suffer first when disaster strikes, yet have the fewest resources to recover.
Hospitals in Addis Abeba are ill-equipped to handle sudden surges in patients. With an average of one hospital bed for every 1,500 residents, existing capacity is stretched thin. In times of crisis, this scarcity could prove catastrophic. Staff shortages compound the problem: over 70pc of healthcare workers surveyed reported limited training in mass casualty management or disaster response protocols. Healthcare spending per capita hovers around 23 dollars, a fraction of what is seen in developed economies.
Public spending on infrastructure and preparedness training is low on the priority list and overshadowed by immediate concerns like routine medical supplies and staffing. Yet failing to prepare for the unpredictable could result in far greater financial and human costs down the road.
However, Addis Abeba’s vulnerabilities extend beyond healthcare. In central districts, the population density reaches up to 30,000 people per square kilometre, cramming a third of the population into only eight percent of the area. Unchecked urban sprawl consumes about 46pc of city land, much of it underutilised, escalating infrastructure delivery costs. This sprawl brings deteriorating public services, congested roads, and alarming urban blight.
Managing this expansion sustainably requires a robust regulatory framework and coordination across government agencies, elements largely absent today.
Water scarcity adds another layer of concern. Current water production is limited to over half a billion cubic metres a day, with nearly 37pc lost to inefficiencies and leaks. The city’s per capita water distribution averages a meagre 40 litres daily, less than half its target of 110 litres. Many neighbourhoods, especially those with vulnerable populations, receive water only a few days each week. Escalating demand will stretch Addis Abeba’s primary water sources even further.
Energy vulnerabilities compound the woes. While Addis Abeba boasts near-universal electricity access, blackouts and power interruptions are regular. The city relies heavily on an outdated grid, much of it over three decades old and operating below capacity. With an energy demand of 614mw, constituting around 42pc of the national peak load, the infrastructure is teetering.
Addressing these shortcomings requires enforcing building codes, conducting routine safety drills, and promoting hazard-resistant construction, especially in densely populated areas where over five million people reside. Many citizens in high-risk zones are not sufficiently educated about safety protocols, evacuation procedures, or emergency responses. Integrating disaster preparedness into the education system could prevent casualties and reduce damage in future incidents.
Disaster response efforts are currently slow and poorly coordinated, compounding devastation when crises occur. A centralised disaster management body with clearly defined responsibilities and streamlined communication could improve efficiency and response times. The federal government’s contingency plan for this year, designed in response to multi-hazard risks, could be commendable. But, it also reveals a familiar gap between ambition and readiness.
The plan has a 295 million dollar budget across critical sectors like agriculture, health, education, food, and shelter, yet gaps emerge quickly.
This year’s rainy season brings grim projections of over three million people likely affected, with nearly 900,000 expected to be displaced in regional states like Amhara, Tigray, Oromia, and Somali. The food cluster needs 91.6 million dollars to feed the displaced, but not a single dollar has been earmarked as of June. The education cluster expects over 1,400 schools might be affected by flooding, potentially disrupting education for more than a million children. Despite this, a 44 million dollar budget for protective measures is unmet.
Although the contingency plan represents the federal authorities’ best attempt at a cohesive strategy, actual readiness demands more than paperwork. It requires rapid mobilisation of funds, resources, and people, all of which are presently in short supply. For many in risk-prone zones, the season will not only be about weathering hard times but also about surviving another year of unmet promises and underfunded plans.
The economic argument for investing in urban resilience cannot be more evident. A World Bank report estimates that Ethiopia has sustained average annual losses of over 400 million dollars due to natural disasters since 1983. Investment in disaster preparedness could reduce these costs by up to 30pc. For a country where over 20pc of GDP is tied to urban activities, such savings could translate into billions of Birr retained in productivity.
As the government commits nearly 40 billion Br (approximately 375 million dollars in last week’s central bank exchange rate) to infrastructure projects, it should also prioritise adequate funding for disaster management programmes. This includes modernising essential services like firefighting and emergency medical services, ensuring the city is better equipped to handle future crises.
Forex Policy Repeal Jolts Local Pharma Industry
The recent repeal of a 55pc foreign currency allowance for raw material imports has disrupted the pharmaceutical sector, leading to operational issues and heightened uncertainty. The move aligns with the government’s ongoing macroeconomic reforms and foreign exchange market liberalisation but has sparked an immediate backlash from industry leaders who cite forex shortages and an uneven playing field in the supply chain.
Last week, the Ethiopian Pharmaceutical Supply Service (EPSS) issued a new tender requiring local manufacturers to quote prices in Birr, while foreign suppliers may continue quoting in convertible currencies. Local manufacturers argue this requirement puts them at a disadvantage, especially as delays and complications in foreign exchange availability strain their operations.
Daniel Woktole, head of the Association, stated that while reform has generally been beneficial, recent adjustments are straining cash flows. He said the current scheme requires commercial banks to hold equivalent reserves when issuing letters of credit, delaying foreign exchange availability and tightening manufacturers’ working capital.
“This will rip through manufacturers’ working capital,” he said.
Delays in foreign exchange availability have also been disrupting delivery timelines.
Ethiopian Bankers Association (EBA) executives note that banks have used a prudent strategy in their negotiation with importers. Demissew Kassa, secretary general, stated that banks have stopped entertaining suppliers’ credit due to previous glitches where importers delay payments, putting depositors’ money at risk.
“This was not a profitable undertaking for banks,” he said.
The 13-year-old pharmaceutical company, Julphar plc, echoes a different side of fear. It operates on a manufacturing plant spread over 3,000Sqm plot in the capital, around Jakros, with expansion plans of 11,000Sqm.
Kedir Sherif, country director at Julphar, stresses the need for foreign currency to import raw materials, acknowledging the policy measure that had revived the beleaguered sector. He expressed concern that the exchange rate volatility could lead to additional payments to commercial banks during the LC clearance process.
Last year, the company won a 15-million-Br bid with a dollar-denominated procurement allotment of 700,000 dollars for the procurement of raw materials to supply three kinds of medicines, syrup, ointment and tablets. He argues that reinstating the 55pc foreign exchange settlement or implementing a hedging policy is crucial for the survival of pharmaceutical manufacturers. Unless so, participation in upcoming bids is diminished.
Pharmaceutical manufacturers gained relief from their foreign exchange woes last year. Eyob Tekalign (PhD), state minister for Finance, set up the scheme which allotted pharma manufacturers up to 55pc forex allocation when bidding on EPSS tenders. It was an attempt to ease the operational difficulties they faced due to the prevailing foreign currency crunch, which was severely impacting their production and the broader health sector.
The measure eased the process for manufacturers as they could propose up to 55pc of their cost in foreign currency when they enter into an agreement to supply the state-owned Service. The scheme was implemented through the network of the Ministry of Health (MoH), EPSS, the manufacturers’ association, and the Public Procurement & Property Authority.
Tehsome Aklilu, a technical advisor at MoH, stated that the 55pc foreign exchange relief emerged as a short-term move to avert forex scarcities.
“It was a special privilege,” he said.
He notes now that while forex is available, its volatility has created another problem for the tender and bid process. “Policy measures will become necessary,” he said, adding that legal frameworks need to be overhauled to allow local bidders to regularly quote in forex without special stipulations as was previously the case.
A regulatory overhaul is in the pipeline. Tewedaj Mohammed, legal affairs director at MoF, says that they are currently preparing a directive to overhaul the procurement processes of different sectors, following the new procurement proclamation that mandated MoF for the purpose.
Gebeyaw Yitayew, head of the procurement directorate at PPPA, told Fortune that an upcoming directive will open doors for local companies to quote their bids in foreign currencies, and also raise the threshold for international bids from the current 200 million Br, which authorities hope will increase the competitiveness of local manufacturers.
The EPSS, which since 1947 has been distributing drugs and medical equipment to 5,000 health institutions across Ethiopia via its 19 outlets, commended the government’s move. In the past year, it distributed 51 billion Br worth of medical and pharmaceutical supplies sourced from donations and procurement. Officials at EPSS state that delays in foreign exchange availability have been disrupting their delivery timelines.
Research indicates that about 80 to 85pc of pharmaceuticals are imported. EPSS offers local manufacturers a price preference of up to 25pc, but local firms often fail to deliver the contracted amounts, fulfilling only 23.8pc of commitments. Local manufacturers face low production capacity and supply chain issues for input materials, underutilising their capacity and producing limited generic medicines without adequate research and development investment.
Fasika Mekete, a former advisor at Ministry of Health, states that the short-term procurement reliefs have shown authorities go the extra mile to help beleaguered pharma manufacturers. He notes that inflation is the primary challenge faced by local manufacturers when procuring raw materials. Instead of dollar quotas, Fasika suggests implementing timely inflation adjustments to support manufacturers’ long-term financial health. He notes that foreign suppliers often adjust prices based on inflation indices, while local manufacturers lack such mechanisms.
“The lack of accurate data might stall the process for domestic industries,” he said.
He emphasised that manufacturers were severely hampered by productivity and infrastructure issues, which were significantly impacting their manufacturing potential. Fasika stated the need for import substitution and pointed out that there is a pressing need to increase the capacity of local manufacturers for the long-term reliability of pharmaceutical supply in Ethiopia.
Central Bank Turns to Private Banks to Keep Fuel Flowing
The National Bank of Ethiopia (NBE) has enlisted private banks to shoulder a substantial portion of the foreign currency needs for fuel imports, a role previously tightly controlled by the state. Its Governor, Mamo Mihretu, instructed them to open letters of credit for fuel imports beginning next month, marking a shift toward a market-based foreign exchange system.
For years, the Central Bank absorbed up to 50pc of export proceeds and 70pc of remittance inflows from commercial banks to manage foreign currency allocations, ensuring ample reserves for importing strategic commodities such as fuel and fertiliser. With the phasing out of these surrender requirements under the macroeconomic reforms in motion, foreign exchange inflows are increasingly subject to market dynamics, placing private banks at the forefront of managing currency pressures.
“Given the end of surrender requirements and the broader transition to a market-driven FX regime, the settlement of fuel-related letters of credit will need to be broadened beyond the NBE to include multiple additional stakeholders,” wrote Governor Mamo in a directive he issued on October 17.
Commercial banks will begin opening new fuel-related letters of credit monthly, with payments due 360 days from the issuance date. The Central Bank estimates that 3.2 billion dollars in letters of credit will be issued annually to meet fuel import needs, with private banks expected to contribute close to 1.6 billion dollars over the year.
According to individuals close to the case, the policy change is part of a broader strategy supported by the National Macroeconomic Committee chaired by the Prime Minister and presented by Governor Mamo to senior banking executives. Banks are also expected to contribute between 13pc and 17pc of their projected foreign exchange inflows for the current fiscal year toward settling arrears in fuel import liabilities. Payments will be made over the next nine months, based on each bank’s forex selling rate on the transaction date.
“This is a lucrative business opportunity for private banks,” said Vice Governor Fikadu Digafe. “The burden to import fuel will be shared until the regulator ensures the free-market system works without glitches for the Enterprise.”
The Vice Governor refers to the Ethiopian Petroleum Supply Enterprise (EPSE), the state-owned entity responsible for fuel imports. Its executives are expected to negotiate a margin deposit with each bank opening a letter of credit, to be held for the duration of the credit, with the balance paid upon settlement. Banks are permitted to charge the Birr’s selling rate against major currencies and collect applicable fees, with the Central Bank expecting all banks to provide their intended provision amount by the end of the month.
According to Abebayehu Dufera, director of foreign exchange monetary and reserve management at the NBE, the reform targets a more competitive and transparent foreign exchange market.
“Fuel imports will be treated like any other import,” he told Fortune.
Since the forex market was liberalised three months ago, federal authorities have taken a series of policy measures to smooth it out. The Central Bank injected 175 million dollars earlier this month to avert a forex shortage that threatened fuel imports. Some banking executives consider the new policy a necessary requirement and an attractive opportunity.
“We’ve more than enough foreign currency reserves,” said Dereje Zebene, president of Zemen Bank.
He echoed Governor Mamo’s recent public pronouncement that the macroeconomic reform has led to a considerable increase in foreign currency reserves of up to 80pc.
“There is no forex liquidity problem in commercial banks,” the Governor said.
Dereje disclosed that the Central Bank readily accepted the Bank’s request that negotiations with the Enterprise be based on selling rates. However, he argued that the increase in foreign currency reserves had eased previous pressures, creating a slightly increasing pressure on the other side, with forex accumulating due to unopened letters of credit. He observed that banks can benefit by importing large-ticket items like fuel through service fees and commissions.
In the 2023/24 fiscal year, Zemen Bank netted 2.39 billion Br, a 32pc increase from the previous year. It mobilised 566 million dollars in forex — a 7.3pc increase from the previous year — while its liquidity ratio of 32pc is double the regulatory requirement.
Veteran banker Eshetu Fantaye raised a cautious tone.
“It’s an opportunity for commercial banks if managed well,” he said, urging the coordination of the efforts of the Ministry of Finance and the Central Bank with the Enterprise to craft a lasting and sustainable fuel import strategy.
Not all banks share the enthusiasm.
“We need to plan well for the demand,” said Ermias Tefera, president of Berhan Bank.
He acknowledged the attractive opportunities but raised concerns about the impact on assets and liabilities, as the Bank has just recovered from a foreign currency burden. According to Ermias, it is important to ensure foreign currency inflows are consistent with bank liquidity to ensure adequate resource mobilisation and forex management.
“Though reserves are growing slowly, thorough macroeconomic analysis and proper forex management and structural organisation are required,” he told Fortune.
Berhan Bank registered a forex reserve decline of 4.9pc in the fiscal year 2023/24, reaching 139.8 million dollars. Remittances contributed 93pc and exports 5.6pc, while profits still grew by 103.4pc to 1.18 billion Br.
The arrangement provides a degree of assurance for the Petroleum Enterprise but also raises concerns among its executives, who are worried about liquidity constraints.
“We’re facing a fiscal squeeze,” said Tegenu Aklilu, director of Enterprise’s finance department, citing a liquidity crunch brought on by the Birr’s loss of value against the dollars since it was floated in July 2024.
A notable 17pc surge in trade and other receivables to 133.20 billion Br uncovered at extended credit terms or delays in customer payments. Cash and cash equivalents dipped slightly to 60.35 billion Br from 62.2 billion Br, disclosing tighter liquidity or substantial cash outflows. Trade and other payables climbed 3.8pc to 215.88 billion Br, likely due to higher purchase volumes or deferred supplier payments. However, taxes on petroleum products declined to 3.09 billion Br from 5.32 billion Br.
The Enterprise reported moderate growth in its 2022/23 fiscal year operations, but underlying figures revealed potential issues. Its total assets rose by a mere 2.66pc to 225.75 billion Br, a mark of steady but slow expansion. Non-current assets increased 5.8pc to 2.84 billion BR, unveiling continued investments in property, plant, and equipment. Its current assets, making up a hefty 98.7pc of total assets, edged up 2.6pc to 222.91 billion Br.
Its total liabilities grew by 2.7pc to 221.85 billion Br, while its current liabilities, constituting approximately 98.1pc of total liabilities, also rose by 2.7pc to 221.46 billion Br. Equity remained stagnant at 3.89 billion Br, representing a mere 1.7pc of total assets. This low equity-to-assets ratio showed a heavy reliance on liabilities for financing, potentially heightening financial vulnerability in volatile markets.
The company’s working capital revealed a tight current ratio of approximately 1.01, which is enough assets to meet immediate liabilities but expose it to liquidity risks. Profitability faced headwinds, with net profit declining to 236.79 million Br from 82.78 million in 2021/22, despite revenues of 271.08 billion Br. A thin margin between revenue and cost of sales, coupled with a low return on assets, could attest to issues in operational efficiency.
Liabilities taken before July have also resulted in a massive financial burden, as loan repayments have more than doubled for the Enterprise. Tegenu disclosed that federal authorities have yet to follow up on their pledge to provide subsidies, while they continue to contend with increased volatility and the growing devaluation of the local currency.
Officials at the Ministry of Trade & Regional Integration (MoTRI) disclosed that subsidies for fuel price adjustment will cost the public more than 250 billion Br. The Ministry of Finance has also injected an additional 551 billion Br earmarked to subsidise essential commodities and soothe economic pressures, particularly in the fuel, fertilizer, and pharmaceutical sectors. However, officials note that the injection is yet to happen, as no specified allocation has taken place for fuel.
According to Eshetu, the banker, the subsidy is necessary to strengthen the Enterprise’s position when negotiating with banks. He expects that the subsidy allocated to the fuel supplier will be sufficient to address the impact of volatile market conditions and fluctuating forex rates.
He foresees the potential for banks, currently facing a liquidity crunch due to fiscal and monetary policy issues, to benefit from this opportunity. However, he warned that large gaps in commercial banks’ selling rates could lead to price distortions in fuel imports. He also stated the importance of banks pooling resources for letters of credit. Recognising the foreign currency requirements, Eshetu pressed the authorities to define the coverage to ensure accurate financial planning.
“Coordinated their effort is crucial,” he told Fortune.
The Central Bank’s decision to involve private banks more directly comes at a time of mounting foreign exchange shortages that have strained the economy. According to close observers, by shifting the burden, Governor Mamo made his intention clear to shore up NBE’s reserves while testing the resilience of the banks in a more market-driven environment.
“The directive places commercial banks in a dual role,” said an executive at a leading private bank, who requested anonymity. “We’re now both brokers of future foreign exchange needs for fuel imports and financiers of past dues, a responsibility traditionally managed by the central bank.”
Election Board Tightens the Reins on Political Parties
The National Election Board of Ethiopia (NEBE) has implemented a sweeping hike in fees for political party registrations and document amendments. The move aims to discourage frivolous party formations and ensure financial sustainability for the Board.
The charge for full certification has jumped by 14,900pc, to 30,000 Br, while the cost for temporary certification has soared from 100 Br to 15,000 Br. Amendments to foundational documents now cost 5,000 Br—a staggering 16,567pc increase from the previous fee.
Officials explained the rationale behind the fee changes enforced last week at a press briefing at Skylight Hotel, Airport Road.
Woubshet Ayele, deputy chairperson of the National Election Board, underscored that the adjustments are designed to support the Board’s ability to provide essential services to political parties. He noted that 65 million Br in government funds was recently distributed to parties, continuing a policy in place since the introduction of multiparty politics in 1991.
Woubshet remarked that some parties appear to be formed primarily to access public funds rather than pursue genuine political goals.
“We’re not aiming to profit from these fees but to discourage those who enter just to share the fund,” he said.
Currently, there are 61 active registered parties while 11 have been suspended.
Some do not seem alarmed. Wasihun Tesfaye, executive secretary of the Ethiopian Citizens for Social Justice (Ezema), argues the new fees are justified, considering the previous rates that were too minimal, they could have been higher.
“Increased costs might enable more committed political parties, encouraging them to elevate standards and grow membership,” he said.
Others are cautious. Getinet Worku, a former secretary-general of the Enat Party, observes that the fee rise reflects a broader trend of escalating costs among service providers and could indicate that the Board needs additional funds for its operations. Despite these needs, he finds the increase surprising, though he acknowledges that the Board has also mandated larger membership thresholds to deter superficial party formation.
Last year, a 349 million Br annual budget was submitted to the Parliament for approval. Established under a 2019 Proclamation, the Board’s mandate includes registering and regulating political parties and ensuring they meet legal standards. The Board is responsible for handling disputes and grievances related to political party activities. It also engages in voter education and capacity-building for parties, media, and civic society to promote a competitive political environment.
Under the current regulations, forming a nationwide party requires 10,000 founding members, while regional parties need at least 4,000. Getinet believes the membership requirements were intended to reduce the proliferation of parties but suggests they have not fully succeeded. He recommends further restrictions to deter new party formations.
Woubshet compared fees in other African countries that far exceed Ethiopia’s new rates. In Kenya, temporary licenses cost 781 dollars, while South Africa reached 3,900 dollars. In Ghana, the permanent license fee is 3,125 dollars, while Gambia charges 14,493 dollars.
“Our fees are modest,” he noted. “We’re not required to consult political parties when adjusting fees.”
The Board faces challenges with parties that fail to meet legal mandates. Woubshet mentioned that of the suspended parties, six failed to meet quotas for women and disabled members—a requirement for receiving government funding. These parties, mainly regional, cited excuses ranging from technical errors and regional conflicts to poor record-keeping practices.
Banks Battle Retroactive VAT Demands
Commercial banks find themselves in a quagmire following the implementation of the new Value Added Tax (VAT) Proclamation, ratified in July 2024. Confusion has permeated the sector as tax authorities demanded back taxes, interest, and penalties from banks for the past four months, causing tensions between financial institutions and senior officials from high-income taxpayers’ district offices.
Ministry of Revenues is pressing banks to comply with VAT remittances retroactively, backdating to the proclamation’s enactment by Parliament. Alarmed banking executives warn that this abrupt enforcement could impose marked financial strain on the industry.
Under Abie Sano’s leadership who also heads the Commercial Bank of Ethiopia (CBE), the Ethiopian Bankers’ Association (EBA), has appealed to the Ministries of Revenue and Finance. They request formal instructions be sent to district tax offices affirming October 1, 2024, a start date for VAT collections. The letter indicates the date was agreed upon in September meetings between financial sector leaders and government officials, intended to give banks time to prepare and comply.
However, no official directive materialised from the Ministry of Payments following the discussions, leading to confusion among banks that initiated VAT compliance only after deploying the necessary systems in October.
“Commercial banks are hoping tax officials will acknowledge the complexities involved in retroactive obligations,” said Demessew Kassa, secretary general of the Association. He noted that the law should apply only from its publication in the Negarit Gazette.
“This brings the applicability of the law into question,” he said.
The July Proclamation aims to enrich government revenues by applying VAT to new areas of banking, including digital services such as ATM, POS, online transfers, and certain import-export charges.
The retroactive taxation sparks industry-wide debate. Yared Fekade, director of the tax declaration monitoring directorate at the Ministry, noted that the law is effective upon parliamentary ratification unless instructed otherwise by the Ministry of Finance.
“We are simply enforcing the law as it stands,” he said, acknowledging that undeclared taxes attract penalties, interest, and administrative fees each month.
The federal government’s recent tax strategy targets increased VAT collections to raise Ethiopia’s tax-to-GDP ratio by 0.5pc, aligning with a broader tax reform plan in partnership with the International Monetary Fund (IMF). A July agreement with the IMF includes goals to raise the tax-to-GDP ratio by four percentage points by 2027/28, relying on reforms to VAT systems and other measures. This year’s tax collection target has risen to 851 billion Br, with 487.22 billion Br expected from domestic sources, including 170 million Br from VAT collections.
Financial officials within the Finance Ministry expressed understanding of banks’ concerns but clarified that only the Council of Ministers can waive VAT requirements. However, interest and administrative penalties could be considered for reduction by both finance and revenue ministries.
According to Abraham Arega, tax policy advisor at the Ministry, the law is binding upon ratification.
“We’ll review the concerns in line with legal frameworks,” he said.
The new tax demands have placed additional pressure on banks wrestling with liquidity issues following foreign exchange liberalisation. They voiced their frustration with what they see as an impractical demand.
Dagmawi Kassahun, vice president for business and digital banking at Berhan Bank, marked on the difficulty of reclaiming uncollected VAT from past transactions.
“The financial impact on banks cannot be understated,” he said, underlining the near-impossibility of recovering lost revenue from individual customers.
Berhan Bank, which saw its total deposits grow by 9.1pc to 36.9 billion Br, is among the banks urging clearer guidance on VAT compliance. Financial experts argue that such regulations demand ample preparation, including digital systems to monitor taxable transactions effectively.
Worku Lemma, a finance expert and former VP of Oromia Bank, called for a grace period, noting that banking remains a well-fortified sector. He cautioned that imposing VAT on only digital transactions could discourage digital banking in favour of manual processes, undermining the government’s digital transformation goals.
Central bank has set an ambitious target of increasing digital transactions fourfold, reaching 17 trillion Br by 2026. Data from the central bank show that digital accounts in Ethiopia exceeded 102.8 million as of June 2023, with an annual digital transaction volume of 12.2 billion Br and a total value of five trillion Br. Mobile money accounts have grown fourfold in four years, now totalling 68 million users.
Experts such as Ketema Adane, a tax consultant and partner at Ethio-alliance Advocates LLP, note that laws have traditionally taken effect only when published in the Negarit Gazette (the federal government’s legislative publication). However, legislative changes have introduced applicability immediately after ratification, leading to inconsistent interpretation. Ketema criticised a lack of coordination between legislators and regulators, creating unpredictable assessments that overwhelm taxpayers.
He believes lack of readiness has left companies facing tax officials who are also underprepared, sometimes resulting in miscommunications and, in extreme cases, the risk of exploitative practices by auditors.
“Poor implementation risks adverse consequences,” he told Fortune.
In Defiance of the Dollar, BRICS Alliance Gathers Momentum
At last week’s summit in Kazan, Russia, the BRICS bloc — Brazil, Russia, India, China, and South Africa — and their newly added friends gathered with a clear agenda. Leaders from these countries have the expressed desire to see the global order refined, thereby challenging the dominance of the US Dollar in international trade. The coalition seeks to free the world from what it perceives as “Dollar economic colonialism,” asserting greater autonomy for emerging economies.
Countries with economic and political clout are increasingly interested in joining BRICS. Countries like Turkey, Australia, Vietnam, Malaysia, and Thailand have expressed a desire to join this expanding bloc. The surge in membership signals the emergence of a powerful alliance that not only influences affairs in the global south but also poses a formidable resistance to Western political and economic hegemony.
The ascent of BRICS comes at a time when the European Union (EU), once a vigorous coalition, faces internal and external problems. Russia’s invasion of Ukraine two years ago followed the United Kingdom’s (UK) exit from the EU, prompting questions about its geopolitical ramifications. In a 2015 interview with the BBC, former President Obama stated the importance of the UK’s role within the EU. He argued that its presence in the EU would give his country’s allies much greater confidence in the strength of the transatlantic union.
But he was not lucky to have his wishes fulfilled, as the UK’s perceived influence in the EU waned over time.
However, Obama’s remarks implied that the UK served as Washington’s ally within the EU. It raised the question of whether London was aware of impending geopolitical shifts, including the proxy war that some argue was initiated by Washington to diminish Moscow’s influence in the Black Sea region, potentially at the expense of European economies.
BRICS expanded its membership last year to include Iran, Egypt, Ethiopia, and the United Arab Emirates (UAE). Iran’s political path has long diverged from that of the United States.
However, Egypt, Ethiopia, and the UAE have traditionally been strong allies of Washington, which brings into focus the strategic implications of their BRICS membership. Egypt has historically been considered the heart of the Arab world. Despite some politicians and activists in the Arab world contending that this era has long gone, the US State Department maintains that Cairo is a key economic and peace partner in the Middle East. The Central Bank of Egypt reported that the US is the largest source of foreign direct investment, with American companies investing 2.3 billion dollars, accounting for 10pc of total FDI inflows.
Washington views Egypt as an anchor of regional stability. According to a memo by Senator Chris Murphy dated September of this year and statements from the State Department, the US considers Egypt to be a vital security partner following the Camp David Accords of 1978, which established peace between Israel and Egypt. Since then, the US has provided Egypt with over 50 billion dollars in military aid and 30 billion dollars in economic assistance.
Its historical adversary down south, Ethiopia, also has a relationship with the United States, dating back to 1903. Since 1998, the two countries have cooperated closely on counterterrorism efforts, with Washington investing billions to combat al-Shabaab. The US once endorsed Ethiopia to anchor stability in the Horn of Africa before attention shifted to Kenya. However, American investments in Ethiopia have primarily been in aid, a soft power tool to influence policy.
It was no surprise that Egypt and Ethiopia’s inclusion in BRICS raised questions – in the same manner India and China are in the bloc – about Washington’s strategic repositioning.
If these countries have notable economic ties and security arrangements with the US, why would Washington tolerate them to join a bloc that seeks to diminish Western hegemony?
One possible explanation is that the US might leverage its relationships to influence BRICS from within. Prime Minister Abiy Ahmed’s (PhD) administration has been criticised for adhering to economic policies prescribed by the International Monetary Fund (IMF) and the World Bank, which some argue keeps his country within the Western sphere of influence. The Emirates, too, presents a complex case. While Abu Dhabi does not seek economic assistance from the US, mutual economic and political benefits define the relationship. The UAE relies heavily on Washington’s security guarantees and intelligence cooperation. This dependence suggests that US influence remains noteworthy, even as it joined BRICS.
Speculation abounds that Washington could plot to undermine BRICS through these new members, acting as insiders. While this notion might seem far-fetched, it shows the intricate web of international relations and the strategic manoeuvres governments employ to advance their respective interests.
However, BRICS’s evolving configuration, coupled with its members’ shifting allegiances, should reflect a global landscape in flux. It tells about emerging economies’ demand for greater autonomy and the challenge of established orders as the traditional Western-led liberal world faces unprecedented tests. Whether Washington is attempting to counter BRICS from within or adapt to new geopolitical realities remains a subject of debate among analysts.
Prospectus Puzzle in a New Frontier
When I received an SMS notifying me about Ethio telecom’s 10pc share offering, I was genuinely intrigued. The public sale of shares from a major state-owned enterprise, which dominates the telecom sector, online banking, and infrastructure, is a milestone in a country where only banks have typically floated shares. It signals a bold move by the government to relinquish control of this colossal corporation, a step aligned with the economic liberalisation required by international monetary institutions.
The SMS included a link to the prospectus, a document meant to provide potential investors with the risks and liabilities associated with the shares. I was fortunate to catch an interview on Meri Podcast featuring Brook Taye (PhD) while he was head of the Ethiopian Capital Market Authority, who explained the document’s purpose. In essence, the prospectus is designed to offer transparency, giving buyers a clear understanding of their investment, and serves as a safeguard against fraudulent schemes that have plagued the country due to weak regulatory frameworks in the past.
From Brook’s explanation, I anticipated a relatively concise and easy-to-read document. However, I was surprised to find it was a hefty 227 pages long—far from the straightforward guide I expected. Perhaps it was my inexperience, but I found the detailed legal and financial jargon overwhelming. The document felt more like an annual report than an accessible tool for an average investor like me. It became clear that such complexity might be necessary for investors eyeing large stakes, but for individuals like myself, it was far from digestible.
Curious, I did a quick search to compare other IPO prospectuses. Google’s IPO document, similar in size to Ethio telecom’s, was equally dense. However, Apple’s IPO from the 1980s, for instance, spanned only about 50 pages. Many mid-sized companies had prospectuses running a few dozen pages, far more manageable. This reinforced my belief that while simplifying complex issues is not always feasible, the document could still be made more accessible to the general public. As it stands, it appears one would need an accountant or lawyer to make sense of it.
This experience was eye-opening, revealing how the rest of the world has operated stock markets for nearly two centuries—while we are just beginning to grapple with the basics. The launch of the capital market, and Ethio telecom’s public offering, heralds the dawn of a financial sector. I can envision a future where Ethiopia hosts its stock index with analysts and financiers tracking market trends that create fortunes or spell financial ruin.
I am reminded of the Ethiopian Commodity Exchange (ECX) when it first launched under Eleni Gebremedhin (PhD). The ECX revolutionised how farmers accessed real-time global market prices, cutting out exploitative middlemen. I vividly recall the large screens displaying cash crop prices at the ECX headquarters. Back then, I thought we would soon have a stock market like those seen in the West. But, here we are, still in the nascent stages, while stock markets around the world trade shares, bonds, and other financial instruments in real-time.
I am not certain if simply having a stock market reflects financial sector advancement, but lagging behind so many others does raise questions. Despite my layman’s perspective, it seems inevitable that we are heading towards integrating our financial systems with global capital markets. But I wonder, will Ethiopian companies be able to compete with well-established, more experienced firms?
As for me, I have not decided whether to purchase Ethio telecom shares yet. But the liberalisation efforts we are seeing today are commendable, and they give me hope for the future. I may not have a crystal ball, but I am optimistic about Ethiopia’s financial prospects. We are on a promising path, and I am bullish on what is to come.
The option to buy shares through Telebirr, with the convenience of mobile payments, is appealing. Quick and flexible financial transactions are essential in a dynamic market, and the reliability of telecom, IT, and electricity infrastructure will be critical for a functioning financial system. After all, a flickering network or frequent blackouts would not bode well for the sector.
Another major concern for me is cybersecurity. As the financial sector modernises, so does the sophistication of financial fraud. Our pace of development may leave us vulnerable to cyber threats if we are not proactive in addressing them. The government must allocate resources to fortify both the digital and financial sectors, ensuring we can handle the difficulties that come with modernisation. With the right intellectual and academic backing, I believe Ethiopia can rise to the occasion. However, policy reforms must also be enacted to allow stakeholders to operate safely and reap the benefits of an emerging market.
Finally, like the tourism industry, the financial market is sensitive to stability. A single news story can send stock prices plummeting, as geopolitical issues impact market performance. Maintaining peace and stability is crucial for the success of the sector. Ethiopia’s oldest form of financial exchange, the treasury bills issued by the central bank, have long been regarded as the safest investment due to the government’s guarantee. As we step into the realm of stock exchanges, we must ensure the same level of confidence for investors, despite the more diverse risks involved in capital markets.
Finance Gap Strangling Small Businesses in the Global Supply Chain
Supply chains form the backbone of international commerce, representing over half the value of global merchandise trade. They also create large numbers of jobs and lower the bar for countries and companies to participate in the world economy. But, the finance underpinning supply chains is inadequate, leaving too many small businesses in emerging and developing economies cut off from the benefits of global trade.
Supply-chain networks bring together raw materials, parts, services, and other inputs from multiple countries, with goods often crossing borders several times for processing before they are finished, distributed, and marketed. The firms within these networks depend on short-term supply-chain finance to avoid being squeezed between upfront payments to their suppliers and late payments by their buyers. Such financing enables a large share of global trade, and for small firms in developing countries, it is essential.
Supply-chain finance was a lifeline for many during the COVID-19 pandemic, which disrupted trade and markets globally. As consumers worldwide shifted spending from entertainment and travel to goods, businesses in industries vital for developing countries faced cashflow constraints, owing to the surge in demand and production. Garment producers, for example, needed financing to increase their purchases of inputs, even though payments from buyers would come only later. Supply-chain finance offered access to immediate funds, helping them manage working capital, stabilise operations, and contribute to easing the world’s supply bottlenecks.
At the global level, supply-chain finance is one of the fastest-growing segments of trade finance, with BCR’s World Supply Chain Finance Report 2024 estimating its value at around 2.3 trillion dollars. But, only some are benefiting from this expansion. While large multinational corporations and developed economies have seamlessly integrated supply-chain finance into their procurement networks, most businesses in developing countries remain on the sidelines.
For these firms – most of which are micro, small, and medium-sized enterprises (MSMEs) – securing supply-chain finance from local banks is a significant challenge, owing to weak legal frameworks, inadequate technological infrastructure, and prohibitively high costs. This limits many firms’ ability to grow and thrive, and their countries cannot reap the full benefits of global trade.
Data from joint trade-finance surveys conducted by the International Finance Corporation (IFC) and the World Trade Organisation (WTO) illustrate the extent of the problem. Even in countries like Vietnam and Cambodia – where many small firms have managed to tap into supply chains in sectors like textiles and consumer electronics despite operating primarily on a cash basis – shortages of supply-chain finance are causing economic harm.
Although 50pc of these countries’ trade is supply chain related, only 0.5pc of their trade is supported by supply chain finance from local financial institutions. As a result, local firms not only face constant financial pressure and higher exit rates; they also are unable to generate the investment resources that are so important for moving up the value chain.
The benefits that would come from increasing supply chain finance in developing economies are substantial. WTO research shows that a 10pc increase in the use of international factoring (the main type of supply chain finance, used primarily by MSMEs to secure immediate cash against their unpaid outstanding invoices) can boost countries’ trade by one percent. Expanding access to supply chain finance tools also could significantly increase participation in trade, especially by MSMEs in developing countries. And that, in turn, would help raise incomes, reduce poverty, and foster greater financial inclusion.
For their part, multilateral development banks can do much more to catalyse supply-chain finance in developing countries. We propose that multilateral lenders commit to coordinating their efforts with governments, industry associations, and local and international financial institutions. Such collaboration could advance multiple objectives.
It could strengthen the legal frameworks for supply chain finance where they are weak or nonexistent, as well as build greater capacity among regulators and policymakers. International organisations can also help standardise credit data reporting, solvency rules, and enforcement mechanisms by training market participants and regulators in global best practices. They can promote digitalisation by supporting the development of essential technological infrastructure. And finally, they can provide financing and technical assistance to banks and other providers of supply chain finance in emerging markets, which will increase product availability.
By working together, multilateral organisations, governments, and financial institutions can unlock the full potential of supply chain finance, thus promoting trade and financial inclusion in the world’s most underserved regions. When it comes to driving development, increasing supply chain finance is a low-hanging fruit. Given its significant potential to deliver gains for employment, trade, and growth, plucking it could advance a broad range of global development objectives.
The G20 Can Lead a Green Revolution Before It’s Too Late
As finance and climate ministers gather in Washington last week for the annual meetings of the International Monetary Fund (IMF) and the World Bank Group, they should focus on the need for new economic development pathways that are compatible with the Paris climate agreement’s goal of limiting global warming to 1.5° Celsius.
The final report of the Group of Experts to the G20 Taskforce for a Global Mobilisation Against Climate Change (which we co-chair) calls on the G20, whose members account for around 85pc of world GDP, to advance green industrial strategies supported by comprehensive financial reforms. Development should be oriented around nationally determined contributions (NDCs) – the Paris Agreement’s term for countries’ emissions-reduction plans – and governed in a way that emphasises equity within and between countries.
Without a change of course, global warming is projected to exceed three degree Celsius, leading to a loss of at least 18pc of global GDP by 2050. The dominant models of economic growth are pushing the planet toward collapse, with potentially irreversible consequences for people and economies. Since G20 member states are responsible for 80pc of current and past greenhouse gas (GHG) emissions, they should be accountable for 80pc of the emissions reductions needed to achieve the goal.
The climate crisis is a direct result of economic choices. To change the direction of economic growth so that it respects planetary boundaries, green industrial strategies should go beyond picking favoured sectors or technologies. If oriented around achieving “missions” like the NDCs, they can catalyse innovation and investment across many different sectors, thus driving an economy-wide transformation.
Instead of subsidising specific sectors with few strings attached, governments should seek to open new market opportunities for willing businesses of all sizes, from all sectors. In doing so, they should hold these businesses to a high standard about GHG emissions, wages, support for workers through structural economic changes, and reinvestment of profits in productive activities like research and development.
Crucially, to accelerate the transformation we need, governments should repurpose existing fossil fuel subsidies (which continue to rise), and make public support for fossil-fuel-intensive industries contingent on decarbonisation. Implementing green industrial strategies should not be a task solely for ministries of industry or climate. To support NDC targets, whole-of-government engagement and a redesign of key institutions and tools — not least public procurement and public finance — are needed.
The green industrial strategy also requires a global lens. We need new global governance structures that can focus on equity and ensure that all countries benefit from green growth. Since the climate crisis is a global challenge, tackling it requires global collaboration – including through technology- and knowledge-transfer agreements and support for building green manufacturing capacity in low- and middle-income countries.
Green finance must be made more accessible globally. Wealthier countries – especially those that contributed more to historic GHG emissions – should use their greater financial means to help scale up green finance and ensure that it is designed to be affordable, patient (long-term), and risk-tolerant. Without such support, low- and middle-income countries will remain fiscally constrained, inhibiting their ability to invest in green industrial strategies or climate-change mitigation and adaptation. They will be forced into a vicious cycle of increasing climate vulnerability and deteriorating public finances.
The current disparity in the global allocation of green finance is stark. Since 2021, high-income countries and China have attracted over 90pc of new clean-energy investments, while borrowing costs for low- and middle-income countries have continued to rise. Though these countries are the least responsible for GHG emissions, they are burdened with a “climate risk premium” that inflates the cost of finance.
Thus, the G20 should champion expanded long-term concessional loans, grants, and debt and liquidity relief so that all countries can pursue green growth without increasing their debt burdens. It should also support existing efforts – such as the Bridgetown Initiative – to achieve a more equitable global financial architecture. Building on the work of Finance in Common, national development banks should be empowered to scale up patient, NDC-aligned capital, including through strengthened collaboration with multilateral development banks. These institutions are well positioned to direct green finance, drawing on their local knowledge, public mandates, and potential to crowd in private capital that would otherwise shy away from riskier projects.
Finally, a stable financial sector considering systemic climate risks is crucial for accelerating and sustaining the green transition. The G20 can reinforce the importance of prudential regulators adopting more robust interoperable taxonomies to strengthen disclosures, collect better data, and improve predictive climate models.
Similarly, central banks have a key role to play in accounting for climate-related financial risks and supporting conditions that encourage more private finance to flow toward green investments – and discourage financial flows to carbon-intensive projects. Doing so would not be a departure from central banks’ existing mandates. In fact, “market neutrality” can have the perverse effect of creating favourable financing conditions for carbon-intensive activities that ultimately threaten macroeconomic and financial stability.
We call on the G20 under Brazil’s presidency to lead the way toward pathways for new economic development, and for the forthcoming South African G20 presidency to take this agenda forward. Green growth is not only possible; it is imperative.
Africas Green Future Starts with Debt Relief
Many countries have experienced extreme weather in one form or another this year. The summer, marked by intense wildfires, was the hottest on record, while the return of El Nino has led to catastrophic flooding and other disasters. Such shocks demonstrate the urgent need for multilateral efforts to address climate change and achieve sustainable development.
In the last few months of this year, world leaders will gather for a series of summits – including the International Monetary Fund (IMF)-World Bank Group annual meetings in Washington, DC [ongoing], the G20 summit in Rio de Janeiro, and the United Nations Climate Change Conference (COP29) in Baku – where they could make progress on these fronts. These meetings are particularly important for African countries, which remain vulnerable to the effects of global warming amid a deepening sovereign debt crisis.
Of the 20 countries most vulnerable to climate change, 17 are in Africa. In addition to adverse weather and rising temperatures, African economies have suffered a series of external shocks in recent years, including inflation spikes, interest-rate hikes in advanced economies, rising geopolitical tensions, and violent conflicts. Partly due to these shocks, the continent’s public debt levels increased by a whopping 240pc between 2008 and 2022.
The consequences are dire. Over half of African countries now spend more on interest payments than on healthcare and lack the fiscal space to invest in sustainable development. This cycle of debt and development distress makes these countries even more vulnerable to the effects of global warming, trapping them in a loop of economic instability and environmental degradation.
While increased liquidity may offer temporary relief to African economies by easing short-term fiscal pressures, it fails to address the deeper debt problem impeding green growth. To mobilise the financing needed for climate action and to achieve the UN Sustainable Development Goals (SDGs) by 2030, we estimate that at least 34 African countries will require significant debt relief. Unfortunately, the G20’s Common Framework for Debt Treatments, designed to provide relief to countries in debt distress, has proven woefully inadequate.
Its case-by-case approach is slow and insufficient, leaving many countries in a perpetual state of fiscal instability. Private creditors’ reluctance to participate in debt restructuring, coupled with the exclusion of multilateral development banks (MDBs), has resulted in uneven and often inadequate responses.
To embark on the path of sustainable development, African countries need large-scale debt relief. This would provide governments with the fiscal space to invest in resilient infrastructure, renewable energy, and other climate-related projects. Without such measures, Africa’s green-growth aspirations will be unfulfilled, and the continent will continue to suffer from unsustainable debt dynamics that escalate climate damage and worsen social outcomes.
Large-scale debt relief should rest on three pillars.
Bilateral creditors and MDBs should take a haircut to restore fiscal stability in debtor countries. Incentives and penalties are also required to ensure private and commercial creditors’ full participation in debt restructuring. Finally, credit enhancements and support for non-distressed countries should be provided to reduce capital costs and maintain liquidity. This holistic approach would enable African countries to scale up and sustain investment in climate resilience and sustainable development.
An essential part of these reforms is the inclusion of climate considerations in the IMF’s debt sustainability analyses (DSA). Currently, DSAs focus on a country’s ability to service its debt, while failing to consider its need to invest in the energy transition and the industries of the future. By incorporating climate risks and opportunities into DSAs, the international community can ensure that debt relief is aligned with broader sustainability goals.
It is also critical for all creditor classes, including private bondholders and MDBs, to participate in debt restructuring. Using fair comparable-treatment rules to determine losses would ensure equitable burden-sharing.
Such a coordinated and comprehensive approach to debt relief would unlock Africa’s potential for green growth, an essential part of any long-term solution to the climate crisis. The continent has vast solar, wind, and hydro resources and the world’s youngest and fastest-growing workforce. With the right investments, Africa could become a hub for renewable energy and clean industries, thereby advancing the continent’s development goals and the global fight against climate change.
Looking ahead to 2025, African leaders will have a unique opportunity to drive the reforms needed to address the debt-climate nexus. With South Africa presiding over the G20 (which now counts the African Union as a permanent member), and Uganda leading the G77, the continent’s governments will be in a position to push for significant debt relief and critical reforms to the global financial architecture.
The climate and debt crises in Africa are inextricably linked, and addressing one but not the other is a recipe for failure. The international community should act now to support Africa in building a sustainable, green future for all.
New Currency for Conservation to Keep Trees Standing
With this year’s global summits on biodiversity (COP16), climate change (COP29), and desertification (COP16) fast approaching, the consequences of the climate emergency are evident everywhere.
Floods have ravaged Central Europe, super-typhoon Yagi has just struck Southeast Asia, and Hurricanes Helene and Milton have wreaked havoc in the southeastern United States. Hotter, drier conditions have created ideal conditions for wildfires like those that have raged across Brazil, South Africa, and Colombia, while droughts have pushed people into food insecurity this year in Africa. If the scale and speed of our response to climate change are inadequate to the threat, this new normal will get only worse, jeopardising hard-won development gains in low- and middle-income countries.
In addition to curbing emissions from burning fossil fuels, one of the biggest priorities should be to protect and conserve the world’s remaining tropical forests.
Tropical forests store significant amounts of carbon, and their demise would result in a massive one-degree Celsius increase in global average temperatures, not to mention the loss of untold biodiversity and the depletion of ecosystem services such as atmospheric rivers that supply water to food crops around the world. Scientists warn that the degradation of several of these forests is approaching a tipping point where the remaining forest will be unable to sustain itself or recover.
Individuals, countries, and NGOs are stepping up to protect and preserve the world’s forests from devastation. But to address the complex, rapidly changing factors driving illegal deforestation, we will need a combination of economic and environmental solutions.
Fortunately, such solutions are at hand.
In Brazil, President Lula Lula da Silva’s administration has already significantly curbed deforestation. Between August 2023 and July 2024, tropical forest loss in the Brazilian Amazon was cut by 46pc, compared to the previous 12 months. And at the global level, Brazil, which holds the G20 presidency this year, has emphasised nature-based solutions to climate challenges as part of its agenda, paving the way for further progress at COP30 in Belem in 2025.
For its part, the World Bank Group is supporting similar public and private efforts across developing economies. The goal is to design strong policies, build credible institutions, and mobilise investments in the infrastructure needed to sustainably conserve and manage forests. Making forest finance more widely available and more affordable is key.
The World Bank Group is also working to turn the vast potential of carbon markets into an income stream for developing countries committed to reducing emissions and conserving their forests. Already, 15 countries are benefiting from a pipeline that could produce more than 24 million carbon credits by the end of 2024, a win for both the climate and development.
But those engaged in these efforts have long been dogged by the question of how to support the conservation of standing forests over the long term. While forest carbon markets have created new revenue streams, they usually reward only those countries, communities, or project developers focused on reducing their emissions from deforestation. Thus, forests that are not under immediate threat offer no financial reward.
One solution is the proposed Tropical Forest Forever Facility (TFFF), a large-scale, performance-based mechanism that would use blended finance to generate financial returns and reward countries for protecting their standing forests. Instead of carbon credits, the Facility would provide predictable long-term financial support linked to a country’s hectares of standing forests, thus aligning economic incentives with environmental outcomes.
Led by the Brazilian ministries of Finance and Environment & Climate Change, and in partnership with other tropical forest countries, developed economies, and non-traditional sponsors, the Facility aims to leverage sovereign and philanthropic funding to mobilise more private capital, thus expanding forest finance beyond public-sector tools. Crucially, it would allow private investors to support a global public good by quantifying and verifying the underlying asset on terms aligned with their business models.
This is the kind of bold, innovative solution that we need if we want to make a real difference in the fight against climate change. One of the biggest advantages of the Facility is that it is not expected to depend on scarce donor grants and recurrent replenishments. Instead, it would require a one-time, fully repayable investment from potential sponsors, who would, therefore, be presented with a conceptually novel development-aid model.
Those designing the TFFF are also studying how to simplify disbursement models (without any loss of rigour) through digital monitoring, reporting, and verification systems, and how to disburse enough annually to tip the scales away from deforestation. Finally, another important question that is coming into focus is how to improve access to such mechanisms for indigenous peoples, local communities, and other forest owners and stewards. The countries working on the TFFF intend to address these issues by COP30.
Forests are vital not just for the carbon they store, but also for their role in maintaining ecological balance, supporting environmental health, and promoting economic growth and human development. The period between COP16 in Cali and next year’s COP30 in Brazil could be the perfect time to launch the TFFF and set the stage for a new era in forest conservation finance. We should start properly rewarding countries that have controlled deforestation and redouble our efforts to conserve existing forests for future generations.
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