Alazar Kebede
Recent socioeconomic progress in Africa has occurred in the context of ubiquitous information and communications technologies (ICTs). According to the International Telecommunication Union 2020 data, 67 percent of African population, estimated to be about 1.13 billion, now has mobile phones and 26.5 percent are now using the Internet. Policymakers and African development partners foresee a lot of possibilities in the opportunities made available by ICTs in the continent’s effort to stem widespread poverty and in the role of small and medium-sized enterprises (SMEs) in that effort. In this context, over the last decade, African countries placed high priority on the development and implementation of national ICT policies and plans.
According to the United Nations Conference on Trade and Development (UNCTAD), SMEs account for 60 to 70 per cent of all employment in developing countries, and hence contribute to poverty reduction. In this regard, many countries in Africa have given high priority to the growth of SMEs. Kenya, for instance, released a major strategic plan, known as Vision 2030, in which ICTs and SMEs have been identified as major driving forces for its realisation. Similarly, Ethiopia, in its digitization plan has given top priority to micro and small enterprises, targeting to create employment opportunities for more than three million people and aiming to boost access to ICTs.
In recent years, the role of SMEs in economic development has grown in importance in Africa as the continent’s economic transformation gained momentum. Many countries are directing their strategic development towards industrialization through the growth of the local SME sector. The importance of SMEs in development and poverty reduction cannot be over emphasised.
According to UNCTAD recent data, these enterprises represent 99 per cent of all firms in developing countries, as well as play a significant role in creating employment opportunities. Another key factor supporting the need to focus on SMEs is that they tend to adapt more easily to technology compared to large enterprises. The adaption process in large enterprises is often slowed by a bureaucracy and a stricter hierarchy involved in making decisions. When SMEs are able to see the added benefits of using ICTs, they are more willing to adapt their businesses strategies.
The results of two e-commerce readiness assessments carried out in the Gambia and in Ethiopia under the Economic Commission of Africa (ECA) strengthen this proposition. Both studies suggest that there is general awareness of the potential in using the Internet for commerce among SMEs. Furthermore, due to widespread coverage and use of mobile phones, mobile commerce now provides more opportunities for SMEs, especially in rural areas.
For example, a study found that after remote communities in Uganda were provided with access to a mobile network, the share of bananas sold rose from 50 to 69 per cent of the crop. Established by TradeNet, Esoko, a company in Ghana, provides a mobile and web-enabled repository of current market prices and a platform to enable buyers and sellers to make offers and connect to one another. The World Bank report revealed that in this regard, a recent study of farmers with small landholdings in northern Ghana found that farmers had experienced a 10 per cent increase in revenue after they began receiving market prices from Esoko in the form of a short message service (SMS).
Goldman Sachs reported that globally, e-commerce sales are growing more than 19 per cent a year. Compared to large enterprises, SMEs have a low share of the global e-commerce market, however, they are increasingly adapting to the growing technological revolution and benefiting from the global online market.
E-commerce involves the sale or purchase of goods and services by businesses (business to business), individuals (business to consumer), governments (business to government) or other organizations, and is conducted over computer networks. It builds on traditional commerce by adding the flexibility and speed offered by electronic communications. This can facilitate efforts to enhance operations that lead to substantial cost savings, as well as increased competitiveness and efficiency through the redesign of traditional business methods.
Different studies indicated that both SMEs and large businesses have benefited from the adoption of e-commerce. Such benefits, inter alia, includes lower transaction costs; reduction in advertising and promotion costs; rapid communication between buyers and sellers; ability to reach new customers; shortening the traditional supply chains, including minimising transport obstacles and reducing delivery costs; and eliminating physical limitation of time and space. Empirical research shows that small enterprises that adopt e-commerce perform better than those that do not adopt it due to e-commerce’s catalytic effect on business performances.
There are several explanations for the slow diffusion of e-commerce in developing countries, in general, and in Africa, in particular. Economic Commission of Africa (ECA)-supported e-commerce readiness studies conducted in Ethiopia and in the Gambia, as well as other studies undertaken across the continent, broadly identify similar challenges pertaining to growth of e-commerce in Africa.
Affordable ICT infrastructure, particularly the Internet and broadband, is one of the key factors affecting the growth of e-commerce. Digital literacy among consumers and businesses in terms of computer literacy, language barriers, awareness of e-commerce benefits, lack of confidence and security in online transactions, including lack of a skilled workforce in e-commerce enterprises, are common in many countries. Limited delivery and distribution networks (physical transportation), in both Ethiopia and the Gambia, and the absence of proper street addressing and naming were raised as areas of concern in delivery.
Systems related to electronic payment, branding/recognition, and the issue of tracking, monitoring and taxation systems are also some of the challenges that affect the online transaction process. Legal frameworks to build security and trust are common issues that both consumers and businesses find difficult in adapting e-commerce as their business strategic tool. Ensuring legal and regulatory environments are critical for the complete functioning of e-commerce in a country.
Many SMEs have benefited from ICTs in their day-to-day business activities, including experiencing gains in enhanced productivity. However, due to lack and cost of access to Internet connectivity, many SMEs are not always tapping the full potential of the Internet. Furthermore, high-quality and reliable e-commerce requires advanced telecom services, such as broadband and mobile broadband services, at affordable prices to consumers.
Thus, governments and other partners need to take advantage of the opportunities that are emerging in the use of the new ICT landscape, particularly in innovations in mobile applications. Governments need to ensure that SMEs benefit not only from being connected to the Internet but also from any technological evolution that can increase the speed of data flows and can help reduce costs to consumers. Furthermore, much of the support to e-commerce depends on putting in place the right infrastructure, regulations and policies for e-commerce to thrive. In this regard, the role of government and the private sector is of paramount importance in realising this. Finally, a critical mass of workers with ICT skills is crucial for the further development of e-commerce and mobile applications. In this regard, governments can play an important role in ensuring that the education systems provide training of the necessary skills for building a viable digital economy.
E-Commerce And Small And Medium-Sized Enterprises
ESL receives green light to diversify
By Muluken Yewondwossen
The state owned and only deep sea vessel operator in the continent, Ethiopian Shipping and Logistics (ESL), receives the go ahead by its board of directors chaired by the Finance Minister, Ahmed Shide, to diversify in massive investments.
The company that shouldered debt to its Chinese creditors up until the end of the 2021/22 budget year due to finances for the construction of nine vessels that were delivered about 12 years ago is now clear of any significant debt particularly from foreign creditors.
As a result of cleared debt, ESL has now been able to stand on solid grounds and it is now capitalizing on its status to engage in profitable investments. For instance, in the past budget year, the company was able to swap its two tankers with a more suitable ultramax dry bulk carrier.
Similarly, it has made moves to order the construction of brand new two big vessels and is now waiting to finalize the process of foreign currency approval from central bank.
According to the information that Capital obtained from ESL, in the budget year that started early July, the board of directors of ESL have approved the management’s proposal for the involvement of massive investments to boost the capability and competitiveness in the global market for the logistics firm.
Wondimu Denbu, Deputy CEO for Corporate Service at ESL, told Capital that the board has accepted to expand the vessel ownership with different specialized services including new business ventures like ferry service.
As he explained, as per the approval, ESL will order two brand new ultramax dry bulk carriers with over 63,000 DWT, the construction of two multipurpose vessels; one used container vessel and ferry, which mainly carry passengers and their cargos like vehicles besides some portion of other cargos. The ferries will be based on Lake Tana.
Wondimu added that the board has also allowed the enterprise to expand its position on containers ownership which was recently expanded to tackle COVID 19 related challenges that hampered the logistics sector globally.
“We will expand our TEU and forty feet container position besides securing additional reefer containers, which is a cold box that helps to transport perishable cargo,” the Deputy CEO added.
In the 2022/23 budget year, ESL possessed its first 30 reefer containers that cost almost a million dollars.
ESL has also plans to add 150 trucks to hit the inland transport that currently has a fleet of 570 with 185 tracks joining the freight business in the past budget year.
In the previous financial year, ESL had floated an international bid to which it selected a Chinese company to build two ultramax vessels. The case has however been delayed due to approval slowdown from the National Bank of Ethiopia, because of high amounts of foreign currency, to which the central bank is stretched.
Berisso Amallo, CEO of ESL, told Capital that his enterprise is hopeful to get a permit very soon from the central bank to access the first installment to commence the building of the new vessels.
As per the plan, the state owned financial giant, Commercial Bank of Ethiopia (CBE), will facilitate 70 percent of the required fund for the procurement of the two vessels in a process that is said to take over two years.
“We will cover the 30 percent and CBE will facilitate the remainder as a loan if we shall get foreign currency,” Wondimu recently told Capital. The company, which is now expanding its cross trade, is one of the major foreign currency generators for a public enterprise.
As ESL officials indicated, the payment will be concluded in five installments with 20 percent each. As per the framework agreement, the initial payment will be concluded when the contract is signed and the balance will be divided on steel cutting, keel-laying, launching and delivery.
About 12 years ago the successful logistics enterprise had embarked to purchase nine vessels including two tankers at a total price tag of USD293.5million courtesy of a loan backing from the Export Import (EXIM) Bank of China.
When the seven 28,000 DWT multi-purpose vessels were built they cost USD 32.5 million each while the two oil tankers price points were USD 37 million each.
Recently, Wondwossen Kassa (Cap), Deputy CEO for the Shipping Sector at ESL, told Capital that the logistics mammoth plans to boost its foreign currency generation by six folds from cross trade, as well as expand its carrying capacity by 3.6 folds and containers ownership by 7.7 folds.
ESL is one of the known handy size multipurpose (MPP) operator in the shipping market and has a plan to acquire four 62,000metric tons MPP vessels in the coming 5 years. Such acquisitions will further consolidate ESL’s position as MPP operator in the international market.
“Considering the fast changing local, regional and international realities, ESL believes its container carrying capacity and connectivity should be enhanced in the coming years,” Wondwossen underscored.
Ethiopia joins BRICS, China gives 1-year debt service relief
By Muluken Yewondwossen
Ethiopia will get at least a fourth of its debt service for a year as per the deal that the Chinese and Ethiopian leaders agreed upon in the sideline meeting of Pretoria’s BRICS summit.
In his congratulation address, PM Abiy Ahmed hailed Ethiopia’s selection as one of the six countries to join BRICS and appreciated the Chinese leadership for the pledge to pause debt service for one year.
As the PM indicated, until a total debt restructure is emplaced, the Chinese President Xi Jinping has given a one year debt service relief, which is a great outcome for Ethiopia.
Over the past one and a half decade, China has been Ethiopia’s major source of finance through concessional and commercial loans. While the repayments have started to take shape in the past few years, the government has felt the weight of allocation of huge amounts on its budget portion for external debt service.
The growing service continues to be a thorn in the flesh for the government as the debt is paid in foreign currency, to which the country is highly in short of.
Cognizant of this, Ethiopia was a pioneer at requesting for a debt treatment under the Common Framework (CF), a framework that aimed to address the problem of unsustainable debts faced by many countries in the aftermath of the Covid19 pandemic. This agreement included all members of the G20 and the Paris Club.
Despite Ethiopia’s request being tabled in early 2021, the debt rework under CF is still under discussions with development partners to which the response is mainly expected from big financers like China.
As per the debt service information from the Ministry of Finance (MoF), Ethiopia repaid almost USD 1.245 billion to its creditors in the nine months of the 2022/23 budget year of which the principal was USD 947 million whilst the remainder was allocated to commission and interest.
As indicated by the MoF report, the debt service that was settled in the first three quarters of the past budget year that ended in June 30 was mainly channeled to Chinese financers.
In the first three quarters of the last budget year, Ethiopia’s public sector external debt service was USD 298.54 million, in total, to the Chinese financial institutions but the figure was not inclusive of payments for the government guaranteed private creditors as well as the non-government guarantees.
Of the stated service amount, USD 215.3 million was principal and the balance was commission and interest payments. Ethiopia mainly uses Exim Bank of China, Industrial and Construction Bank of China and China Development Bank as its financier. It has taken huge amounts of non-concessional loan from Chinese financial institutions including the Exim bank particularly in the second decade of the millennium.
The payment that went to China took 24 percent of the total service that was settled in the three quarters of the 2022/23 budget year.
For the coming two years, it is expected that Ethiopia will be on a high burden with regards to debt service since some other huge payments like USD one billion birr and Euro Bond repayment period is closed.
As a result, experts cite that the government has been highly demanding for a debt rework, to get some sort of relief, not only to channel the resources for other development projects, but also to ease the foreign currency shortage.
Wass Insurance commences share sales to bridge health insurance gap
By our staff reporter
Specialized insurers comprising individuals, medical experts and companies unite through an under formation to provide health coverage, which has become unaffordable for the general public.
Despite the insurance sector being re-liberalized in the mid 90s, the sector has highly been dominated by the nonlife insurance business which is in contrast to the insurance industry business globally.
To bridge this gap, a group of individuals and those close to the health business are under formation to develop an insurance firm called Wass Insurance.
According to the organizers, Ethiopia is one of the bottom five countries in terms of health expenditure per capita in the world.
“To change this narrative and trend, prominent health professionals are working to establish an exclusive insurance company that will support the sector and the public in general,” the organizers said.
The under formation insurance firm that secured a green light from the National Bank of Ethiopia (NBE) a year ago to offer public shares has disclosed that it has begun its share offer early this week, courtesy of a ceremony held at Inter Luxury Hotel.
According to the organizers that have 159 founding members at the current stage, the company offered 293.3 million birr in subscribed capital and is expected to commence its operations with 76.8 million birr.
Private health facilities, pharmacies and health equipment importers are part of the founding organizers.
As per the plan, the new insurance company is expected to conclude the share sales in the near future.
Our service will fully focus on health insurance coverage, which is almost nil at the moment.
“Currently, health expenses are shooting up and it is becoming unaffordable for almost everyone. The backing of the sector by health insurance it is a big relief,” experts said.
According to the under formation company, its major priority will be health insurance.
As experts opined, even through the sector has insurance companies providing life insurance, the sector is not properly promoted, “This has also resulted in lack of knowledge in the sector as well poor public awareness which direly needs to be worked on.”
“Companies like Wass are vital and timely to cut challenges on covers of health expenses, since the sector has become very expensive,” they added.
Experts said that if the health insurance registers growth, it will go hand in hand in improving health related services.
