Ethiopia’s boom runs into limits on finance
By Katrina Manson in Addis Ababa
Three banks rejected Tekeste Berhan Habtu for a loan to help build his 11-storey office block. Undeterred, the 59-year-old Ethiopian businessman ploughed in cash from his own software and logistics businesses. “I went to the banks but they ration people,” says Mr Tekeste, whose $1.6m real estate venture is nearing completion after three years of work.
Ethiopian Central-Bank Order May Mean More T-Bills, Less Lending
By William Davison
An Ethiopian central bank order making lenders limit 40 percent of their loans to a year or less by 2015 may crimp credit growth by forcing more government- security purchases, the International Monetary Fund said.
A National Bank of Ethiopia directive from April 2011 already requires the 14 private banks in the Horn of Africa country to buy five-year bills equal to 27 percent of each loan given out. The Washington-based lender in September said that requirement was onerous and suggested lowering it so more credit would be available to banks.
The new limit on the maturity of loans “will likely require private banks to purchase more five-year NBE bills at a very low interest rate of 3 percent,” IMF Resident Representative Jan Mikkelsen said in an e-mailed response to questions yesterday.. “This will further reduce private banks’ ability to extend loans to customers.”
Ethiopia, Africa’s second-most populous nation and the world’s fifth-biggest coffee grower, is struggling to fund a five-year industrialization plan that ends in mid-2015. The state-led program is designed to diversify the economy away from reliance on agriculture, which is 43 percent of output now.
Money raised from the central-bank bills will be used for “financing of priority-sector projects,” according to a copy of the NBE order seen by Bloomberg.
The government partially liberalized its financial system in 1993 after more than a decade of communism. It has yet to allow foreign banks or free trading of the birr currency, and the state-owned Commercial Bank of Ethiopia holds two-thirds of all bank deposits.
About 61 percent of new bank deposits worth 10 billion Ethiopia birr ($535 million) were used to buy central-bank bills in the fiscal year ending July 7, 2012, according to Addis Ababa-based research company Access Capital.
The central bank’s Deputy Governor of Monetary Stability Yohannes Ayalew and Director of the Change Management and Communications Directorate Alemayehu Kebede did not answer calls to their mobile phones seeking comment yesterday or today.
The order also reduces the amount commercial banks have to keep with the central bank to 5 percent of deposits from 10 percent. Lenders will have to invest the released money into the central bank’s securities, Mikkelsen said.
“It is important to note that NBE plans to absorb the injected liquidity for all banks,” he said. “As a result, there will be no immediate monetary impact.”
Ethiopia maintains a tight monetary policy to stem inflation, which slowed to 12.5 percent in January after averaging more than 30 percent in the previous fiscal year starting July 7, 2011, according to the Finance Ministry. Growth slowed to 8.5 percent in the same period from 11.4 percent the year before
Ethiopia deal signals cheaper power in Kenya
Source: Capital FM
NAIROBI, Kenya, Dec 5 – Lower energy costs are on the horizon for Kenyan consumers, after the government secured a Sh37.5 billion ($441 million) credit agreement to import cheaper electricity from Ethiopia.
Once the 1,045 kilometre transmission power line between the two countries is complete in 2018, Kenya will import power at a rate of seven US cents (Sh6.08) per kilowatt hour.
Ethiopia, which is laden with a huge hydropower potential, boasts some of the world’s lowest energy costs at three US cents (Sh2.58) per kilowatt hour, and has set out a plan to make electricity exportation its main foreign exchange earner.
The loan from the World Bank is to support the larger $1.3 billion Eastern Electricity Highway Project that seeks to establish the regional integration of a power transmission network that will connect the five East African countries including the Democratic Republic of Congo.
The Ethiopia-Kenya Power interconnector marks the first phase of the regional project, which Finance Minister Njeru Githae said will be more cost-effective and reliable in enhancing Kenya’s power supply.
“The intention is to make electricity a tradable commodity so if we have excess we can sell it. We have a competitive edge on other countries in geothermal,” he said.
Kenya also has a transmission line to Uganda, which Githae says is to be upgraded as well.
The government has made several efforts to increase the country’s energy capacity with the commissioning of the Sh10 billion Kipevu III Power Plant in Mombasa that adds an additional 115 Megawatts (MW) to the national grid.
President Mwai Kibaki recently launched the construction of the 280 Megawatt geothermal project at Olkaria geothermal field which is scheduled for commercial operation by September 2014.
High energy costs remain a major hindrance in the ease of doing business in Kenya when compared to some of its regional competitors of Uganda, Tanzania, South Africa and Egypt.
Over 60 percent of generated energy in the national grid is used in manufacturing enterprises.
The Kenya Association of Manufacturers has put pressure on the government to ensure that an additional 41,300MW of energy is created by 2030 in order for the country to remain competitive.
Kenya’s total installed electricity capacity stands at 1,500MW against a peak demand of 1,300MW.
Under the Vision 2030 economic blueprint the country’s electricity generation capacity is to rise to 21,000MW in the next 17 years.
Ethiopia Not Ready for Foreign Banks - PM
BY SOLOMON KIRIMI, 23 NOVEMBER 2012
Source: The Star (Kenya)
Ethiopia is still not ready to open up its market for foreign banks, Prime Minister Ato Hailemariam Desalegn has said throwing into disarray plans by Kenyan lenders to venture into the country.
The Ethiopian leader was ironically speaking at a breakfast hosted by Equity Bank at the Intercontinental hotel in Nairobi just after the bank chief executive James Mwangi sought the Ethiopian leader's support to venture into the country.
Desalegn was responding to local business community's inquiries on available opportunities in Ethiopia following the signing of an inter-governmental pact for Special Treatment Agreement for Kenyan traders going to Ethiopia.
But according to the Ethiopian PM, banking is not part of the agreement signed between him and President Kibaki on Tuesday. "Liberalising the banking sector would make credit expensive for business and slow down growth momentum, and that is why we have state our own Development Bank of Ethiopia to create a balance," the PM said.
Ethiopia has sustained 11 per cent growth rates for a number of years now and hopes to keep it going through regional co-operation with regional countries.
The PM landed in Kenya on his first foreign visit since he ascended to top leadership of Ethiopia to succeeded Meles Zenawi who died a few months ago.
While urging Kenyan business community to venture into Ethiopia, the PM said opportunities are mainly in agricultural production, agro-processing and manufacturing.
Ethiopia offers a variety of incentives for investors including serviced-leased land, collateral-free loans, duty-free importation of capital goods alongside tax holidays of up to seven years. Kenya and Ethiopia have already agreed on axle-load requirement for trucks transiting to and from either side of the border.
Tourism sector operators will however have to wait for an agreement before Ethiopia allows issuance of visas in Nairobi for foreign tourists in Kenya wishing to visit the northern neighbor.
Desalegn said a committee will be formed to link with Kenyan tour operators to formulate a co-operation deal as Ethiopia learns the tricks from the more advanced Kenyan tourism players.
The two countries have resolved to accelerate activation of trade agreements and find new areas of commercial co-operation as individual countries, regional bloc and corporate investments.
In the services sector, the Ethiopian leader said cities are in dire need of five-star hotels because currently one has to book a month in advance to get accommodation in Addis Ababa.
Ethiopia Permits Mobile Banking and Money Services
Ethiopia is one of the last countries in Africa to permit mobile banking.
Mobile banking has proved to be profitable in the developing world, where many people still do not use banks. Earlier this year, the World Bank reported that seventy-five percent of the world’s poor are “unbanked.” That is about two point five billion people. Banking through mobile telephones lets people take part in financial services even if they are not near a bank office.
In Africa, only Ethiopia and Zimbabwe do not provide mobile money services. Now, that will change for Ethiopia.
BelCash and M-Birr are mobile banking technology providers. They have been setting up mobile banking and mobile money services in Ethiopia for the past three years.
Dutch company BelCash is working in partnership with banks to provide easier access to financing through bank accounts. Ireland-based M-Birr is a mobile money service that works with micro finance groups where no registration at a bank is needed.
Ethiopia’s mobile industry is young. And wireless service coverage in the country is not well developed. The pressure on the wireless network is expected to increase.
In the past four years, the number of mobile users grew from three to seventeen million. And Ethiopia’s telecommunications provider, Ethio Telecom, expects that number to grow to forty million in the next three years.
The government closely controls Ethiopia’s telecommunications market. That means there is only one provider. Competition is not permitted.
M-Birr General Manager Thierry Artaud says Ethiopia’s neighbors have several mobile providers.
"If you look at your neighbors, Kenya, Tanzania Uganda, they all have multiple mobile operators and they all have mobile money services and even multiple mobile money services.”
He says, if Ethiopia had no restrictions, his company would have to compete with larger companies.
Ethiopia has looked at other developing countries with mobile banking. National Bank of Ethiopia officials visited Kenya, Pakistan and Brazil.
Frezer Ayalew is with the National Bank of Ethiopia. He says mobile banking services will help the country.
“For the economy it has great contribution in terms of mobilizing domestic savings with these services.”
The National Bank of Ethiopia recently finished a draft order on how mobile banking services should be structured. This comes as more companies have shown interest in starting mobile banking services.