The direct advance channeled to the central government at the first quarter of the fiscal year surges by two and half folds.
The first quarter report of the National Bank of Ethiopia (NBE) which analyzed the economy in detail indicated that at the first quarter of the 2021/22 fiscal year that included months from July to September shows NBE’s gross claims on the central government bulging by 36.0 percent to 311.9 billion birr.
From the stated amount, the government bonds accounted for 63.6 percent while direct advances took 36.4 percent.
“Direct advance to the central government rose sharply by 266.1 percent compared to last year same period due to huge government expenditure demand,” NBE explained.
The national bank noted however that the deposit of financial institutions at the NBE contracted by 12.5 percent on annual terms despite 19.1 percent quarterly increase.
The quarterly report shows that the direct advance on the stated period stood at 113.5 billion birr that was 31 billion birr in the same period of last year and 83.5 billion birr at the fourth quarter of last fiscal year, which is the preceding quarter from the reported three months.
It was recalled that through introducing different instruments the government had enabled to successfully reduce the direct advance sharply in the preceding quarters, though it showed slight increment in the past few periods.
Unforeseen events like the conflict in the northern part of the country in addition to rehabilitation and aid, and drought was stated to have forced government to access finance through direct advance from the central bank. Experts however, recommended government to reduce its direct advance as much as possible since it’s consequential on the economy.
Therefore other instruments like treasury bills (T-bills) were recommended to be used for the budget deficit.
According to the NBE quarterly report, during the first quarter of 2021/22, the amount of T-bills supplied to the biweekly auction market was 226 billion birr, showing 581.3 percent annual increment.
Similarly, the demand for T-bills was increased by 156.5 percent to 136.6 billion birr while the total amount of T-bills sold reached 130.6 billion birr, showing a 291.6 percent surge over similar periods of last quarter.
Banks bought T-bills worth 93.5 billion birr while the remaining T-bills valued at 37.1 billion birr were sold to non-bank institutions.
“As a result, 40.8 billion birr (net of redemption) was mobilized for government budget financing. The total outstanding T-bills at the end of the quarter reached 161.5 billion birr, reflecting a 316.6 percent increase over last year same period,” the report elaborated.
The average weighted T-bills yield was 9.18 percent, about 46.2 percentage points higher than a year earlier that was 6.3 percent mainly due to the policy change on issuance of T-bill through auction market.
At the end of first quarter of 2021/22, broad money supply (M2) reached 1.4 trillion birr exhibiting a 28.4 percent annual growth, owing to 29.6 percent expansion in domestic credit and 17.0 percent in other items.
Similarly, the reserve money reached 287.1, billion birr showing 9.8 percent annual expansion while excess reserve of commercial banks depicted 54.8 percent, annual contraction.
During the review quarter, banks disbursed 65.3 billion birr in fresh loans, indicating 18.7 percent annual increase. Of the total new loans, the share of state owned banks was 56.1 percent and that of private banks 43.9 percent.
In the first quarter of 2020/21, the share of state owned banks as fresh loan was 30.3 percent and that of private banks was 69.7 percent.
Government expenditure surges direct advances
NBE gives green light for new Sinqe Bank president
The National Bank of Ethiopia (NBE) has approved the appointment of Neway Megersa Lenjiso, as the first president of Sinqe Bank.
Neway brings to the table about 13 years of experience in the banking industry, serving Nib international Bank for 5 years as planning and research officers and 8 years of service at several positions in Oromia bank. Similarly, the new president presents high level managerial expertise as he has led Kegna Beverages as Managing Director as from 2018. Moreover, for the past year, Neway was working as board chairperson of the bank.
The company has also appointed Zewdie Tefera, who has been working as acting president of the bank as the Chief Operating Officer.
Sinqe on February 16, 2022 officially received its license from the National Bank of Ethiopia (NBE) to start operations with a subscribed capital of 15 billion birr and a paid up capital of 7 billion birr following its transformation from Oromia Credit and Saving Share Company staring from May 2021.
Following the issuance of proclamation no.40/1996 proclamation that determines the licensing and supervision of micro finance institutions, Oromia Credit and Saving Share Company was established in August 1997 to give micro finance service obtaining operational license from NBE and trading license from the federal Ministry of Trade and Industry.
The change came through the proclamation no 626/2009 and NBE directive no SBB/74/2020, which allows microfinance institutions to evolve into commercial banks with a two-year transition period, to which the executives of the microfinance made the transformation from microfinance to banking services. The company was thus renamed to Sinqe bank, which is sourced from the cultural institution of Oromo women.
“The primary goal of the relicensing is to realize inclusive services to all withstanding the microfinance service targeting job creation and financing to the poor whilst incorporating larger financial seekers as well,” said the bank’s board during the transition.
Currently, the company has more than 400 full-fledged branches. When it becomes operational, the bank will start giving its services with these branches.
Revisiting the historical record of sanctions
Sanctions, ’restrictive measures’ in official EU speak, are imposed to induce target countries or regimes to change a policy or action deemed unacceptable by the international community. States or regimes which have triggered wars, threatened the territorial integrity of other countries or committed crimes against humanity have recurrently been subject to such punitive measures.
Sanctions may involve trade and arms embargoes, asset freezes and restrictions on the activities of powerful individuals or companies, as well as bans on international financial transactions and investments. These can be accompanied by measures such as travel bans on senior representatives of a government or their close associates. Acting as negative incentives to induce targets to alter their reprehensible behaviour, sanctions have emerged as complementary instruments in a wider array of foreign policy tools.
In the interwar period, the League of Nations played a key role in enacting sanctions against countries threatening international security, albeit with limited success. Such was the case with Mussolini’s Italy after its invasion of Ethiopia in 1935, but measures against Imperial Japan and Nazi Germany were equally weak and potentially counterproductive, as they were often portrayed by the targeted countries as acts of war.
After the Second World War, the role of supreme international ‘sanctioner’ was clearly attributed to the United Nations, but the Cold War soon gridlocked the Security Council in this respect. Thus leaving the imposition and implementation of restrictive measures to leading major powers. Relevant cases in point were the United State sanctions against Britain, France and Israel during the Suez crisis in 1956 and the United State sanctions against the United Soviet Socialist Republic (USSR) after its invasion of Afghanistan in late 1979. But the United State was not alone. The Arab League imposed sanctions against Israel during the 1948 war which led to the creation of the state, and China imposed sanctions against Vietnam after its invasion of Kampuchea (now Cambodia) in late 1978.
Since the end of the Cold War, restrictive measures have been deployed with greater frequency. The sanctions imposed on Saddam Hussein’s Iraq, under the aegis of the UN, after its invasion of Kuwait in 1990 were comprehensive economic sanctions, which entailed major humanitarian costs. Yet the UN-sponsored ‘oil-for-food’ programme introduced in 1998 to alleviate the suffering of the civilian population was later criticised for giving rise to widespread corruption both inside and outside Iraq. International sanctions have since tended to shift from being comprehensive to targeted or ‘smart’, focusing on individual leaders and organisations mainly to punish human rights violations.
With threats to international security emanating primarily from intra-state conflicts, fragile or failed states and transnational terrorist networks able to carry out their operations regardless of state borders, sanctions policies have undergone a fundamental shift, targeting non-state actors as well. The UN doctrine of Responsibility To Protect (R2P), developed and conceptualised in the early 2000s, made sanctions part and parcel of a series of measures taken by the international community to punish the aggression of governments against their own citizens, as was the case with Libya and Syria in 2011, in spite of R2P being operationalised only in the former.
Other actions have also become major justifications for the imposition of sanctions: nuclear proliferation, as in the case of Iran and North Korea, and terrorist activities, as in the case of al-Qaeda, Boko Haram or the Islamic State of Iraq and the Levant.
Iana Dreyer, a Senior Associate Analyst and Jose Luengo-Cabrera, a Junior Analyst at the European Union Institute for Security Studies (EUISS) indicated that both historical precedents and academic comparisons indicate that the effectiveness of sanctions is, per se, rather limited. Statistical analysis covering the period since World War I shows that between one fifth and one third of them have fulfilled their stated aims and often only partially. While, in general, sanctions tend to fail, the body of evidence on successful ones available today provides some interesting insights.
Sanctions raise expectations as to what they can achieve, but such expectations need to be managed. In old-fashioned cases of inter-state conflict, sanctions were generally conceived as instruments to weaken the adversary’s military capacity by blocking access to key resources and raw materials. But these measures were not expected to do the job of actually and ultimately winning the war. Sanctions, however, can become a useful instrument once a negotiation or peace process has begun, setting incentives for those responsible for the conflict to commit to a peace settlement.
Sanctions have frequently been followed by military action. This was the case in the former Yugoslavia, where sanctions were first put in place in 1992. Those measures initially failed to stop Yugoslavia and the various warring factions, but they were strengthened over time and used to reinforce the military action taken by NATO in the run-up to the Dayton accords of 1995/1996. Sanctions against Serbia were also part of the toolkit used by Western powers in the 1999 Kosovo war and after.
Sanctions also tend to be more effective, perhaps predictably, when there is broad international consensus on using them and when they are applied multilaterally and in a coordinated fashion. The greater international isolation and stigmatisation stemming from broadly endorsed international sanctions is believed to be a greater inducement for the targeted regime to change its behaviour and comply with the international community’s demands.
Sanctions never work in isolation. In today’s war contingencies, sanctions are most effective when they are embedded in a wider strategy involving diplomatic efforts to end violence, oust a war criminal and/ or restore justice after major crimes against humanity have been committed. Some credible threat of military action is also often necessary to induce the desired effect. Sanctions are then used as a warning and inducement to change behaviour ahead of possible military action. Sanctions against Liberia and Sierra Leone in the late 1990s, for example, should not be seen separately from Britain’s UN-backed military intervention, the establishment of a Sierra Leone Special Court, and policies to isolate and bring former Liberian President Charles Taylor to trial at The Hague.
Sanctions can be said to work better when their goals are limited, clearly articulated, and solely aimed at behavioural, not regime change. Yet comparisons have shown that such behavioural change is easier to achieve with more pluralistic societies and democratic regimes as in the Suez case. Restrictive measures aimed at authoritarian regimes have a lower success rate as they may induce a rally-around-the-flag effect and strengthen the powers that be, which are then in an ideal position to seize and redistribute at will the more limited resources stemming from the negative economic impact of sanctions as in the case of Iraq.
Sanctions have costs. For an effective sanctions policy, addressing this issue politically is essential. The humanitarian costs of broad economic sanctions such as oil embargoes and comprehensive financial restrictions on the ‘target’ side can be dire and end up undermining their legitimacy and credibility. Dealing with the domestic losers of sanctions through compensations and/or phase-in periods is thus crucial.
Last but certainly not least, sanctions need to be properly implemented and closely monitored, as targets have strong incentives to circumvent them and can avail of a range of loopholes to do so.
Investment opportunities in Ethiopia channeled to interests such as real estate, report
A new study has revealed that most opportunities for diaspora investing in Ethiopia reflect and cater to the current interests in the market which is majorly tied to buying real estate and starting a business.
The report dubbed ‘Diaspora Remittances Mapping Report’ submitted to Pangea Trust by DMA Global and Islamic Finance Laywer and Advocate, Economic Justice in Africa, Rhama Hersi reveals that the traditional definition of investing, in which someone buys shares in a stranger’s business and hopes for a return or shared profits, is still relatively new in Ethiopia.
“We need to find ways of leveraging untapped financial resources to support Startups in Africa. The findings of this report are relevant to increasing overall awareness of the role of diaspora in economic development,” said Sofie Berghald from Swedish International Development Agency (SIDA) Headquarters.
“The Ethiopian government and Ethiopian organisations, most especially banks, are genuinely interested in foreign investments, including those of the diaspora,” reads part of the report.
According to the analysis, like countries such as Nigeria and Kenya, Ethiopia does not have a stock market, making buying shares in companies a bit more complicated and something the investor would have to do directly with the business in question.
However, there remains a high appetite for investment opportunities in Africa from the diaspora with nearly 56 percent who had never invested in Africa in the past were interested to start and receive more information about investing.
On Islamic Finance, the report further shows some of the key drivers for growth in Islamic investments include oil revenues from the Islamic States, increasing propensity for ethically driven products and the rise of enabling institutions.
“Islamic finance is known as interest-free banking in Ethiopia and while it is growing, it is not yet pervasive. Ethiopia has a long history with Islam and 34 percent of the country identifies as Muslim, with that percentage varying greatly by region,” Islamic Finance Laywer and Advocate, Economic Justice in Africa, Rahma Hersi.
“Islamic finance must be tied to assets- to a real economy- it cannot be about something you don’t own Prohibition of interest- money is only a medium of exchange, not a commodity in itself,” she added.
Primary research of the study was carried out in the form of stakeholder interviews with public and private organizations in Ethiopia, as well as diaspora community leaders in the U.S. and Canada.
At the same time, a survey was also disseminated among diaspora communities across the US, Canada and Europe mainly because of the diaspora profiles in those regions, compared to diaspora members in regions such as the Middle East and Eastern and Southern Africa.
The report also highlights some of the barriers to investing in Ethiopia which include: promising developments have been occurring in Ethiopia’s financial sector that have opened it up to diaspora investors, but some major regulatory hurdles, specifically around foreign exchange, remain.
“Many of Ethiopia’s parallel market and informal remittances issues stem from the tight controls the government imposes on their currency,” it reads in part.
“In terms of financing for MSME’s in Ethiopia,61 percent have used their own money, 26.5 percent used banks, 7.2 percent used savings and credit associates and 4.5 percent got funding from their family and friends,” said Omolayo Nkem Ojo who is the Research Manager DMA global limited.
Most Ethiopians in the diaspora consider their remittances as separate from investments.
Most respondents sent money monthly, and predominantly sent between USD 100 to USD 499.
Those surveyed also indicated that they sent money to their parents (27 percent), followed by their siblings (13 percent) and friends (13 percent).
Food is the primary use of remittances to Ethiopia with almost 21 percent of respondents saying that remittances go towards feeding their families back in Ethiopia.
Most respondents (49 percent) said that the person receiving the money decides what to spend it on and this was consistent across age groups.
Respondents reported using a variety of channels to send money to Ethiopia, but the majority stated that they used online money transfer operators (24 percent).
The Pangea adopted document that was primarily funded by Swedish International Development Agency also revealed that the Muslim respondents further preferred using Hawalas as their main channel of remitting their funds back home.
“There is potential to provide the right information for the right investment decisions- We need to provide education and engage with the right stakeholders. There is interest in investment in social impact and innovation businesses- the question is what mechanisms we can put in place to harness this interest as an opportunity,” said Pangea Trust Managing Director Anne Lawi.
