Forex-Driven Fees Ignite Parental Fury in Addis Abeba's Schools

Forex-Driven Fees Ignite Parental Fury in Addis Abeba’s Schools

Posted on December 22, 2024January 3, 2025 by Web Master

For many families in Addis Abeba, the new school year has brought an unwelcome surprise. Rapidly rising tuition fees at some of the city’s most prominent international schools have prompted parents to voice alarm and, in some cases, outright anger as they face the prospect that their children’s education could soon become unaffordable.

The tensions brought forth the need to maintain high-quality schooling in a country where the Birr’s value has been sliding, compelling many “international” schools to hedge their operational costs in dollars and other foreign currency denominations.

Flipper International School (FIS) has become one of the battleground schools between aggrieved parents and administrators, who are responsible for pleasing owners with bottom lines.

Founded in 1998 by educators and now operating five branches in Addis Abeba, the school was acquired last month by ADvTECH Group, a South African private equity firm. Among parents at FIS, discontent has been building over what they describe as inconsistent and unpredictable fee structures. However, the school’s administrators say they are only adjusting to the volatile currency value. Yet, the tensions between parents and administrators grew so intense that the Parent-Teacher Association (PTA), representing 3,000 students at FIS, filed a complaint with the Federal Education Training Authority (ETA).

At the heart of the dispute is a debate over foreign currency pricing. Parents had been paying tuition denominated in dollars for some time, with an exchange rate locked in at 57 Br to the dollar. Subsequent to the liberalisation of the foreign exchange market in late July this year, FIS’s management opted to move to an exchange rate of 74 Br to the dollar, raising the cost for parents. Many families say they were caught off guard, looking at combined annual bills that could rise by hundreds of thousands of Birr.

Meron Asfaw, a 48-year-old mother who enrolled her three children at FIS in 2021 in search of high-quality education, is one of the parents with misgivings. She said the schools demanded to quote in dollars soon after she enrolled.

“I’m afraid I won’t be able to afford it if it goes on like this,” Meron told Fortune, considering the school’s initial exchange rate of 57 Br a tolerable compromise.

But when it jumped to 74 Br, her total payment climbed by nearly 63,000 Br for one term. She elaborated that her childrens’ term fees had been a combined 3,700 dollars, equivalent to 211,000 Br at the old rate. The bill climbed to 273,800 Br under the new rate.

She questioned why authorities had tolerated dollar-based pricing all along.

“In what sense is that okay?” she wondered.

Meron could not reconcile the practice with regular public statements from officials insisting that the Birr should remain the main instrument for transactions. She believes regulators such as the ETA should ensure the school applies a transparent and fair rate.

Other parents similarly question the fairness of charging tuition at fluctuating exchange rates. Another FIS parent, Tiblets Gebregziabher, is a mother of twins in first grade and pays 1,000 dollars per term for each child. She says the new exchange rates might soon stretch her household budget beyond its limit, but she feels she has few options for relocating her children.

“I’ve no choice but to keep paying as long as I can afford,” she said.

She worries that further depreciation of the Birr could move tuition beyond her reach.

Adding to the parent-led complaints is a belief that FIS has been charging varying amounts for the same grade level under different pricing categories. Parents cite several “fee categories” in which a grade eight student in category four or five pays around 100,000 Br per term, while a student in category one pays 35,000 Br, with categories two and three set at 40,000 Br and 48,000 Br, respectively. The parents’ association considers these disparities a violation of the principle of equity and has demanded that the school adopt uniform pricing for all students in the same grade.

The Federal Education Training Authority, which regulates private, international, and community schools, intervened when the dispute escalated. Its officials told FIS administrators to suspend the tuition increases until further notice. Parents and school administrators were directed to present separate proposals outlining acceptable fees, and the ETA pledged to settle on a rate that both sides could accept.

FIS General Manager, Getaneh Asfaw, insisted the school has not imposed a mid-year fee increases, arguing that it only applies the fees approved by regulators at the beginning of the school year. He attributed the higher burden on parents to the latest exchange rate of the Birr, which has caused operating costs to rise. According to him, FIS pays for campus rentals, curriculum accreditation, and expatriate staff salaries largely in foreign currency.

The school settled on an exchange rate of 74 Br, even though the official rate was above 125 Br last week. Getaneh argued that this policy effectively saved parents money compared to what they might pay elsewhere.

“Denominating school fees in foreign exchange is a common practice in international schools,” he said.

Yet, the ETA has instructed the school to unify its payment system, at least within each grade, so that parents do not pay vastly different amounts based on separate categories.

“Quoting fees in foreign currency is illegal, even if parents initially agreed to it,” said Wubeshet Tadele, deputy director of the ETA.

He acknowledged, however, that the arrangement resulted from an earlier agreement between parents and the school to pay in forex when the exchange rate was more stable. According to Wubshet, now that the situation has turned contentious, the Authority can only intervene if disagreements arise.

“If parents and schools have reached a consensus, the dispute over currency might remain off the regulator’s radar,” he disclosed.

Federal authorities’ concern over “dollarisation” by international and community schools is not new. In 2022, the Ministry of Education warned 26 such schools against quoting school fees in forex, calling the practice a violation of laws governing the legal tender. Yet, enforcement has proved difficult, especially when schools and parents initially concur in setting dollar-based rates. The recent shift in currency values, where the official exchange rate of the Birr lost value by 495pc to the dollar since 2016, though schools sometimes apply a lower internal rate, has surfaced new disputes, especially as inflation remains high.

Tuition fee pressures have also surfaced at other schools, including Kelem International School. Parents filed similar complaints, according to ETA’s Wubeshet, who declined to give details. Kelem’s management did not respond to requests for comment. However, the British International School (BIS) has reportedly revised its rates, applying an exchange rate of 93 Br to the dollar. According to a teacher at BIS, the new fees compelled at least two ninth-grade students to quit.

Observers from academic circles say the situation might have been averted had schools, parents, and regulators engaged in more rigorous consultations.

“Tuition increases should be made only upon consensus with parents,” said Jemal Mohammed (PhD), a development economist and education researcher. “They should also be in line with improvements in school services and quality.”

Many parents say their frustration comes partly from feeling blindsided by fast-moving decisions that appear to track the dollar’s climb more than the school’s actual operating costs.

For macroeconomist Tewodros Mekonnen (PhD), the root cause is a long-held loss of confidence in the Birr. Businesses have regularly quoted prices in foreign exchange because they lack confidence in the absence of monetary authorities stabilising the exchange rate.

“I foresee the Birr exchange rate against the dollar may stabilise, and then schools will quote prices in Birr,” he told Fortune.

Until then, parents say they will watch how educational institutions handle tuition, praying that future adjustments come with more transparency and far less shock.

FUEL POLICY DRAINS ECONOMIC ENGINES

Posted on December 22, 2024 by Web Master

A newly drafted proclamation from the Ministry of Trade & Regional Integration (MoTRI) threatens to clamp down on contraband fuel sales and tighten regulation through digital payment mandates. However, many argue that these measures, although necessary for oversight, fail to address the immediate crisis in underserved areas. New distributors would have to meet strict requirements, such as owning at least half a million litres of storage depots. Yet, the guideline, combined with Enterprise’s recent freeze, could derail projects poised to alleviate fuel shortages. The fuel market currently provides 1.5 million registered vehicles with an average daily supply of 11.5 million litres of petrol and diesel. Yet, the Petroleum & Energy Authority’s research shows at least 500 districts lack a single station.

State Enterprises from Oracles to Apprentices

Posted on December 22, 2024December 24, 2024 by Web Master

Charged with transforming colossal state-owned enterprises into modern and competitive powerhouses, the sovereign wealth manager, Ethiopian Investment Holdings (EIH), is at a defining moment. At the helm is Brook Taye (PhD), its third CEO since its founding in 2020, whose vision departs from conventional public-sector oversight. He characterises EIH not as a regulator but as an active owner prepared to intervene, invest, and usher in fresh governance standards, offering the vitality of a private enterprise backed by public interest.

EIH’s approach stands out for its insistence on robust corporate oversight. Brook pledges transparent financial reporting and boards staffed with professionals of international calibre, appearing to domestic and foreign investors. He acknowledged that politics inevitably creeps into decisions; yet, by drafting clear policies on public service obligations and urging ministries to provide extra funding for non-commercial mandates, EIH hopes to shield enterprises from the crippling effects of political meddling.

Brook speaks candidly about learning from past failures, and ensuring leadership teams embrace innovation. The message is one of pragmatic adaptation. He believes EIH can build global competitiveness and boost public coffers, all while avoiding the bureaucratic inertia that has dogged state-owned enterprises for decades. In an exclusive interview with our outgoing Editor-in-Chief, TIZITA SHEWAFERAW, he shared insights into EIH’s priorities, the fine line of balancing control with management autonomy, and the strategies behind Ethiopia’s push for IPOs and foreign investments.

FORTUNE: State-owned enterprises under Ethiopian Investment Holdings (EIH) have a history of underperformance. What reforms are you implementing to turn them around, and how can you guarantee these changes will lead to long-term sustainability rather than temporary fixes?

Brook Taye: The right way to put it would be, “used to be known for underperformance.” Their performance in the past five years is phenomenal. The credit goes to the management of most SOEs. With one brilliant CEO, Ethio telecom has transformed into the continent’s second-largest telecom operator. It pays a substantial dividend and tax, and makes us a recipient of services of superior quality and value.

This is promising. I am not saying all of it is being resolved or these companies are where we want them to be. We still have a lot to do. But except for one company, all of our companies are profitable. Every SOE class under our management, except for two companies, has their externally audited financials for the year 2022/23. This is unheard of. Some of them used to have a backlog of five and six years.

Others, such as the Federal Housing Corporation and Ethiopian Toll Road Enterprise, have also made strides, achieving clean, externally audited financial reports for the first time in years. These are companies that did not even know how many houses they had. Now, Federal Housing not only knows how many houses it has but is investing, building, and its finances are clean. We need to capitalise on this and provide all our SOEs with a guideline for our new five-year strategy.

Q: With a few years on its belt and limited experience, are EIH’s capabilities overstretched at the risk of mismanagement?

Brook: We need to unpack this suggestion. We are a new institution, and although it can be a disadvantage, it also provides a fresh perspective. Rather than supervising state-owned enterprises (SOEs), we see ourselves as owners who actively make decisions and intervene when necessary. This new mindset, coupled with our leadership team’s extensive experience in private and public sectors, brings dynamism that was missing in traditional public bodies. Our people understand corporate practices that drive better outcomes and push for efficiency, transparency, and accountability.

Of course, managing a vast and diverse portfolio of massive enterprises comes with inherent risks. The antidote is corporate governance that prioritises transparency, autonomy, and accountability. We assemble independent boards and demand open financial reporting to EIH and the public. We mitigate the danger of mismanagement and demonstrate our commitment to professionalism by setting these safeguards.

Q: With such a vast portfolio, how do you justify prioritising investments? Are there sectors you are deliberately avoiding?

Brook: We do not have the luxury of picking and choosing investments. Everything is a priority in theory at this point. Ethiopia is a growing economy with huge demand, so we need to invest across a wide range of sectors, including bakeries and other essential industries. However, we are very deliberate in our approach.

We focus on areas where private sector participation is limited or where there is some market failure and a broader definition of a market failure. For example, we do not establish new banks, as the private sector is already well-represented with over 30 banks, and we have the Commercial Bank of Ethiopia (CBE). Instead, we focus on strengthening existing state enterprises. We also prioritise investments with regional implications, quick returns, and substantive return on investment (ROI) while avoiding investments that could cause socio-economic harm. We are very conscious as a result of that.

Q: How do you define its success?

Brook: EIH’s success will be defined in the future. So far, we think we are doing good. We have set a five-year strategic plan, and our definition of success involves ensuring that the state-owned enterprises learn from the successes of Ethio telecom and Ethiopian Airlines and contribute their part to the economy. We measure our performance annually based on several key financial and performance indicators (KPIs), the number of investments closed in a given year, and their role in creating new jobs. The amount of new investment we generate, whether through joint ventures or 100pc investments, will also define our success.

Q: Have you found the right balance between centralised control in management and granting autonomy to subsidiaries, or is excessive control stifling innovation and efficiency within the companies?

Brook: The debate on splitting management from control has long been settled in the corporate world. It is a matter of executing it successfully. Owners seek a good return on investment, while managers want to be rewarded for their results. However, this does not mean that they should have complete autonomy.

We encourage state-owned enterprises to have maximum decision-making latitude, with appropriate checks and balances. This is achieved through the board structure. We rely heavily on independent and qualified boards to guide CEOs and management teams in the company’s and EIH’s best interests. As owners, we intervene when necessary, especially when actions could harm our capital or returns. We also learn from other sovereign-owned funds globally to find the right balance and execute it effectively.

Q: How do you insulate the decisions from political interference?

Brook: These are government-owned state enterprises, on behalf of the public. There is always a political component to it. But, this can be defined or construed through a principle of public service obligation. There is no political decision that purposefully aims to damage a state-owned enterprise. What usually used to happen is various ministries or officials would try to utilise the state-owned enterprises to achieve a policy objective that does not necessarily match the commercial purpose.

If a state enterprise like the Ethiopian Electric Utility (EEU) is tasked with rural electrification, it cannot fund this from its own resources. The Ministry of Finance allocates a budget to bridge the gap. The policy objective is essential, but it interferes with the commercial purpose or would force the company to perform below par. We are finalising a public service obligation policy to ensure that public service objectives are met without compromising commercial viability.

Q: The Prime Minister announced plans for more state-owned enterprises to issue IPOs, following Ethio telecom’s lead. Which other state-owned companies do you see taking a cue?

Brook: We have announced companies undergoing IPO readiness, including the Ethiopian Insurance Corporation (EIC), the Shipping Lines, and Berhan Ena Selam Printing Enterprise. However, this does not necessarily mean they will go public immediately. The process takes time as we need to clearly define why we are taking these companies to market. Is it to raise capital for expansion, or is it because the government no longer wishes to remain in that sector and plans to divest through the capital market?

Currently, we have a major IPO in progress. Once it is completed, we will analyse the outcomes — successes, challenges, and areas for improvement — and use those insights to guide the next steps for other companies.

Q: Without aligning these enterprises to international standards, aren’t they set up for failure in the marketplace?

Brook: That is exactly what we are assessing now. Our focus is less on how ready they are and more on understanding how unprepared they might be. These companies are mostly state-owned and have never had the incentive to meet the requirements necessary to operate as public companies. This is understandable, given their history.

Our role is to evaluate their readiness and develop an equity story that aligns with their strengths and market potential. Once that foundation is in place, we help them meet the obligations outlined in the Capital Market Proclamation and the Directive for Public Offer. We have gone through this process with Ethio telecom; we are confident we can replicate it successfully with other companies. Capacity is not an issue; it is a matter of following the process systematically.

Q: Are you in a position to say something about how the Ethio telecom IPO is going?

Brook: The process is very active and ongoing. I hope that people will view this as an exciting opportunity, not only to become part-owners of one of the oldest companies in the country, with a history spanning 130 years. It is also one of the most profitable businesses in Ethiopia, a wonderful opportunity for individuals to hold a stake in a company that makes us proud.

Q: Ethiopia’s capital markets are still in their infancy. Isn’t relying on them to raise funds or divest assets a risky bet that could backfire on EIH and the economy?

Brook: There is always a risk when using market instruments to divest assets, whether through strategic sales, capital markets, or other mechanisms. However, EIH maintains a dynamic approach. We adjust and adapt if a process does not yield the desired results.

The risk is if you are not pragmatic, if you are stubborn and say, “This is the transaction that I have to do; I do not care if I have a collapse.” But we do not have that mindset. It is a very pragmatic administration. We make decisions based on current priorities and implement changes as needed.

Q: Are there plans to attract foreign investors to participate in these IPOs?

Brook: Yes, under the National Bank of Ethiopia’s (NBE) directive, portfolio companies can now invest in Ethiopia with up to a 30pc stake. However, the Capital Market Authority and the National Bank still need to finalise the directive, and we are eagerly awaiting its issuance. Once that happens, I am confident that portfolio investors will be drawn to Ethiopia.

One unique advantage is an asset class, uncorrelated mainly with global macroeconomic turbulence. Unlike many markets where economic shocks in one region ripple across others, Ethiopia’s assets are somewhat insulated. This makes them attractive to portfolio investors seeking diversification, as our market dynamics are not directly tied to those of advanced economies.

Q: Public-private partnerships can be beneficial but also have problems. How will EIH ensure these collaborations genuinely serve the public interest and not enrich vulture capitalists?

Brook: The public interest is defined by ensuring that state-owned enterprises are properly managed and operate profitably. The dividends they pay contribute to the national budget and our investment fund, growing wealth for both current and future generations. Our investment strategy aligns with this goal, incorporating rigorous due diligence, clear commercial terms, and extensive feasibility studies. We are putting public money as part of our equity.

Metrics such as Internal Rate of Return (IRR), payback period, job creation, and foreign exchange generation are integral to decision-making. There is a robust investment framework where decisions are made internally, by our investment committee, and then our board, depending on the volume and scale of the investment. Transparency is another cornerstone of our operations. Whenever we sign an MOU or joint venture, we make it public to invite feedback and ensure accountability.

Q: What are your top priorities for the next five years?

Brook: Our five-year strategy focuses on three core principles: diversification, driving economic growth, and delivering value.

Diversification involves expanding services, products, and geographical reach. Ethiopian Construction Works Corporation is one of the largest construction companies in the continent. Why is it not in 20 or 30 different African countries? Ethiopian Airlines does it. We also want the enterprises to drive the economic growth in our country. Tax contributions, foreign currency generation, and technology adoption support them. Last quarter, we generated over three billion dollars of foreign currency through our state-owned enterprises. We are one of the largest employers in this country.

They also need to deliver to the public, the owner. Increased revenue, higher tax contributions, and dividends are measures and deliveries that should be the core principles we will introduce in the next few years. We are sure that most of our SOEs will make us proud.

Q: What lessons have you learned from the past performances, both the success and failure of the companies?

Brook: We find both how to manage an SOE successfully and how not to manage it in Ethiopia. Ethiopian Airlines is a model of how SOEs should be managed. Its diversification and strong governance are examples of success. Conversely, failures of projects, past misalignments and governance failures offer lessons on what to avoid. We use these insights to recruit capable CEOs, encourage new talent, and design a strategy that builds on strengths while addressing weaknesses.

Q: Does the bureaucratic inertia not prevent you from adapting to shifting consumer behaviours and technological advancements?

Brook: So far, I have not seen any resistance. People are actually anxious and restless. They want to reform. Most of the time, they are spearheading changes in many of our projects. What was missing before was a clear vision and collaborative leadership. We have shifted from “all-knowing” to “all-learning” leadership between management and stakeholders. This approach has created an environment where people are eager to reform and innovate.

Most of the complaints we receive are about the bureaucracy that private sector companies face. Our issue is also based on taxes, customs, and other matters. That is the frustration that they have and not resistance to change.

Q: Markets are increasingly volatile, especially in sectors like energy and logistics. Is the economy vulnerable to potential shocks? Is EIH adequately equipped to manage these risks?

Brook: Absolutely. Our five-year strategy prioritises driving economic change and ensuring efficient service delivery. We want to be part and parcel of the change. From telecom to energy to transportation, agriculture or access to finance, our SOEs are deeply embedded in daily life. This positions SOEs as key players in Ethiopia’s economic transformation. They are ready; we are ready and very confident that they will be at the forefront of any economic change introduced to this country.

Q: Are you pursuing any initiatives or investments to stay ahead in the digital economy?

Brook: Yes, we are exploring investments in the business process outsourcing (BPO) sector to ensure we have investments that allow private sector participants to come and invest. There are also other areas in the process of identifying and developing the investment framework that I will not be able to talk about right now. But, it will focus on technology we think we can align with.

Q: What role do investment holdings play in Ethiopia’s integration into regional and global trade networks?

Brook: Diversification is key. There is no reason why CBE or Ethio telecom should not compete in other African markets. We envision Ethiopian SOEs becoming as prominent internationally as Chinese state-owned enterprises. In the same way, we see the ‘C’ companies from China, and there will be ‘E’ companies in many parts of the continent. We have the capacity and know-how; other companies have done it, and we should be able to learn from them. This strategy motivates our companies to think globally.

Q: What would you advise potential investors?

Brook: We offer de-risking, equity partnership, and a sounding board in investment decisions. But, in general, Ethiopia’s ongoing economic reforms, including opening the banking sector and launching a capital market, present tremendous opportunities. The next couple of years will be interesting. We are ready to partner with investors who identify synergies between our SOEs and strategically approach investment decisions.

Abay Bank’s Revenue Soars, Profit Margins Feel the Squeeze in Costly Growth Push

Posted on December 22, 2024 by Web Master

Abay Bank has racked up noteworthy expansions in deposits, assets, and overall revenue. Yet its impressive growth trajectory contained some cautionary signals about profitability pressures in an increasingly competitive market. The Bank’s net profit margin on total assets slipped to 2.26pc in 2023/24, trailing a common industry benchmark of three percent and declining from the 3.82pc mark recorded the previous year.

Part of the margin squeeze resulted from soaring costs, particularly interest outlays, which in 2023/24 ate up nearly one-third of the Bank’s overall expenses. This narrowing of spreads mirrored a market environment where deposit rates often lag behind inflation, forcing banks to steer tight corridors between relatively low-yielding assets and rising obligations. Abay Bank’s profit margin erosion emerged when its net profit dropped 3.2pc to 1.5 billion Br, accompanied by a 22pc fall in earnings per share (EPS), down from 360 Br, though it still is higher than private banks’ mean.

Abay Bank President, Yehuala Gessesse, who has run the Bank for nine years, sees the dampened performance partly driven by monetary policy constraints that stifled loan growth. According to him, a substantial portion of the Bank’s income is interest-based, making the Bank especially sensitive to credit restrictions.

“Due to the monetary policy restriction and other issues, the loan growth was low,” he conceded.

However, Abdulmenan Mohammed (PhD), a financial analyst based in London, blamed the effect of heightened expenditures, from a 33.1pc climb in interest expenses to a 27.7pc jump in wages and benefits, which reached 2.51 billion Br. Other operating expenses soared 48.2pc to 1.5 billion Br, unveiling heavier spending on promotion, insurance, and IT support. These costs led to a 6.4 billion Br outlay, up 30pc from a year earlier.

“The massive expansion of expenses undermined the revenue growth, resulting in a reduction in net profit,” Abdulmenan said.

He warned Yehuala and his team to exercise caution. Yehuala, who has a postgraduate degree in business administration and 25 years of banking experience, defended his growth strategy, arguing that investments in IT and digitisation will make Abay Bank competitive by providing unparalleled customer service.

“We prefer to invest in IT and accessibility such as branch expansion, ATM and POS,” he told Fortune. “But most of the costs are fixed costs.”

In the 2022/23 operational year, the Bank’s deposits surged 29pc to 41.8 billion Br, leading to a net profit of 2.1 billion Br, a 63pc growth. It was buoyed by climbing revenues that hit 7.1 billion Br, 78pc of which stemmed from interest income. Total assets also rose by 35pc, reaching 55 billion Br. The results were attributed to multi-pronged measures, such as enlarging the customer base to 2.5 million, launching 110 new branches with a strong focus on interest-free banking windows, and doubling mobile banking subscribers to 1.28 million.

Last year, Abay Bank’s revenue kept pace with revenue growth of 19pc to 8.4 billion Br; however, it was overshadowed by ballooning expenses that eroded net profit. The Bank’s executives defend their strategy of investing in technology, digitisation, and expansion to capture more market share. They opened 59 new branches last year, bringing the total to 542, but several locations in the Amhara Regional State remained underutilised due to ongoing conflicts.

The Bank’s deposit base swelled by 11 billion Br, mirroring the rise in interest expenses amid heightened competition for liquidity.

Interest on loans, advances, and Central Bank bonds rose 20.2pc to 6.67 billion Br. Service charges and commissions edged up 2.8pc to 1.22 billion Br, while gains on foreign exchange dealings jumped 24.2pc to 192.45 billion Br. The decline in loan impairment provisions, from 219.3 million Br to 86.4 million Br, showed improved asset quality, a silver lining that could address risk for Abay Bank, whose total assets climbed 20.6pc to 66.42 billion Br in 2023/24.

The Bank disbursed 41.11 billion Br in loans, up 12.7pc, and mobilised 52.62 billion Br in deposits, an increase of 26pc.

Though cost pressures suppressed Abay Bank’s bottom line, some shareholders applauded the management for strong capital and liquidity positions. Its paid-up capital jumped 27.3pc to a little over six billion Birr, lifting the Bank’s capital adequacy ratio to 15pc, three percentage points higher than the previous year.

Board Chairperson Amlaku Asres (PhD) told the 4,537 shareholders gathered at the Interluxury Hotel, on Marshal Tito Road, that issues like inflationary headwinds, regional security concerns, and political uncertainties had weighed on the Bank’s performance.

A shareholder, Fisseha Tekeste, called the results “commendable,” though he urged the Bank to consider merging with a more prominent institution for market consolidation.

“When we grow bigger, we become dominant,” he told Fortune.

Another founding shareholder, speaking anonymously, praised the balance-sheet growth but raised concerns that returns have yet to catch up.

“It doesn’t add up,” he told Fortune.

Regulatory limits on lending have chipped away at Banks’ capacity to deploy capital, as the country’s financial sector prepares for foreign entrants. Such constraints, he argued, created a mismatch for domestic lenders aspiring to scale while bracing for external competition. Abay’s loan-to-deposit ratio fell from 87.3pc in 2022/23 to 78.1pc last year, a logical outcome under National Bank of Ethiopia (NBE) caps that constrained credit expansion.

The dip in this ratio coincided with a 41.7pc surge in Abay Bank’s cash and bank balances, lifting the share of total assets to 17.6pc from 15pc. According to the Bank’s President, Abay carefully manages liquidity to maintain flexibility in the face of uncertain regulatory and macroeconomic realities. Labour costs also remain a major line item, with wage and benefit expenses totalling 2.51 billion Br in 2023/24, 39pc of overall expenses, and administrative outlays representing 18pc.

With over 10,000 employees and 1,636 new hires recruited last year to support its push for enhanced customer service, Abay Bank continued to build out physical infrastructure, betting on near-term expenditures for long-term scale.

However, analysts question the prudence of a 1.33pc provisioning ratio at a time when inflation, political uncertainty, and liquidity crunch could test borrowers’ repayment capacity.

Abay Bank’s performance showed industry-wide trends among the 30 private and two state-owned banks, which have expanded deposits by 16.3pc to 2.4 trillion Br. Private banks held 67.4pc of the 290.6 billion Br in aggregate capital, chipping away at the dominance of the state-owned Commercial Bank of Ethiopia (CBE), which still retains over a fifth of the industry’s total capital. Abay Bank’s 20pc jump in assets could mark the ascendance of private banks, whose loan portfolios and deposit mobilisation have seen double-digit rises.

The Bank’s deposit per branch was about 130.61 million Br in 2023/24, a respectable figure that displayed successful retail and commercial outreach. Profit per employee reached 146,541 Br in 2023/24, surpassing the industry’s 10-year average, beginning in 2013. Over the past decade, private banks have outpaced state-owned peers in growth, even if they remain smaller in absolute size. Capital-to-asset ratios generally were around 13.5pc. Abay Bank’s was around 14pc, representing a prudent buffer, while its asset-to-equity ratio of about 7.12 displayed a moderate leverage approach.

According to analysts, these measures suggested Abay Bank, incorporated 14 years ago, is balancing ambition with regulatory caution.

Reliance on net interest income remains a cornerstone of the financial system. More than 74pc of Abay Bank’s operating income last year was derived from interest-based activities, a function of limited foreign exchange availability and still-nascent digital banking services that could generate fee income. Roughly 32.49pc of total costs stemmed from interest expenses, echoing stiff competition for deposits. The Bank’s executives eye fee-based products and upgraded digital platforms as part of their “Journey to Greatness” plan, to broaden revenue sources and attract a tech-savvy segment of the population.

At the Mehal Gerji branch, Zelalem Dereje, its manager, oversees seven employees and credits teamwork for hitting goals in deposits, foreign exchange, and service quality. The branch caters to clients from corporate importers to small-scale retailers. One innovative feature is the “Muday Banking” system. Customers store cash from daily sales and deposit it at their convenience, a model Zelalem says saves them travels to the branch. It is an account capturing Abay Bank’s bid to tailor services for businesses operating on thin margins but seeking secure, convenient options.

“The key to the box is kept at the bank, allowing customers to deposit their funds when possible,” he told Fortune.

According to independent analysts, Abay’s long-term success depends on its ability to deepen non-interest income streams and improve efficiency. Although the Bank’s deposit base and capital cushions are robust, its persistent net profit margin squeezes reveal structural challenges. Rapid inflation, foreign exchange bottlenecks, and political unrest increase borrowers’ risk of falling behind, testing Abay Bank’s credit quality. Yet management remains optimistic that investments in digital platforms, branch expansions, and staff training will ultimately pay off once policy constraints ease.

“We’re implementing well-crafted resource mobilisation and liquidity management strategies to sustain our liquidity position,” said Yehuala.

Fuel Supply Halts as Parallel Market, EV Push Leave Regions, Investors in the Lurch

Posted on December 22, 2024 by Web Master

Africa Oil Plc has five of its stations denied fuel supply by the Ethiopian Petroleum Supply Enterprise (EPSE). The company had requested over a million litres of fuel, but its requests have been unfulfilled.

The four-year-old company has 42 new stations under construction with five completed at a cost of hundreds of millions of Birr, including those in Jemo, Tuludimtu, Jigjiga, and on the road to Arbaminch, according to Ketema Sileshi, general manager at Africa Oil. The lack of fuel supply has rendered these stations idle and the investments are at risk.

“Millions of investments have been left in the air,” Sileshi lamented.

His company, operating 92 stations nationwide, had planned to expand its market share and supply underserved regional states with its new stations. However, the current fuel quota system, based on existing stations and transaction volume, has limited his company’s supply to 10 million litres less than its monthly demand of 27 million litres. Ketema argues that increasing the number of fuel stations will boost productivity.

“New stations are there to meet the demand, not create more demand,” he said.

In a move that has incited outcry and apprehension, EPSE officials have suspended the supply of fuel to new stations. The decision comes as the Enterprise seeks to double down on cutting fuel imports. A letter issued by Esmelealem Mihretu, CEO, comes after a board meeting discussed plans to halt the supply of fuel to new stations awaiting certification and those that are also currently under construction. “It goes against national policy,” the letter reads.

Esmelealem noted this comes as the country intends to decrease fuel import expenditure, and transition to electric vehicles, with a reduction of fuel importation by 4pc targeted for the year. He stated that the supplier plans to gradually reduce fuel imports upon economic activity and electric vehicle uptake.

“We have no plans to supply the new stations,” he told Fortune. “There is no need for that anymore.”

He argued that there should be a priority to sufficiently serve the existing stations.

The federal government has been promoting the adoption of electric vehicles (EVs) to reduce fuel import costs. A ban on importing petroleum-powered vehicles was implemented, and import taxes and duties for EVs were reduced. Imports of EVs have nearly doubled from three years ago, reaching 72 million dollars in 2022/23.

However, uncertainties remain regarding the country’s power infrastructure’s capacity to handle a rapid transition to EVs. Energy expert Yemanebirhan Kiros notes the current power grid may not be sufficient for the increased demand and cites the transition from biogas to electric cooking as an example that led to overloaded power lines and constant outages. He stated, “There is no sufficient power supply”.

Yemanebirhan says the high demand from industries and manufacturing companies to transition to EVs is hindered by the lack of adequate electrical infrastructure. The expert urges the government to implement regulatory overhauls to improve efficiency, increase tariffs to encourage investment from energy companies, and establish legal frameworks. He believes that “ensuring energy efficiency first is crucial.” The lack of a regulatory framework also affects issues like electricity tariffs and the standardization of charging equipment. Ketema stated that “it’s unthinkable right now,” due to the lack of infrastructure. The vast majority of vehicles on Ethiopian roads continue to be petroleum-powered.

Many areas in Ethiopia, including Benishangul Gumuz Regional State, are facing severe shortages. In the Kamashi zone, comprising five districts, there is not even a single fuel station. Though rich in coal, gold, and marble, the zone has relied on fuel supplies from Wollega in Oromia Regional State. Security issues have disrupted this supply chain, limiting the zone to a mere 90,000 litres of petroleum every two months.

“Fuel stations are desperately needed ,” said Tariku Kumera, deputy head of the Benishangul Gumuz Trade Bureau. The entire region currently operates with only 16 gas stations in Assosa and Metekel zones, and the supply to these stations has been declining recently. The new fuel supply restrictions could further exacerbate the situation, as eight new stations under construction in the region may now face delays or cancellations. Several investors have already abandoned their projects, while others are complaining to authorities about the fuel shortage.

“The shortage of fuel is affecting investment,” he said.

OMA Mining Plc, a joint venture between Ethiopian and Sudanese investors, ceased operations after 12 years due partly to severe fuel shortages in its Guji and Assosa operations. Dereje Demisse, a former operational manager, partly attributed the company’s closure to the lack of gas stations and the undependable fuel supply in the region.

Dereje, now managing a marble manufacturing company operating for over three years in Harer Regional State’s Mareo district, continues to face fuel shortages. They must travel 70km to another district to acquire 700 litres of petroleum per week.

Kassahun Goffe (PhD), minister for Trade & Regional Integration, recently admitted to a fuel shortage but stated that the government’s strategy still focuses on reducing fuel imports. “We need to better administer the existing fuel stations, not add more,” he stated.

The Ministry has drafted a proclamation to control illegal practices in the petroleum supply and distribution value chain. The daft law mandates fuel transaction payments to be made digitally. If approved, new distributors will have to have a depot that can store at least half a million litres of petroleum products and four fuel stations to commence operation and should construct additional six fuel stations within three years. Existing distributors will be required to have 10 fuel stations within five years.

The state-owned EPSE serves 1.5 million vehicles across the country, with a daily supply of three million litres of benzene and 8.5 million litres of diesel. The Enterprise has distributed 986,795tn of fuel in the first quarter of this fiscal year.

Research conducted by the Petroleum & Energy Authority (PEA) exposed a critical fuel shortage across the country. The study revealed that 500 districts lack even a single fuel station.

Bekelech Kuma, the Authority’s communication head, says that some border areas with Kenya and Somalia have an excessive number of fuel stations, describing them as “lined up like a retail shop.” This has facilitated illegal fuel trade across borders, especially considering the higher tariffs imposed by neighbouring countries, according to her. However, due to the ongoing fuel shortage, the Authority has been approving the construction of new gas stations while being wary of opening stations near borders.

While critics have questioned the EPSE’s authority to implement such rules, the supplier has defended its position, saying it was a decision made by higherups.

“It’s the first time we are reading the letter,” Bekelech revealed. She told Fortune that EPSE did not consult with the Authority in making the decision.

Gambella Regional State is another region gripped by a severe fuel shortage. Ambisa Udeta, head of the regional Trade and Industry Bureau, revealed that certain districts like Dima, Abobo, and Lare as well as the outskirts of Gambella City do not have a single gas station. He said there are 12 gas stations in the regional state currently under construction whose fate is uncertain due to the move by EPSE. The region has approximately 14 stations, primarily NOC, Total Energies, TAF and Ola Africa Energy branded outlets.

Ambisa stated that the districts are gold exploration and production centres and require sufficient fuel supply. “Benzene shortage has been the main problem in the region,” he said.

Ephrem Tesfaye, a board member of the Ethiopian Petroleum Dealers Association (EPDA), a 500-member lobby group, believes that contraband and inefficient distribution have exacerbated the existing fuel shortage. He views the government’s recent decision to limit fuel supply as impulsive, as it could negatively impact reputable fuel retailers.

“It was a quick decision made without proper consultation,” he said.

There are over 52 new fuel stations under construction, awaiting competency certification. Several other stations have received PEA approval and are pending final approval from the EPSE. The sector comprises 59 companies operating 1,880 stations, with the big four of TotalEnergies, NOC Ethiopia, OLA Energy, and Yetebaberut Petroleum (YBP) taking the lion’s share.

The two-decade-old Yetebaberut holds 140 stations. It is facing a dilemma for its several new stations in the pipeline.

Biniyam Aklog, the general manager of the company, stated that their construction of over 10 new stations has been hampered by the recent fuel supply restrictions. The company, which primarily operates in the outskirts of Addis Abeba and regional states like Oromia, Amhara, and Tigray, is expanding with ongoing projects in Somalia, Oromia, and Dire Dewa that are now at risk.

However, Biniyam is hopeful that the decision will be reversed. “We understand where they are coming from,” he told Fortune. He says existing stations often receive only 15pc of their daily fuel orders. The company’s daily demand of 4.8 million litres of gasoline and diesel is barely met.

Tadesse Grima, secretary-general of the Ethiopian Oil Companies Association (EOCA) attributes the fuel shortages to insufficient supply and inadequate distribution. “The balance between demand and supply has not been met,” he said.

According to Tadesse, given the country’s vast territory and reliance on petrol as the primary energy source for vehicles, the current number of stations is insufficient to meet the demand.

A few months ago, the National Bank of Ethiopia (NBE) enlisted private banks to shoulder a substantial portion of the foreign currency needs for fuel imports, a role previously tightly controlled by the state. Governor Mamo Mihretu, instructed them to open letters of credit for fuel imports beginning next month with 11 commercial banks taking up the offer with payments due 360 days from the issuance date.

The NBE estimates that 3.2 billion dollars in letters of credit will be issued annually to import fuel, with private banks expected to contribute close to 1.6 billion dollars.

The current subsidy allocation of 100 billion Br, part of the 551 billion Br allocated for essential commodities, has helped alleviate economic pressures on the enterprise. “These new reforms are helping us attain a better supply of fuel,” Esmalealem said.

However, shortages still persist. Horizon Petroleum Terminal at Djibouti’s Doraleh Port which has a storage capacity of nearly 400,000 cubic metres and pumps around 2,000tn an hour has seen disruptions.

Esmalealem reported that the fuel shortages are being addressed through technical solutions at the Horizon terminal, and that efforts of expanding transportation corridors to other borders, such as Sudan, are underway.

“The fuel supply chain is extremely fragile,” he told Fortune.

Minister Kassahun, who recently addressed the parliament, indicated a potential shift in fuel trade policy. He suggested allowing private companies to enter the market alongside the state-owned enterprise.

Derese Kotu, a fuel industry expert and former PEA distribution head, says there is widespread fuel smuggling, particularly in Somali Regional State.

However, he argues that the suspension will affect underserved and peripheral areas. He suggested a proper control to be in place to curtail and close down illegal stations, rather than limiting the expansion of stations.

He criticized the current fuel distribution system, stating that older companies which often focus on urban areas and neglect underserved regions receive preferential treatment. “This needs proper reform from authorities,” he told Fortune.

He attributed shortages to overlapping regulatory mandates, an uncontrolled illicit market, and limited supply availability with some stations receiving only 15pc of their demands. While advocating for a transition to renewable energy, he acknowledged the need to bridge critical infrastructure gaps. He suggested that authorities should control the distribution market and open new stations while closing those near borders.

“We are not ready to halt supplies yet,” he said. “Regulations are more pertinent.”

As Liquidity Dries Up, Forex Market Becomes a Battleground for Survival

Posted on December 22, 2024 by Web Master

The modest depreciation of the Birr last week has amplified pressure on the foreign exchange market, exposing underlying systemic vulnerabilities in liquidity management and the stability of the banking industry.

The average exchange rates, at 124.82 Br for buying and 127.27 Br for selling, appear relatively stable but mask worrisome volatility and institutional disparities. Notably, ZamZam Bank emerged as a Lead player, posting the highest rates of 124.99 Br for buying and 127.49 Br for selling. This signalled its aggressive bid to attract hard currency amid tightening liquidity conditions. It overtook Dashen Bank as the premium bidder for foreign currency inflows.

As the liquidity crunch deepened last week, the foreign exchange market grew more strained, raising pressing issues about the sustainability of current forex management practices and the banking industry’s stability. A widening gap between state-owned behemoths and private lenders revealed a growing fragmentation, as larger banks leveraged stronger liquidity positions or privileged access to limited forex.

Smaller banks, meanwhile, struggled in a more competitive and constricted market. This heightened uncertainty for importers, turning the quest for favourable exchange rates into a matter of institutional relationships as much as market conditions as the Brewed Buck continued its incremental depreciation against the Green Buck. Liquidity shortages, manifesting systemic weaknesses in the macro economy and notable differences among commercial banks in their foreign currency offerings, already inhibited pressures in the foreign exchange market.

Importers and financial institutions faced a tough environment, with mounting liquidity and credit supply constraints.

On the lower end, the Commercial Bank of Ethiopia, the state-owned giant, has been an outlier. Its buying rate languished at 122.59 Br and its selling rate at 125.05 Br, displaying its relatively conservative pricing. CBE’s advantageous access to forex protected it from the intense demand-driven fluctuations battering privately owned lenders. Goh Betoch Bank, however, has emerged as an intriguing exception. It reached a buying rate of 124.87 Br and a selling rate of 127.36 Br, mirroring ZamZam’s position, taking a more aggressive position in a bid for foreign currency inflows, but departing from the cautious approaches displayed by others.

These manoeuvres show the diverging fortunes of commercial banks.

Larger, well-capitalised institutions can afford measured pricing, while smaller or more liquidity-strapped players offer higher rates to reel in foreign exchange. Three distinct tiers now define the banking industry on the forex front. The first group comprises CBE and the Development Bank of Ethiopia, both state-backed entities with access to foreign currency allocations that can afford to keep prices lower. A second set, including Dashen, Awash, and Abyssinia banks, sticks more closely to prevailing market norms. The final cluster, represented most prominently by ZamZam and Goh Betoch, appeared willing to push rates higher, a strategy that signals heightened competition and more acute liquidity strains.

Though most banks maintain the mandated two-percent spread between buying and selling rates, this cosmetic uniformity belies volatility beneath the surface.

ZamZam’s and Goh Betoch’s outlier postings revealed how smaller institutions are fighting for foreign currency in an increasingly tight market. Fueled by external debt obligations weighing on the country’s balance sheet, the liquidity crunch in Birr has forced domestic banks to hunt for hard currency independently. This has created a critical challenge for importers, who simultaneously wrestled with harsh credit shortfalls. The resulting environment has exposed vulnerabilities at all levels of the banking system, escalating the tug-of-war for forex.

Whether these disparities can be reconciled through policy interventions or market corrections remains an open question. For now, importers and banks alike could brace for sustained volatility, as competition for scarce foreign exchange grows fiercer by the day. The forex market now depends on which bank can actually deliver dollars rather than who quotes the lowest price, demonstrating the increasingly mounting pressure facing businesses dependent on consistent foreign currency access for crucial supplies.

BOOK NOOK

Posted on December 22, 2024December 22, 2024 by Web Master

A recessed section of the wall of Prosperity Party’s HQ building is just the place for an outdoor bookstall in the vicinity of Arat Kilo roundabout, on Queen Elizabeth St. Arat Kilo is famous for its confluence of administrative, religious, and educational centres. With Brehanena Selam Printing Press also nearby, newspaper and books sales were naturally drawn to the area. This seller captures a unique way of displaying and selling printed material in an outdoor setting, though rain would be a cause for concern.

LION’S LAIR

Posted on December 22, 2024December 22, 2024 by Web Master

` One of Addis Abeba’s emblems, the distinctive lion statue looks towards the 53-storey tall Commercial Bank of Ethiopia HQ building, juxtaposing heritage and contemporary architecture. The black stone monument, sculpted by French artist Maurice Calka, commemorated the Silver Jubilee of Emperor Haile Selassie in 1955 and sits adjacent to the National Theatre, formerly Haile Selassie I Theatre. CBE’s HQ, costing 304 million dollars, is the tallest in East Africa at 209 metres. It has joined the lion as an icon of Ethiopia’s capital city.

GLASS GLEAMERS

Posted on December 22, 2024December 22, 2024 by Web Master

A long pole is used to clean the exterior windows of Best Western Plus Pearl on Cameroon St in the Bole Brass neighbourhood. The adjacent road is currently under corridor development project and would suffer from heavy dust, adding burden to the gentleman’s work. Three Best Western hotels are conveniently located within five kilometres of each other in Addis Abeba. The Best Western Plus is situated near Edna Mall roundabout, while the Best Western Premier Dynasty is found in Wello Sefer, across from the Information Network Security Administration (INSA) headquarters.

Electricity Bills Get the VAT Jolt

Posted on December 22, 2024December 24, 2024 by Web Master

The new Value Added Tax (VAT) has begun implementation on electricity consumption and various service fees affecting customers who use more than 200 kilowatt hours of electricity per month. Based on a directive from the Ministry of Finance, the tax will be applied to the excess amount of electricity consumption above 200 kilowatt hours. The Ethiopian Electric Utility (EEU) began implementing the VAT on bills starting from November though both prepaid and postpaid customers will have to pay VAT arrears from September. The Utility affirmed that VAT will also be applied to various services and all VAT-related collected funds will be transferred to the Ministry of Revenues every month.

World Bank Greases Financial Overhaul

Posted on December 22, 2024December 24, 2024 by Web Master

The World Bank approved 700 million dollars in credit from the International Development Association (IDA) to scale up support for the financial sector. The funds are targeted at modernizing the regulatory and supervisory framework of the National Bank of Ethiopia (NBE), supporting governance reforms, balance sheet restructuring, and recapitalization of the Commercial Bank of Ethiopia (CBE), and transforming the Development Bank of Ethiopia (DBE) into a sustainable development finance institution.

The move is part of the Word Bank’s Financial Sector Strengthening Project (FSSP) which aims to improve stability by addressing weak public financial institutions and inadequate regulatory frameworks.

Maryam Salim, country director of the World Bank, stated that the project aims to “build a more resilient and accessible financial system.”

Gadaa Bank Expands Reach, Faces Lending Constraints

Posted on December 22, 2024December 24, 2024 by Web Master

Gadaa Bank closed its first full fiscal year of operations with a net profit of 90.2 million Br. The 18-month-old Bank held its annual general assembly at Millenium Hall on Africa Avenue last week where the board announced that during the year, the Bank opened 15 branches and now has 85 operational branches.

“Due to recently enacted policy measures on credit by NBE and unmet resource mobilization during the fiscal year, the Bank was unable to make loan disbursements,” stated Wolde Bulto, CEO, adding that “considerable credit applications had been submitted.” Gadaa disbursed 2.17 billion in loans while total deposits were 4.01 billion Br. Permanent staff numbers grew by 196 to reach 670. Total income of 790.6 million Br and expenses hitting 689.4 million Br were also registered. The Bank closed the year with 1.08 billion Br in paid-up capital and 5.61 billion Br in assets.

Author: Web Master