Radar | May 07,2022
The Ethiopian insurance industry has pledged to donate 75 million Br to support a series of state development projects, including the “Gebeta Le’hager” initiative.
This move comes as a response to the call made by the National Bank of Ethiopia (NBE) Governor Mamo Mihretu, who urged banks and insurance firms to contribute to the country’s development agenda. The state-owned Ethiopian Insurance Corporation (EIC) will contribute 50 million Br, while 17 private insurance firms will cover the remaining 25 million Br.
Pledges by the financial sector are part of a series of fundraising initiatives launched by Prime Minister Abiy Ahmed’s administration to raise funds for the construction of projects, including the Koysha, Wonchi, and Gorgora projects, which have a total projected cost of six billion Birr. The government plans to cover half of the financing through fundraising efforts.
While some believe this initiative is an opportunity for corporations to meet their social responsibilities and create employment, others express concerns over the decision to contribute to state projects without shareholders’ consent. Shareholders who had anticipated dividends are upset to learn that some will be used to finance state projects, seeing it as a violation of their rights.
This comes amid a series of fundraising initiatives launched by Prime Minister Abiy Ahmed’s (PhD) administration, such as “Dine for Sheger,” “Dine for the Generation,” and “Dine for Ethiopia,” which aim to raise funds for the construction of projects. The Koysha, Wonchi, and Gorgora projects are projected to cost six billion Birr, with plans to cover half of the financing from fundraising efforts. The three initiatives will be implemented in the Oromia, Amhara, and Southern regional states.
One of the CEOs confirmed receiving the letter last week. He feels that they were left with no other choice but to contribute following the approval from their board of directors.
“The board represents shareholders,” said the CEO.
Two years ago, 4.2 billion Br was raised towards the projects, exceeding the initial target of three billion Birr through “Dine for Ethiopia.”
Jemila Kibert, a board member at Global Insurance, believes the initiative presents a good opportunity for corporations to meet their social responsibility while providing employment opportunities.
“Corporates usually allocate budgets for social initiatives,” said Jemila.
Not everyone is pleased with the decision to contribute to state projects. A founding shareholder of one of the veteran insurance firms expressed dismay over the decision made without his consent. He contemplates stopping buying shares altogether as they have become less rewarding.
Sewale Abate, a finance lecturer at Addis Abeba University, shares the concern. He argued that the amount pledged by insurance companies is greater than what is usually allocated for social responsibility.
“Shareholders assign a board of directors to represent their best interests,” Sewale said.
However, he suspects that the boards may have consented to the contributions out of fear of potential consequences that could follow a nonacceptance. Sewale also questioned the timing of the request, as financial institutions have not yet recovered from the bond requirements of the central and the state-owned Development Bank of Ethiopia (DBE).
In September of last year, authorities pressured heads of financial institutions to contribute up to two percent of gross profits to the Ethiopian National Defense Forces (ENDF). They chipped in no less than 800 million Br. Abe Sano, president of the Ethiopian Bankers’ Association, asked last week private banks to disclose the amount they are willing to contribute to the cause.
The Commercial Bank of Ethiopia (CBE) has already pledged 1.2 billion Br, equivalent to 7.2pc of its profits from the previous fiscal year. The DBE has committed to giving six percent of its net profit from the previous year, while private banks have agreed to contribute five percent of their profits towards the projects. Close to 16 private banks made an aggregate of 20.7 billion Br in net profit last year.
Banks that have not yet turned a profit, as they have begun operations this year, have been asked to lower their contribution to 0.5pc of their capital.
However, shareholders who had anticipated dividends are upset to learn that some of it will be used to finance state projects.
Tesfaye Chane, a shareholder of Awash Bank with stakes worth more than a million Birr, was unhappy to discover the decision made on his behalf. Awash Bank recorded a 5.3 billion Br profit from its operation last year.
Tesfaye had planned where his dividend would be invested. He believes the management should have used text messages to get shareholders’ consent, at the very least.
“It’s one of my income sources,” Tesfaye told Fortune. “This is a violation of shareholders’ rights."
According to Abie, also president of the CBE, the government’s efforts to mobilize funds from the financial sector reflect its commitment to achieving the country’s long-term development. He highlighted the importance of collective contributions towards the betterment of Ethiopia.
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