National Bank of Ethiopia (NBE) and Ministry of Finance (MoF) are looking into alternative tools to combat the macroeconomic situation in the country against the traditional tight fiscal and monetary policy instruments.
In his latest appearance at parliament, Yinager Dessie, Governor of NBE, underlined that; foreign currency shortage, inflow reduction of official and non-official remittance, slowdown of some export items like gold, instability and logistics, the value of external debt service increment, inflationary behavior as internal issue and Ukraine-Russia conflict and price hike on some strategic commodities like petroleum is affecting the economy.
To ensure economic stability the governor pointed out that the central bank and MoF had geared for tight monetary and fiscal instruments which however were difficult to implement, “Imposing tight monetary and fiscal policies has become unfeasible due to the reality on the ground.”
“The internal and external situational pressures have made it difficult to introduce controlling instruments in monetary and fiscal policy,” he added.
In most cases, NBE is responsible to introduce monetary policies to mitigate pressures in the economy. For instance it has recently introduced the establishment and operation of treasury bonds through directive no. MFAD/TRBO.001/2022.
Based on the new directive banks will now buy the treasury bonds at 20 percent of fresh loan disbursement.
According to the new directive that has become effective as of November 1, 2022, every month each bank shall notify NBE in writing its own respective allotment amount within ten days after the end of the reference month with the applications ratio for the allotment being 20 percent of disbursement.
The interest rate for each treasury bond shall be two percentage points higher than the minimum saving deposit rate, which is seven percent. The bonds shall have a maturity period of five years but the government will pay interest accrued on the bonds on annual basis.
Similarly, MoF is expected to impose fiscal policy instruments like tax issues to manage the economy including duty free schemes for some basic commodities and even allow the Franco Valuta modality to import commodities like edible oil and infant foods.
The finance Ministry has also allowed importers to not mention the hard currency source when importing basic commodities through Franco Valuta.
However the effect on the market is not perceptibly successful with regards to price reduction, even though some commodities shall be available in the shops shelves through the initiative that MoF introduced in the past budget year.
“Now we are responsively discussing with MoF to come up with alternative instruments to introduce a mitigation mechanism to tackle challenges that face the economy,” the governor said on his quarterly report to the Plan, Budget and Finance Affairs Standing Committee at parliament.
Since the conflict in northern Ethiopia erupted, foreign partners particularly western countries and organizations have pressurized the government in different schemes including holding approved foreign grants and loans. In contrast, the government has been committed to settle its debt service even though the inflow was lower which made government to allocate significant amount of foreign currency for debt service.
The overall amount of foreign financing disbursed over the last one year (2021/22 budget year) was much less than what it was over the previous 4 years.
Despite the challenges, Yinager pointed out that positive results have been realized in agricultural productivity which slightly contributed to ease the burden in the economy.
“The new intuitive introduced by the government on agricultural productivity has contributed to mitigate the economic pressure to some extent but we have to expand it in other areas to narrow the demand and supply gap,” he said.
He called other regulatory bodies and regional administrations to work strongly in connection to production and productivity in every aspect including agriculture sector which is pivotal in supporting the monetary and fiscal policy.
NBE, Finance Ministry gear dynamic approach to counter economic turmoil
Cement shortage stifles the market
No foreseeable silver bullet to rescue the situation
Shortage of cement hits the market hard as factories production go down.
Retailers in the city, contractors and builders shed light on heavy concerns to access cement even at twice its rate.
Contractors who are involved in different sized projects alarmed that they are engaged on building the backbone of the economy yet they face the hurdle of accessing cement.
“In recent times we have been buying cement at double the rate from distributors,” they explained their claim to Capital adding, “It is becoming more difficult to get cement at even higher pricing as there is a shortage of cement in the whole market.”
In the past months staffs that have links with the marketing and distribution have been twisting the access for their benefit, hacking the system and as a result have reaped the benefits of selling twice the original amount. Currently cement shops in over the city are sitting empty as lack of product becomes widespread.
The country’s production capacity at around 12Mt/yr. This compares to 15Mt/yr from 13 companies as reported by a local news source although this figure is likely to also include grinding plants. Yet the same source also placed the actual working capacity at 6Mt/yr due to old machinery and poor maintenance.
Unfortunately it also mentioned issues with security in the country reducing the overall production and became a live issue a few weeks ago with news that at least 30 employees of Dangote Cement were reportedly kidnapped in early December 2022 by an armed group that calls itself the Oromo Liberation Army. This is particularly alarming for the company given that its country manager was shot dead in 2018. Two employees of the Mugher Cement plant were also taken hostage by the same group in October 2022 although thankfully they were later freed.
Derba MIDROC Cement signed a contract with Sinoma International Engineering in recent weeks to build a US$282m upgrade at its integrated Derba cement plant in Oromia. The move is the latest in a steady stream of projects that have been announced in Ethiopia over the last few years. Other recent developments include a deal in July 2022 by businessman Getu Gelete to buy PPC’s stake in Habesha Cement and plans in August 2022 by investor Worku Ayetenew to build a US$1bn cement plant with a production capacity of 12,000t/day. Alongside these capital intensive projects, the government has been trying to regulate the price of cement through measures such as setting fixed prices, limiting the volumes that individuals can buy and asking producers to cut distributors out of the supply chain.
According to reports as for the market in Ethiopia, Dangote Cement said that its sales from Mugher plant rose by 1.8% year-on-year to1.7Mt in the first nine months of 2022 and that the unit was running at full capacity in the third quarter. It reckoned that it held a 42% market share during this period, out of a total market of around 4.2Mt. Previously, it said that the total market for the whole year was 7Mt in 2021.
Meanwhile, the government disclosed that it has taken several measures regarding cement distribution and its high price points. However things on ground seem different.
Despite the production being stated to be lesser than the market demand, experts who follow the sector claimed that the product is available in the market but the price is highly inflated.
In recent decisions of the Ministry of Trade and Regional Integration, individuals are no longer allowed to acquire over 15 quintals of cement at once for any construction works. Factories must sell cement to authorized agents only. Agents who are only approved by the regional and city administrations to have the right to hold the product, a move targeted at paralyzing unauthorized trucks or warehouses from hoarding.
It has been well noted that factories are working under production for reasons that stem from security, shortage of raw material as well as foreign currency.
ESLSE inclines to swap two tankers for profitable bulkers
The state owned logistics mammoth, Ethiopian Shipping and Logistic Services Enterprise (ESLSE) discloses that it is on the final stage of swapping its two tanker vessels after clearing all its credit stemming from the takers.
It can be recalled that the successful logistics had embarked to purchase nine vessels at a total price tag of USD293.5million courtesy of a loan backing from the Export Import (EXIM) Bank of China. ESLSE is now planning to make a swap for the two tankers targeting to make more profits through purchase of bulk carriers.
From the onset of the arrival of the tankers in Djibouti, which is the major port site for Ethiopian vessels, both vessels laid idle for six months until a Kuwaiti company which is affiliated with Ethiopia, through an oil supply partnership, took administration on behalf of the Ethiopian vessel operator.
After the administrative takeover, the vessels were then transferred to a Dubai based management company.
As per the agreement, the Dubai based company handled the ship and technical management while ESLSE look over the chartering. This however was not a profitable venture.
“The crew and the management are not ours,” Roba Megersa, CEO of ESLSE pointed out whilst reminding that the tankers were not profitable since their arrival.
As Roba further shed light on the matter, he expressed that the logistics enterprise thought it best to part ways with the vessels but faced delays due to debt, “Now the vessels are free from any credit. So we shall move on with the plan.”
As per the information Capital obtained from the CEO, the process has begun to let go of the tankers through a swap arrangement or sale and purchase agreement (SPA).
A Singapore based brokerage, Stanford Shipping, has taken up the process to transfer the tankers to interested operators.
As planned, the enterprise has targeted to swap the two tanker vessels with bulk carriers which are vessels that ESLSE is conversant with. “Dry bulk carriers are more profitable and highly on demand in the global logistics business,” the logistics firm’s head opined.
“We are finalizing to conclude the process. We hope that the process is fully completed in the coming six months,” Roba explained.
In the past fiscal year, ESLSE successfully closed the credit that it paid for the financer, which now makes for a swifter conclusion to a swap modality.
The logistics guru explained that the conventional swap scheme targets second hand vessels, “Nonetheless, if we want a new built ship it may take up to two years to receive the vessel.”
“We can get relatively younger vessels with the SPA. This will lead to us resuming operations swiftly,” he added.
The shipping company’s target is to acquire dry cargo carriers with a range of five years. It is worth noting that most ESLSE tankers have passed almost a decade of service.
“Such business acumen in our sector is common. For instance, MSC is operating vessels obtained from the second hand market,” he explains, adding, “Once you have management of a vessel that is relatively new, then operation will be smooth which automatically leads to profits.”
According to the plan, ESLSE has targeted to get an ‘ultramax’ dry bulk carrier, a midsize vessel, with up to 64,000 DWT on the swap of the two tankers.
“We are also considering swapping the two tankers with two ‘supramax’ vessels that have a capacity from 50,000 to 60,000 DWT with some additional charges,” the CEO added.
Both types of vessels will be the first for ESLSE, which is currently operating nine ‘handysize’ vessels with about 28,000 DWT. Nevertheless, it has operated the supramax and ultramax dry bulk carrier through lease to ship cargos like fertilizer and coal.
The two vessels that ESLSE wants to swap were built in November 2012 and January 2013 and have about 42,000 DWT capacity. They are also significant in that they are the first oil carrier ships for the operator.
The latest vessels of ESLSE got into business at different periods but have played a pivotal part in the first Growth and Transformation Plan.
ESLSE was initially established in the mid-1960s as a shipping company and was then amalgamated with some other public logistics enterprises in 2011 to form ESLSE. The firm is the strongest vessel operator and is the only cross continent operator in Africa.
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 was USD 37 million each.
About 16 years ago, the enterprise also bought two multi-purpose vessels from China, ‘Shebelle’ and ‘Gibe,’ named after two rivers in Ethiopia.
In the last budget year, besides services to Ethiopian cargo, cross trade services amplified the performance of ESLSE leading it to amass over 5.6 billion birr in profit before tax for the year.
In the budget year, a total 7.2 million tons of cargos shipment have been managed through different operations including vessel, inland, freight forwarding and port and terminal services.
In regards to marine operation, the firm managed operations of 3.6 million tons which is 93 percent of its target.
Nyala Insurance profit soars
To raise the paid-up capital to 2.5 Billion birr
Nyala Insurance S.C. (NISCO) disclosed that it has recorded a gross profit of Birr 263 million from its general and long-term insurance operations, an all time high and an increase of 36.1 per cent compared to the previous fiscal year.
The shareholders have also unanimously agreed Birr 126 million to be retained from the net profit in order to increase the paid-up capital of the company to over Birr 830 million, and decided to further raise the paid-up capital to Birr 2 billion and 500 million within the next five years!
During his presentation on the company’s annual performance report to the company’s shareholders who attended the 28th General and the 21st Extra Ordinary General Meeting held at Sheraton Addis on 15th December 2022, Getachew Birbo, the Chairman of the Board of Directors, said that despite sharper economic slowdowns along with cost of living crisis, NISCO has realized remarkable achievements as compared against the preceding fiscal year, 2020/21.
According to the chairman’s report, the underwriting surplus generated from the general insurance businesses has surpassed Birr 196.2 million, showing a total growth of 22.2 per cent as weighed against the preceding achievements.
Similarly, the chairman underscored that NISCO also registered a 64.9 per cent growth in its long-term (life and health) insurance business and thereby secured Birr 186.2 million, and added the total asset of the company stood at Birr 3 billion, an increase of 21.1 per cent over the previous fiscal year.
On the other hand, the net claims of the company slightly increased from about Birr 175.3 million to Birr 183.1 million, mainly due to an increase in motor insurance claim costs, he outlined.
The chairman added that the reasons for the remarkable achievements in the premium income were due to the company’s prudent underwriting practices, implementation of new business innovations based on the customers’ need assessments.
Yared Mola, the Chief Executive Officer of Nyala Insurance S.C., on his part underlined that Nyala Insurance has scored remarkable achievements by implementing prudent underwriting and risk management schemes, availing new insurance products based on customers’ need and demands, and other important business strategies.
He also added that NISCO is exerting utmost efforts to be accessible to the digital natives within short period of time.
According to the CEO, NISCO is further ready to avail its products and services based on revamped business philosophies of profitable growth, insure-tech and digitalization, customer centricity, operational excellence and the blue move initiatives.
Established in 1995 with a paid-up capital of Birr 7 million, NISCO has contributed three new insurance products to the Ethiopian insurance market: namely, ለ-Mobiሌ (a mobile devices insurance plan), Diaspora Special Insurance and International Health Insurance (which covers up to one million USD costs of medical services) including medical evacuation and air ambulance services.
