Kacha, a digital finance service provider in Ethiopia, has officially commenced operations after receiving the first personal payment document from the National Bank. Kacha Digital Financial Service obtained its trial license from the National Bank in June 2022 and has been conducting trial applications using different levels and service options.
Having successfully collaborated with various banks and mobile money transfer service providers, Kacha has now received permission from the National Bank of Ethiopia to launch its services at full capacity. The company’s application and services launch program encompass a range of digital finance offerings, including money transfers, loans, cardless ATM withdrawals, and an international remittance system.
To solidify partnerships, Kacha recently held a signing ceremony with various banks, microfinance institutions, and other strategic partners. Additionally, the company has established collaborations with international remittance providers to facilitate secure foreign remittances. Kacha emphasizes the development of a system that grants both senders and receivers access to additional financial services.
During the inaugural World Economic Outlook (WEO) presentation event in Africa at the National Bank of Ethiopia (NBE), the International Monetary Fund (IMF) provided insights into Ethiopia’s economic prospects and challenges. The presentation, led by Tobias Rasmussen, the Resident Representative, Jean-Marc Natal, the Deputy Chief of the WEO Division, and Martin Stuemer, the Economist of the Commodities Unit, showcased the report’s findings released in conjunction with the joint annual event with the World Bank in Marrakesh, Morocco.
The presentation shed light on Ethiopia’s economic conditions, regional dynamics, and global trends. Rasmussen acknowledged Ethiopia’s significant economic progress while emphasizing the need to overcome remaining obstacles. The country has been experiencing robust and steady growth at a rate of approximately 6 percent, with projections indicating that this growth trajectory will continue. IMF forecasts estimate that Ethiopia’s GDP will increase by 6.1 percent this year and 6.2 percent in 2024, surpassing global and regional growth rates.
Rasmussen also highlighted a notable disparity in growth rates between oil-importing and oil-exporting nations, suggesting that greater diversification leads to more resilient economies. In this context, Ethiopia has outperformed even among oil-importing countries, which further underscores the positive trajectory of its economy.
However, the WEO report indicates that 2023 has been a challenging year for economic activity in sub-Saharan Africa. Global inflationary shocks resulting from Russia’s war in Ukraine have led to higher interest rates globally, resulting in reduced global demand, increased spreads, and persistent pressure on currency values. As a result, growth in the region is expected to decline for the second consecutive year, from 4 percent to 3.3 percent in 2023, with a projected recovery to 4 percent in the following year.
According to the estimates, sub-Saharan oil-importing nations are predicted to experience growth rates of 3.7 percent and 4.5 percent in 2023 and 2024, respectively, while oil-exporting countries are expected to see growth rates of 2.6 percent and 3.1 percent in the same period.
In terms of fiscal management, Ethiopia has exhibited a more significant decline in government deficits and public debt compared to the rest of the region. Rasmussen highlighted a sharp reduction in the ratio of public debt to GDP, projecting a decline from 54 percent in 2021 to 37.9 percent in 2023, with further reduction to 31.2 percent anticipated in the coming year. This reduction has been achieved through measures such as identifying external debt and addressing funding and debt challenges. The external debt has decreased from 29.1 percent of GDP in 2021 to 17.9 percent in 2023. Additionally, the current account deficit is expected to decline from 4.3 percent in 2022 to 2.4 percent in 2023.
However, the IMF report highlights certain difficulties. While inflation has somewhat decreased, average annual inflation rates remain high. The government’s declining revenue poses budgetary challenges, particularly in the context of ongoing fiscal consolidation. The IMF report indicates a decrease in government revenue to 7.7 percent in 2023, compared to 8.5 percent in 2022 and 11 percent in 2021.
Apart from inflation and declining government revenue, Ethiopia faces other economic challenges, including a decline in exports and limited foreign reserves equivalent to less than one month’s imports. NBE Governor Mamo E. Mihretu, who attended the WEO presentation, expressed concerns about the impact of inflation and global economic issues on Ethiopia’s economic progress.
The IMF predicts that macroeconomic imbalances in sub-Saharan Africa are improving, with declining inflation rates and efforts to establish more sustainable state finances. However, uncertainties persist, and development may be hindered by stalled reform initiatives, increased political unrest, and external risks such as China’s economic downturn. The region continues to face challenges, including high inflation rates in many countries, exchange rate pressures, elevated debt vulnerabilities, and widening economic disparities, particularly in resource-intensive nations.
The WEO event held in Addis Ababa on October 20 marks a significant milestone as the first of its kind in Africa, according to IMF experts.
Omnia Business and Leisure Travel and Wennovate Consult, in Partnership with the Indonesian diplomatic mission in Addis Ababa provide conducive ways for participants to join two major events that will be held in the well-known Islamic financing and halal business global hub.
The two companies that have been engaged on facilitating different business oriented tours disclosed that they have facilitated for the business community in Ethiopia to tap into the knowledge and experience disclosed this time around, which they developed to boost the growing business environment from the well accepted events that will be held in Indonesia this month.
In the statement sent to Capital, they are set to elevate the Trade Expo Indonesia 2023 and Halal Expo Indonesia 2023, “This two significant events will open doors for businesses, foster international collaborations, and promote cultural understanding.”
The 38th Trade Expo Indonesia (TEI) is slated to be held at the Indonesia Convention Exhibition BSD Tangerang, from October 18 to 22, 2023. TEI is the largest international B2B-focused hybrid trade show in Indonesia, expected to attract over 100,000 visitors from across 100 countries. The event will showcase a diverse range of products and services across seven categories.
It is stated that TEI is an opportunity for businesses to connect, learn, and explore and will feature special programs such as business matching sessions, seminars, and workshops.
Halal Expo Indonesia which will be held from October 25 to 29 is also the largest B2B Halal Exhibition and Conference in Indonesia, poised to attract over 50,000 visitors from more than 50 countries. The exhibition will showcase a wide array of products and services from the realm of halal industries, including Islamic finance and banking.
In an effort to alleviate Ethiopia’s debt burden, the Chinese leader has instructed to expedite debt restructuring negotiations with Ethiopian government entities. This directive comes after the leaders of China and Ethiopia decided to postpone Ethiopia’s debt service payment for the budget year during their meeting at the BRICS Summit in South Africa. This payment accounts for approximately two-thirds of Ethiopia’s total payment for the year.
During a side event at the Belt and Road Forum in Beijing, Chinese President Xi Jinping and Prime Minister Abiy Ahmed discussed the national debt load and the development cooperation between their nations. According to Ahmed Shide, the Minister of Finance, several agreements were reached to accelerate collaboration between China and Ethiopia. In addition to their existing comprehensive strategic alliance, the leaders have decided to broaden their cooperation to include security cooperation. Minister Shide also noted that President Jinping responded positively to efforts aimed at reducing the debt burden, instructing Chinese financial institutions to finalize negotiations with the Ministry of Finance for debt relief and restructuring. Furthermore, the Chinese leader authorized the continuation of project financing using Chinese funding.
Given its significant debt burden, Ethiopia primarily seeks relief and rescheduling from its bilateral partners. In February 2021, Ethiopia submitted an application for the G20 Common Framework (CF) to pursue debt restructuring. As the first country to make such a request under the G20 communiqué from November 2020, which included new lenders like China, India, and Gulf nations in addition to the established Paris Club lenders, Ethiopia is awaiting a resolution.
Additionally, Ethiopia has sought funding from the International Monetary Fund (IMF) to support its economic growth. Julie Kozack, the Director of the IMF’s Department of Communication, acknowledged Ethiopia’s challenges, including the impact of the pandemic, internal conflicts, prolonged droughts, and the repercussions of the Russia-Ukraine war. Kozack stated that the IMF had received a request for financial assistance to address these challenges, which encompass food insecurity, humanitarian needs, post-conflict reconstruction, high inflation, foreign exchange shortages, and imported goods scarcity.
Reports indicate that Ethiopia has requested around USD 2 billion in funding from the IMF to support its Home Grown Economic Reform II. The IMF has expressed its reliance on Ethiopia’s allies and financiers to provide the necessary backing and guarantees for the release of the requested funds. Consequently, Ethiopia is under urgent pressure to restructure its debt and secure further IMF funding.
The delay in addressing Ethiopia’s request can be attributed to factors such as the violence in northern Ethiopia, pressure from Western partners, and a lack of interest from other lenders who were monitoring the circumstances of Western partners. Currently, a creditors committee led by China and France is overseeing the finalization of Ethiopia’s debt restructuring request.
According to Minister Ahmed, Ethiopia stands to benefit significantly from China’s ongoing efforts to restructure its debt with Chinese lenders. Approximately one-third of Ethiopia’s foreign debt, which amounts to around USD 28 billion, is owed to China. The most recent debt report from the Ministry of Finance reveals that the majority of Ethiopia’s debt service payments have been made to Chinese lenders. In the 2022/23 budget year, nearly USD 300 million was paid to Chinese lenders, while payments to private creditors with or without government guarantees are not included in this figure.
The debt service payment to private creditors in the budget year amounted to USD 768.2 million, which includes suppliers and commercial banks. Within this sum, USD 154 million was allocated for commissions and interest. Despite Ethiopian Airlines receiving substantial credit from Western commercial banks, analysts assert that the Chinese lenders hold a significant portion of this amount. Ethiopia has borrowed substantial sums from Chinese financial institutions, particularly the Exim Bank, on a non-concessional basis, particularly in the latter half of the millennium. The primary creditors of commercial loans include the China Development Bank, Industrial and Commercial Bank of China, and the non-concessional division of the Exim Bank of China.
