By our staff reporter

Real estate businesses report that the recently approved asset recovery proclamation law, which grants authorities to investigate cases dating back 10 years, is significantly affecting their operations. Experts suggest that this new law may exacerbate the parallel market.

Since its issuance on January 9, market participants—especially in the construction and real estate sectors—have expressed that the new proclamation, which allows the government to seize assets, is adversely impacting their business activities.

One real estate developer interviewed by Capital noted that homebuyers, particularly those living abroad, have been demanding the return of their previously paid funds since the law was ratified.

He remarked, “They would rather access their money with a penalty.”

Other developers concur that the introduction of this law has caused further stagnation in an already struggling real estate industry. A market participant pointed out that various economic activities connected to housing construction projects are also being negatively affected by the new law.

For instance, delayed building projects will face additional challenges, impacting other businesses reliant on this type of economic activity. An anonymous businessman told Capital, “The proclamation extending retroactive seizures up to 10 years has put many economic players, especially in the diaspora community, in a state of panic.”

He explained that the diaspora previously sent money through various channels, particularly during times when bank and parallel exchange rates were extremely high.

“Now that the government has announced its intention to scrutinize assets for recovery, the business community—including the diaspora—feels compelled to liquidate their assets,” he stated.

He further noted, “This situation has significantly fueled the black market over the past few weeks.”

He added, “It’s clear that people are in a panic to divest their money, which has led to a sharp increase in the parallel market rates recently, after a period of stability following economic reforms six months ago.”

The legitimacy of the contentious proclamation, which aims to investigate cases predating the law’s ratification, has also been questioned by other businessmen.

“I don’t understand why they chose ten years. Why not twenty or thirty years?” one businessman asked.

Legal experts advising businesses told Capital, “Most actors, including government officials and foreign investors, have been funneling illegally obtained funds abroad.”

One real estate developer lamented the lack of new buyers, stating, “Buyers are demanding the return of their funds, as stipulated in our contracts, but fulfilling those requests has become challenging in a sluggish market.”

A legal expert expressed concern that the law could serve as a political tool. According to the asset recovery law, the goal is to establish a rule-based economic system, as existing legal frameworks fail to address unexplained wealth effectively.

The controversial bill’s preamble asserts the necessity of comprehensive asset recovery laws to tackle crimes generating proceeds, covering aspects such as asset identification, investigation, freezing, seizure, confiscation, and asset management, as current laws lack sufficient provisions to address fundamental legal and practical issues.

It further noted the necessity of enacting the law, as unexplained assets negatively impact the country’s tax system, foreign currency stability, financial flows, and foreign direct investment. Currently, the existing legal framework is limited, allowing for action only against public servants and employees of public organizations regarding unexplained wealth.

The law allows for retroactive seizures of assets for up to ten years, targeting both tangible and intangible assets valued at over ten million birr.

The scope of the law encompasses a range of assets, including stocks, bonds, bank credits, and other economically beneficial resources.

By Eyasu Zekarias

The Minister of Industry, Melaku Alebel, recently addressed the House of People’s Representatives, revealing significant challenges in the country’s foreign exchange supply. He noted that the current demand from banks for foreign currency exceeds typical levels, making it difficult to provide the necessary foreign exchange as planned. This situation has arisen amidst ongoing macroeconomic reforms that have created opportunities for industries by reducing export and import costs.

During his six-month performance report presentation, Minister Melaku highlighted that $468.4 million was initially targeted for the manufacturing sector, representing 79% of the planned amount. However, only $369 million was delivered in the first half of the fiscal year, marking a 35% increase from $274 million during the same period last year. Despite this progress, Melaku pointed out that banks are requiring more bonds than usual due to a lower-than-expected foreign exchange supply.

The minister emphasized the need for banks to reassess their lending practices, urging them to focus on financing the manufacturing sector instead of prioritizing short-term profit-generating ventures. In the past six months, a total of 3.4 billion birr was earmarked for operating loans and lease financing for small and medium-sized manufacturing industries, with an additional 7.8 billion birr planned.

Melaku stated that while policies aimed to increase loan provisions to the manufacturing sector from 13% to 24%, the current rate stands at only 16%. He expressed concern that operating loans for small and medium-sized enterprises have only increased marginally, by less than 1% of available bank capital.

This discussion comes at a time when Ethiopia’s foreign exchange reserves are reportedly dwindling, barely covering one month of imports as of early 2024. The government is under pressure to enhance its foreign currency management strategies amid rising inflation and external debt challenges.

By our staff reporter

For debt treatment under the G20 Common Framework (CF), the Ethiopian government has announced a new timeline for reaching a Memorandum of Understanding (MoU) with the Official Creditor Committee (OCC), stating that an agreement is expected by April.

During his recent visit to Ethiopia’s primary economic partner, Finance Minister Ahmed Shide met with Chinese commercial lenders and other creditors.

For the past four years, Ethiopia has been negotiating debt re-profiling with G20 countries under the CF framework. Although the government anticipated observable outcomes by the end of last year, it has not yet reported any progress.

According to the latest statement released after the completion of the second review of the 48-month Extended Credit Facility (ECF) by the Executive Board of the International Monetary Fund (IMF), the government is aiming to achieve results by April.

In July, after receiving assurance from the OCC for debt re-profiling, the IMF approved USD 3.4 billion under the ECF.

After the board meeting, Deputy Managing Director Nigel Clarke remarked, “The significant progress made towards reaching an agreement on a debt treatment with the OCC under the G20 Common Framework is an important step towards restoring debt sustainability.”

The IMF noted that by the time of the third assessment, the Ethiopian authorities aim to have an approved MoU in place.

It is worth mentioning that the administration had informed the IMF that it expected to finalize a deal with creditor countries by the time of the second review last month.

Furthermore, the authorities are eager to pursue similar treatments for holders of Eurobonds and other foreign commercial debts.

The responsibility for negotiating Ethiopia’s lengthy debt restructuring rests with the G20’s CF creditor group for Ethiopia, which is co-chaired by China and France.

This week, a delegation led by Finance Minister Ahmed, which included the Prime Minister’s macroeconomic advisor Girma Biru (Amb), visited China, one of Ethiopia’s largest bilateral creditors that also provides commercial loans.

Reports from the Ethiopian Embassy in China indicate that the delegation met with representatives from the China Development Bank (CDB), Exim Bank of China, the International Industrial and Commercial Bank of China (ICBC), and other officials from the Chinese Ministry of Finance and state enterprises to discuss economic cooperation and strengthen the two nations’ all-weather strategic partnership.

The financial institutions visited by Ahmed’s delegation are significant creditors that also hold undisbursed credits; however, China has been delaying new loans over the past few years.

According to the Ministry of Finance (MoF), Ethiopia is seeking USD 1.4 billion, or 14%, of the total USD 9.9 billion in undisbursed fresh credit from the Chinese government. Additionally, it is anticipated that Chinese financiers, such as ICBC and CDB, will provide an extra 8.8% of the total undisbursed loan, amounting to USD 870 million.

“The forecasts include re-profiling of debt payments of USD 1.4 billion due to all official bilateral creditors in 2023 and 2024,” the MoF recently stated, referring to the significant temporary relief provided by the debt service standstill agreement reached with OCC members at the beginning of the previous budget year.

However, the anticipated USD 3.5 billion in debt treatment under the CF totals USD 4.9 billion in debt relief.

By Eyasu Zekarias

The Ethiopian Roads Authority (ERA) has reported significant challenges in the completion of road projects due to rising costs affecting contractors. Inflation has exacerbated delays and hindered overall project performance, making it increasingly difficult for contractors to secure necessary financing.

During a review by the Standing Committee on Urban Infrastructure and Transport of the House of People’s Representatives, concerns were raised regarding the low performance standards in major road works, including procurement and maintenance. Melka Bekele, Deputy Director General of ERA’s Construction Project Management, attributed these issues to increased resource requirements driven by inflation.

ERA highlighted that road projects typically require substantial fuel resources, averaging four fuel tanks per contractor, costing around 4.5 million birr each. To adequately finance fuel needs, contractors require between 18 to 20 million birr monthly. Without sufficient funding for fuel, project performance suffers significantly.

Despite improvements in cement supply, Melka noted that price discrepancies between factory and market rates complicate procurement efforts. Furthermore, the aging machinery within the industry poses another challenge, as many machines are outdated and hinder project execution. The high rental and purchase costs of machinery have created gaps in contractor capabilities.

Security concerns have also impacted project implementation, with 27 projects currently stalled. The ongoing conflict in various regions has led to delays and heightened risks for contractors operating in those areas.