By Muluken Yewondwossen
The tight stretch of hard currency forces government to become lenient on its stringent stance of giving guarantees to foreign financers.
As it stands, government is now seeking to expand its degree of flexibility regarding the foreign currency repatriation assurance that was only assigned to public private partnership (PPP) projects.
In the past, the government was reluctant to giving a guarantee to foreign financers excluding the public sector. But quite recently it has now decided to give an assurance for selected PPP projects on the consideration of their benefit.
In its latest law, the government has given a green light for more private sector investments to share the risk regarding the repatriation of foreign currency, which has become extremely short, visibly affecting the country economy including key sectors.
In a new directive that became effective as of September 8, 2023, the National Bank of Ethiopia (NBE), disclosed that it would give convertibility guarantee for FDI’s mega mining project.
Based on the NBE foreign currency guideline, the government was stated as to not give convertibility guarantee and based on the country law there wasn’t any similar assurance for the private sector investment either.
However, PPP projects that had reached their final stages to start operations were starting to face delays due to unexpected demands from financers, this then led government to change its mind and be considerate of convertibility guarantees.
One of the major reasons for companies and financers to demand for assurance was linked to hard currency shortages of the country faces, in addition to the northern Ethiopia conflict.
Officials from PPP Directorate General, which is under the Ministry of Finance (MoF), said that due to the reality on the ground, government had to give life to PPP projects, hence the degree of flexibility on the upcoming projects.
After undertaking massive studies and legal document developments through the Ministry of Finance (MoF), the government in 2018 enacted the PPP proclamation 1076/2018 which formalized private sector involvement through public projects for both parties mutual benefit.
Unfortunately, to date not a single project has come to fruition despite few projects coming close in the past few years.
One of the challenges to adopting the initiative has notably been with the foreign currency risk that the country faced in addition to a bad rep with the western partners, who sided against the government in connection to the northern Ethiopia conflict that erupted late 2020.
Companies, which had reached agreements with the government to engage in the energy development under the PPP framework pushed for convertibility guarantees at the pinnacle of the conflict which have since dialed down following a peace deal in November last year in South Africa.
The government cognizant of this gave some vital but selected projects to be supported by a convertibility guarantee.
Ahmed Shide, Minister of MoF, recently told parliament that the NBE board in whom he serves as member, has approved the currency convertibility guarantee for companies which invest on the PPP arrangement.
Experts in PPP Directorate General disclosed that the decision was passed to give a guarantee for projects that have big values for the country.
“The decision taken by the NBE board is a big step for PPP and has boosted the confidence of interested parties who want to invest on PPP arrangement,” they said.
On the ‘off-shore account opening and operations for strategic foreign direct investment (FDI) projects directive no. FXD/86/2023’ NBE has added mining sectors besides strategic PPP energy projects.
Experts said that this green light is because government has high demand to expand valuable mining projects, which are key sources of foreign currency.
Late July, Harry Anagnostaras-Adams, Executive Chairman of KEFI, a company which owns Tulu Kapi Gold Mines, a company working to develop gold mines at the western Ethiopia in eastern Wellega, said that there will be a new decision that his company is expectant of from the government’s side in September.
He also opined that the government may allow the company to open an offshore account, which experts stated as an alternative source of finance and an easier way for transactions, besides lower interest rate if accessed on credit.
On his nine month report in May Ahmed told parliament that on the implantation of PPP, companies are demanding some sort of arrangements in issues like foreign accounts in related to the project, “They are demanding freedom on financial transactions, particularly for their projects.”
He elaborated demands in connection with the foreign currency issues have been one of the concerns that were raised by PPP developers.
Based on that in May’s reporting, Ahmed explained that the NBE board had given a decision to provide support for the PPP investments “and strategic investments on the guarantee of repatriating their profits.”
“As per the decision to give convertibility and transferability guarantee, minor preconditions like debt equity ratio will be demanded for provision of the guarantee for companies who demand investment in PPP,” he said at the time.
Regarding debt to equity ratio the new directive that was signed by Mamo E. Mihretu, Governor of NBE, on its article 5.1 said that it may not exceed 80:20 of the foreign capital while on 5.2 article; it added that the board may give special approval in a case by case basis if the case was found to be acceptable.
In the FXD/82/2022 external loan and supplier’s credit directive that was issued in September last year, the ratio was 60:40 of the registered capital in business license.
“We hope that it will accelerate the PPP,” the Minister was said, adding, “In the future, we believe that the foreign currency issue will not be a concern but in the short term, we have decided to give the guarantee.”
The latest directive that become effective on September 8 stated that the directive is issued due to the need of creating a preferential and flexible environment in certain limited cases for the opening of offshore accounts, for currency convertibility guarantees, and for modified debt to equity ratios in the case of strategic foreign investments.
It added that it had been found necessary by NBE to set separate legal procedures pertaining to these subject matters with a view to support the attainment of the aforementioned strategic objectives.
The directive indicated that a PPP projects in the power generation and infrastructure sector had been largely capital investment needs. Large mining projects with a substantial export earning potential were also stated as eligible to open an offshore account to deposit the proceeds from their equity and loan financing sources.
The directive now gives the same privilege for any other strategic FDI project deemed eligible to qualify for such treatment by the NBE executive management, considering among others their special significance and contribution in terms of size, job creation, import substitute, foreign exchange inflows, technology transfer, or sector specific impact.
It added that the eligible payments that can be covered from the offshore account are external debt service, including any debt service reserve account. It added that insurance, contractor, and other warranty claims in foreign exchange, and capital or investment expenses besides maintenance and operation expenses.
Regarding foreign currency convertibility guarantee, the directive article six sub article one stated that the guarantee shall only apply to strategic PPP energy and mining sector projects for loan repayment and dividend repatriation, and only after the project owner has exhausted all means to purchase foreign exchange from banks.
Aman and Partners LLB, a law firm based in Addis Ababa, commented that the enacted directive allow certain strategic investment projects preferential treatment to open offshore accounts, to provide convertibility guarantees and to benefit from an increased debt-to-equity ratio.
“The offshore accounts are destined for settling limited but necessary payments. The Directive further allows an increased debt-to-equity ratio of 80:20 with a caveat that the board of the NBE could even consider special approval for a higher ratio,” the law firm said on its comment sent to Capital, “Also, the regime for the highly anticipated foreign currency convertibility guarantee has been introduced only for loan repayment and dividend repatriations for ‘strategic PPP projects in the energy and mining sector’ although such convertibility guarantee will apply to the extent such repayments/repatriation do not take precedence over servicing of the nation’s sovereign debt and following proof that the investor has exhausted all means to purchase foreign exchange from banks.”
“While we aim to revisit in detail the practical application of this reform, it is not clear whether domestic investors are being intentionally excluded despite their potential to invest in strategic projects,” read the comments.
“In addition, the extent to which the convertibility guarantee will promote investment is dependent on its practicality as the nation’s priority to service sovereign loans could result in de-prioritization of private investor’s request for exercising their convertibility guarantee rights,” it added.
In the past budget year, four PPP projects were targeted to be floated and so far on a special condition through the government to government (G2G) approach, two energy projects are under negotiations.
According to Ahmed, AMEA Power of Dubai, UAE is under discussions with the government to make moves on a significant energy project.
The negotiation is focused on the Aysha Wind Farm I project in Somali region to generate 300MW, and as Ahmed describes, “The one to one negotiations have been completed to about 90 percent and the only pending issues to be put to bed are tariffs which will soon be finalized.”
Similarly on another G2G approach with MASDAR, an Abu Dhabi based state company, discussions are underway to generate 500MW of solar energy in projects situated in Somali and Afar regions.
The government said that reforms will attract investments on energy particularly geothermal, solar and wind that will go a long way to help our energy mix.
In the 2022/23 budget year, parliament also amended the PPP proclamation on the aim to award projects through a direct negotiation manner besides the open bidding process. As experts in the PPP Directorate General express, the move has also increased the interest of potential investors.

By Muluken Yewondwossen
As pressure piles for the expansion and further investment push for one of the most profitable public enterprises, the Ethiopian Shipping and Logistics (ESL), the logistics powerhouse now aims to boost its capital by four folds, Capital has learnt.
While reviewing the company’s annual report a few weeks ago, Berisso Amallo, CEO of ESL, hinted that capital expansion was an area that the firm was looking into, but did however restrain from giving further information on the matter.
As he explained to Capital, the firm has been evolving by automating its financial reporting through the enterprise resource planning (ERP), which was a priority to table the capital increment proposal to the relevant body, Ethiopian Investment Holdings (EIH) which is a sovereign wealth fund that was formed late 2021, managing a selected 26 state owned enterprises.
Despite the enterprise having planned to expand its capital a few years back, the situation did not allow it to materialize.
Since the ESL’s paid up capital surpassed 20 billion birr about two years ago with its assets accumulating significantly, the ESL management demanded for the capital increment. Nonetheless, some pre conditions still had to be met.
For instance sources close to the issue said that matters regarding reporting issues were raised for further action.
As Berisso informed Capital on the matter, his enterprise has now closed its report under the ERP system for the years including from 2019/20 to 2021/22, “We have closed our accounting report including the backlogs with the ERP system and have sent the same to an external auditor.”
“For our capital increment, the automated financial report was crucial and we were keen on that and have delivered on it. We are waiting for the response from the upper body for the go ahead for our capital increment,” the CEO explained.
Sources said that the enterprise has proposed to uplift its capital to 90 billion birr from the current 20 billion birr.
However, the final decision is up to EIH.
“As per the usual trend, we expect the capital to increase at least by four folds, that is, if the upper body does not approve the proposed amount,” they said. So at the bare minimum, ESL’s capital may reach 80 billion birr.
At the end of the 2021/22 budget year, ESL had disclosed that its capital had reached 64.85 billion birr, while it was not officially registered on its status.
It has also engaged on 50 ongoing projects that were carried out in the past years and of that 40 have been accomplished.
In the 2022/23 budget year it has also increased its trucks by 185 to reach to over 600.
Similarly in the stated period it had possessed 30 reefer containers, which is a first for the logistics player to have reefers. It also swapped two tankers for an ultramax.
The only deep-sea vessel operator in the continent is currently almost free from any local or foreign liability burden which allows it to target aggressive expansion in the years to come.
In the coming years, ESL has designed to be involved in massive investments including expanding its vessels with different purpose containers, trucks, and ports and terminals positon.
Regarding revenue, the enterprise is also expanding aggressively besides generating significant foreign currency from its promising cross trade business. One of the major pillars that ESL targets to expand is the cross trade business by volume and number of destinations, which needs substantial investment particularly on its vessel position with diversity and container.
In the budget year that will end early next July, ESL has targeted to secure over 6.7 billion birr profit before tax which is a 10.5 percent increment compared with the 2022/23 budget year.

By our staff reporter
Djibouti inaugurates its first ever green energy, maiden wind farm of the 60 MW Red Sea Power (RSP) that is expected to boost the country’s free trade zone development.
The project near Lake Goubet is linked to boost the overall capacity by 50 percent while averting 252,500 tonnes of CO2 emissions annually.
As revealed, the first significant international investment in the energy sector in Djibouti, the USD122 million project, which was inaugurated by President Ismaïl Omar Guelleh will create the country’s first Independent Power Producer (IPP) further setting a template for further private investment.
The investors responsible for the said project are now mulling an additional capacity of 45 MW of renewable energy.
For this complex project, the consortium of investors behind RSP include; Africa Finance Corporation (AFC), the Dutch entrepreneurial development bank FMO, blended finance fund manager Climate Fund Managers (CFM) and Great Horn Investment Holding (GHIH), an investment firm owned by a unit of the Djibouti Ports and Free Zones Authority.
Until now, Djibouti has been entirely reliant on power generated from fossil fuels, as well as hydro generated power imported from neighbouring Ethiopia. Critically for the East African nation, the new clean energy will spur industrialization, job creation and economic stability as Djibouti seeks to take advantage of its strategic location as a global transshipment hub.
With its extensive coastline and dedicated port facilities positioned strategically along the Red Sea and the Gulf of Aden, Djibouti has a central role to play in the global energy market.
The country has enough wind, solar and geothermal resources to triple existing capacity to at least 300MW. Leveraging its seaports to diversify the economy, Djibouti set out to build an industrial zone in 2017, sparking preliminary discussions on boosting energy capacity. The consortium for the wind farm was formed in 2018 and subsequently provided all-equity construction bridge financing via AFC, FMO, CFM’s Climate Investor One fund, and GHIH, which propelled the project to achieve financial close in a record 22 months. Construction kicked off in January 2020 and continued at pace despite the global supply challenges caused by Covid-era lockdowns.
The site’s 17 Siemens turbines each produce 3.4 MW, served by a robust 220 megavolt amperes (MVA) substation and connected by a 5km overhead transmission line to the local grid operator.
The electricity generated is to be sold under a long-term power purchase agreement to Electricité de Djibouti (EDD), the national state-owned utility. Using the project as a template for future IPPs, the Government of Djibouti is already working on several other plants for additional geothermal and solar capacity.
The project stands out as a demonstration of the use of innovative equity financing to accelerate development impact through de-risking, while showcasing the commercial viability of transformative projects in Africa, thereby crowding-in diverse capital sources, and enabling replication of similar projects at reduced financing costs.
EDD’s payment obligations under the power purchase agreement (PPA) were backed by a government guarantee, and in turn the government’s obligations were also backed by political risk cover provided by the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
“Djibouti has abundant renewable resources for sustainable and clean energy production,” said Aboubaker Omar Hadi, Chairman of GHIH, adding, “Our aim is to be the first country in Africa to be 100 percent reliant on green energy by 2035. Investment in renewable energy infrastructure is the key to enabling our ambitions, and the inauguration of the groundbreaking Red Sea Power wind farm today is a major milestone. A reliable and cost-effective energy solution is vital to drive Djibouti’s infrastructure growth. With the development of Industrial Free Zones projects, we estimate that the country faces a projected demand of 3700 MW in the next decade. Tapping into renewable resources like solar, geothermal, wind and tidal is crucial to bridge this gap.”
Francois Maze, CEO of Red Sea Power, in accordance said, “Access to electricity is vital for business growth, job creation, education, healthcare, social services, and infrastructure. In a country currently served entirely by fossil fuels and electricity imports, large-scale renewable energy solutions are urgently needed to mitigate and increase resilience to climate change. Today’s inauguration is an important milestone in Djibouti’s aim to be entirely served by renewable energy sources by 2035.”
In addition to the new wind farm, the Red Sea Power partners have built a solar-powered desalination plant that was also inaugurated today. The plant will provide drinking water to villages near the farm. Some parts of Djibouti are currently experiencing a major national water crisis, with 20 percent of rural areas lacking access to clean water. Many households have insufficient water to meet basic needs, particularly during the dry season, resulting in widespread loss of livelihoods and income.
AFC holds a 51 percent majority stake in RSP; FMO and CIO of Climate Fund Managers hold 19.5 percent each while GIHH holds 10 percent.