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Vol. 26 No. 1375 - January 14, 2023
ADDIS ABABA, ETHIOPIA www.thereporterethiopia.com Price 20.00 Birr
Hong Kong manufacturer leaves Bahir Dar Industry Park over AGOA market loss It is looking for buyers to sell machineries It laid off over 700 workers after paying compensation
By Selamawit Mengesha
Hop Lun, a Hong Kong-based company, has departed Bahir Dar Industry Park after incurring significant losses and losing market as a result of Ethiopia’s
suspension from the Africa Growth Opportunity Act (AGOA). It is a major blow for officials, who were already under pressure as a result of the departure of factories from Hawassa Industrial Park for the same reason.
Founded in 1992, Hop Lun, which has a presence in Bangladesh, China and Indonesia, joined the Ethiopian market three years ago. Its intention was to make Bahir Dar Industrial Park an exemplary and a leading industrial park like
Hawassa Industrial Park. In 2019, the firm leased all eight industrial sheds that the government had erected in the Park after signing a Memorandum of Understanding (MoU) with the Ethiopian Investment Commission (EIC). Four
of the eight sheds were converted into production facilities, and Hop immediately began sending all of its finished goods to the US market. At a Parliamentary session Hong Kong . . page 28
Gold exports
dropped 59% to 3-year low 3KRWRWV 0HVÀQ6RORPRQ
By Eyob Tikuye
One of Ethiopia’s major exports, gold, generated close to USD 117.4 million in exports during the first six months of the existing fiscal year, according to the Ministry of Mines. With changes initiated by Hailemariam Desalegn and sustained by Prime Minister Abiy Ahmed (PhD), gold was the best-
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Cash-strapped Dire Dawa admin demands regional status By Ashenafi Endale
PAGE 3
performing export commodity, along with coffee and horticulture. Takele Uma, who was appointed minister of mines, has been lauded for achieving a historic high in the mining industry, with gold exports exceeding USD 672 million two years ago. Under the minister, gold exports skyrocketed by 242 percent in 2020/21. Even though industry insiders Gold exports . . page 28
EU demands accountability for war, Ethiopia re-engagement By Ashenafi Endale
2| EDITORIAL
The Reporter, January 14 2023 Vol. 26 No. 1375
In pursuit of balanced foreign relations Ever since the founding of modern Ethiopia in the late 19th century, the strategic pillars of its foreign policy have by and large been anchored in the principles of ensuring respect for national sovereignty and territorial integrity; pursuance of mutual interest and recognition of equality of states; non-alignment; and forging an environment fostering fraternal relations with other nations and their people. While these principles have been articulated in one form or another in various nationally adopted documents, they are explicitly provided for in the current constitution of Ethiopia and expounded further in its foreign and national security policies and strategies. The manner in which the nation’s foreign policy was implemented was dictated by global geopolitical realities and the ideological camp to which it belonged. Consequently, the actions of successive Ethiopian governments did not necessarily hew to the tenets embraced in official foreign policy instruments. Ethiopia’s foreign relations were relatively independent for decades after the end of the “bi-polar global order” that had been reigning since the end of World War Two. The emergence of a multipolar, poly-centric global order following the demise of the Cold War brought about a new power configuration that enabled Ethiopia to perform a juggling act in its relations with competing powers. This “Win-Win” scenario allowed it to avail itself of improved access to foreign assistance and enhanced its international standing. At the same time, events that triggered tectonic geopolitical shifts postCold War engendered the collapse of states inimical to Ethiopia including Somalia, Iraq, Syria, Libya and Yemen while they weakened
U.N. Security Council have tried over a dozen times to formally admonish Ethiopia but to no avail. The West also waged a coordinated information warfare against Ethiopia through the mainstream media, think tanks and so-called rights advocacy organizations. These measures brought the relationship between the two parties to one of their lowest points in recent memory.
adversaries like Egypt. Since the advent to power Prime Minister Abiy Ahmed (PhD) to power in April 2018 though Ethiopia’s external relations, particularly with the West, have been blowing hot and cold on account of a bevy of primarily locallydriven factors.
The resulting dramatic improvement of the ties between the two sides entailed not only political benefits for Ethiopia, but also economic dividends in the form of billions of dollars of aid and loans from international financial institutions.
Soon after the premiere assumed office, his administration introduced a series of reforms that the West had been urging the Ethiopian government to undertake. From releasing political prisoners to inviting exiled Ethiopians to return home, replacing draconian laws throttling the democratic space with enabling legislation, liberalizing the telecom sector and ending the twentyyear old with neighboring Eritrea, the measures the administration took made Ethiopia the darling of the West even as it caught China, towards which Ethiopia was increasingly pivoting prior to the commencement of Abiy’s tenure, off-guard.
This cozy relationship did not last long however. It began to cool when the West chose to side with Sudan and Egypt over the filling and operation of the Grand Ethiopian Renaissance Dam (GERD. In mid-2020, Ethiopia rebuffed the U.S. government’s attempt to coerce it into signing a binding agreement on the filling period, saying it did not accept the 12-21 years proposed by Egypt and had the right to fill the dam at its own pace. The repeated convening of the Security Council at the behest of Egypt and Sudan, albeit unsuccessful,]to consider a resolution calling on Ethiopia to cease filling the GERD’s reservoir and pushing for a binding
agreement between the three sides on the operation of the dam strained the relationship further. Things came to the boil though when the West put its thumb on the scale in favor of the Tigray People’s Liberation Front (TPLF) following the commencement of a military operation by Prime Minister Abiy’s administration in Tigray in November 2020 in response to TPLF’s attacks on federal army bases in the region. Soon after the war broke out Ethiopia has been subjected to unprecedented pressure at the hands of Western governments, the U.N., mainstream media, think-tanks and rights groups. The U.S. particularly imposed a slew of sanctions on Ethiopia, scaled back its economic assistance, and terminated the tariff-free African Growth and Opportunity Act (AGOA) for Ethiopia while it gave the TPLF a slap on the wrist. Furthermore, the U.S. and its allies at the
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The Reporter, January 14 2023 Vol. 26 No. 1375
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INVITATION TO BID Tender No. DBSC/NCB/01C/2023 'DVKHQ %UHZHULHV 6& LQYLWHV LQWHUHVWHG TXDOLÀHG Building and General Contractors Grade 3 and above for Construction of Fire Protection System for Dashen Breweries at Debre Birhan. ,QWHUHVWHG %LGGHUV DUH LQYLWHG WR SDUWLFLSDWH LQ WKLV WHQGHU DQG WKH ELGGHUV VKRXOG KDYH UHOHYDQW DQG YDOLG 7UDGH /LFHQVH 7,1 DQG 9$7 UHJLVWUDWLRQ FHUWLÀFDWHV DQG WD[ FOHDUDQFH FHUWLÀFDWH $ FRPSOHWH VHW RI ELGGLQJ GRFXPHQW FDQ EH SXUFKDVHG E\ LQWHUHVWHG ELGGHUV GXULQJ RIÀFH KRXUV IURP WKH DGGUHVV PHQWLRQHG EHORZ XSRQ SD\PHQW RI D QRQUHIXQGDEOH IHH RI (WK %LUU %LUU )LYH +XQGUHG LQ FDVK Dashen Breweries S.C procurement Department Equatorial Guinea Street, yeka sub city woreda 08 Dashen Building, 3rd Floor, P.O. Box 15015 Addis Ababa, Ethiopia 7KH ELG GRFXPHQW ODVW VXEPLVVLRQ DQG RSHQLQJ GDWH LV February 03, 2023 10:00AM $QG February 03 2023 10:30 AM respectively. $OO ELGV PXVW EH DFFRPSDQLHG E\ ELG VHFXULW\ %LUU 7KUHH +XQGUHG 7KRXVDQG D IRUP RI CPO or Unconditional Bank Guarantee IURP DQ\ &RPPHUFLDO %DQNV RI (WKLRSLD Dashen Breweries S.C reserves the right to accept or reject any or all bids.
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The Reporter, January 14 2023 Vol. 26 No. 1375
HEADLINES
Sharing infrastructure with Safaricom earns ethio telecom 743.6 mln birr By Elias Tegegn Ethio telecom’s infrastructure sharing agreement with the new telecom provider, Safaricom Ethiopia, has brought 743.6 million birr in revenue for the state giant during the first half of the current fiscal year. It is a new source of revenue for the state-owned telecom company, which is being privatized. Safaricom, a new entrant, has been utilizing portions of ethio telecom’s infrastructure following a lengthy discussion due to a dispute over payment terms.
The prohibition on foreign developers building telecom infrastructure and leasing it to domestic operators gave ethio telecom market leverage. Safaricom, its rival, has expanded its presence to 24 cities. There was concern that ethio telecom’s revenue would drop owing to the presence of ..
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Following mediation that was led by the Ethiopian Communications Authority, a disagreement that had transpired between the two operators (ethio telecom and Safaricom Ethiopia) regarding the price and currency for payments in the infrastructure sharing plan was finally addressed. competition in the market, yet the telecom provider still managed to make a recordhigh profit. The telecom operator raked in a total of 33.8 billion birr in revenue during the course of the first half of the year, which is equivalent to 96 percent of its target. Income from infrastructure sharing
accounted for 2.2 percent of its total revenue. As the telecom industry in Ethiopia formally opened for business at the beginning of the current fiscal year, Frehiwot Tamiru, the Chief Executive Officer of ethio telecom, cited her company’s first-half performance as a significant accomplishment.
The state-owned telecom business has 70 million subscribers and earned 33.8 billion birr in the first six months of the current fiscal year. The digital financial services channel, telebirr, has more than 27.2 million Sharing . . . page 27
NEWS IN BRIEF
(WKLRSLDQÁLJKWVWR&KLQDVHWWR return to pre-COVID levels
China FM sidesteps AU call for UN council seat
The frequency of flights to Chinese cities will increase as of February 6, ultimately returning to the pre-COVID levels on March 1, following the lifting of restrictions by China, says Ethiopian Airlines.
China’s new Foreign Minister, Qin Gang, has sidestepped a new call by the African Union (AU) for permanent representation on the United Nations Security Council during his visit to Ethiopia.
As of February 6, Ethiopian Airlines will operate daily flights to Guangzhou while increasing its weekly flights to Beijing and Shanghai to four each and maintaining its trice weekly operations to Chengdu.
Speaking at the opening of the Chinese-built headquarters of the Africa Centers for Disease Control and Prevention in Ethiopia’s capital, Addis Ababa, Qin instead stressed China’s partnership with Africa in security and economic development.
Starting from March 1, the flights will surge back to the pre-COVID levels, with daily flights to Beijing and Shanghai, as well as 10 and four weekly flights to Guangzhou and Chengdu, respectively. Accordingly, Ethiopian will operate a total of 28 passenger flights per week to China when the services are fully restored.
African Union Commission Chairman, Moussa Faki Mahamat, told a joint press conference that Africa’s lack of permanent representation on the Security Council is a “burning issue” considering that most issues on the council agenda are related to African countries.
Ethiopian Group CEO Mesfin Tasew said: “We are glad that we are ramping up the frequencies of our flights to Chinese cities thanks to the easing of flight restrictions by the Government of China. China is one of the largest markets for Ethiopian Airlines outside Africa, and the increase in flight frequencies will help revive the trade, investment, cultural, and bilateral cooperation between Africa and China in the post-COVID era. (Trade Arabia)
Qin, who was appointed in December, is on his first overseas visit as foreign minister and is beginning a weeklong trip to Africa. He will also visit Gabon, Angola, Benin, and Egypt.
“It is unacceptable that others decide in the place of others. It is not fair. We need a new order at the international level that will respect the interests of others,” he said.
For more than three decades, China’s foreign ministers have started their terms by visiting Africa. China has invested heavily in infrastructure in African countries, including roads, railways, and hospitals. (Aljazeera)
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The Reporter, January 14 2023 Vol. 26 No. 1375
HEADLINES
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Corporation dispose of 500m birr unutilized fertilizer
By Samuel Bogale The Ethiopian Agricultural Businesses Corporation is finalizing the disposal of fertilizer inputs worth over half a billion birr, following the decision by the Parliament last year. The unutilized inputs were procured since 2014, with a plan of supplying the inputs to the factories that were planned to be built in Ethiopia by the former Metal and Engineering Corporation (METEC). Composed of inputs like potash, zinc, and boron, they were procured through the Corporation and four regional administrations (Amhara, Oromia, Tigray, and SNNPR), with the approval of the Ministry of Agriculture. The Corporation procured about 332,623 quintals of the inputs worth 567.8 million birr, while the four regions procured 152,778 quintals for 176.8 million birr, according to Kifle Woldemariam, the chief executive officer of the Corporation. However, as the factories were unable to operate, the inputs were nearing expiration, with Members of Parliament (MPs) ordering their disposal through a standing committee last year. “After their inspection, the members of the Parliament’s standing committee
recommended that it be removed,” Kifle told The Reporter. Following that, another bidding process took place for disposal to pick companies with the desire to take the inputs for
their own use. During the second effort to sell, the highest offer was 15 million birr for the 332,623 quintals of inputs purchased by the corporation and almost nine million for the
Ethiopian risks losing 15-year tax holiday, other incentives from Nigerian gov’t The court battle between Airline Operators of Nigeria (AON), Nigeria Air Limited, and the Minister of Aviation, Hadi Sirika, could cost Ethiopian Airlines incentives from the Federal Government. Ripples Nigeria reported last year that the AON sued the yet-to commence national carrier and the Federal Government over its deal with Ethiopian Airlines. In November, the Federal High Court in Lagos restrained the government from going ahead with its national carrier agreement with Ethiopian Airlines, preventing the commencement of Nigeria Air in December 2022. With the court set to resume hearing on the AON lawsuit on January 16, 2023, to determine the validity of the agreement between the foreign airline operator and the Nigerian government, court documents have shown that Ethiopian Airlines has more to lose than the stake it plans to acquire in Nigeria Air. The government had offered 49 percent of Nigeria Air to Ethiopian Airlines, while handing out 46 percent to Nigerian investors and retaining five percent. According to court documents with suit number FHC/L/CS/2159/2022 submitted by Ethiopian Airlines to defend its position, it was learned that aside from the stake, the foreign operator also intends to benefit from tax holidays and other incentives. (Ripples Nigeria)
152,778 quintals brought in by the regions. The Corporation would lose 552.8 million birr, while the regions incur 167.9 million Corporation . . . page 27
Birr devaluation set to be a mixed blessing for economy The country’s central bank, the National Bank of Ethiopia, is battling a severe shortage of foreign exchange reserves that hurts efforts to service the dollardenominated debt.
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ϐǡThe Africa Report that “the government is taking measures to cut down on any kind of foreign exchange spending.” It appears unlikely that these measures will be enough to avoid an IMF bailout. Fitch Ratings recently downgraded Ethiopia to a CCC-credit rating in light of “the
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The Reporter, January 14 2023 Vol. 26 No. 1375
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The Reporter, January 14 2023 Vol. 26 No. 1375
HEADLINES
Emirates intends to recruit Ethiopian cabin crew
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By Rebecca Tewodros Candidates who are interested in the possibility of becoming a member of Emirates Airlines’ cabin crew team will have the opportunity to participate in an assessment that the industry-leading airline, Emirates Airlines, will be hosting in Addis Ababa next week. The assessment will take place on January 17, 2023, and the candidates will need to demonstrate the ability to “lead with confidence” and take charge when it comes to managing aircraft services, security, and safety protocols. The airline is searching for applicants who can “deliver simple yet personalized and impeccable hospitality while generating memorable moments for their consumers.” Candidates who submit an application for the assessment, which can be done online through their website, should be ready to commit a full day to the assessment process at the venue. They should be able to speak and write English fluently and are expected to be at least 160 cm tall and able to reach 212 cm, along with the requirement to meet the employment visa criteria of the United Arab Emirates in order to be considered for its cabin crew positions.
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In addition to having at least a high school diploma, candidates must also have worked in hospitality or customer service for at least one year. Newly recruited members of the cabin crew will undergo training of the highest caliber and participate in educational activities, according to the airline. The employment opportunity comes with a benefits package that includes perks such as a taxfree salary, free housing, free transportation to and
from work, free medical coverage, and exclusive discounts on shopping and leisure activities in Dubai, where the crew is based. It also provides its employees and their families with travel benefits, which entitle them to free or discounted airfare to any of the places that the airline services. Its worldwide cabin crew team currently comprises 160 nationalities, and it conducts international operations in over 130 cities across six continents using a contemporary fleet of more than 200 wide-body aircraft.
It is also the biggest operator of Boeing 777 and Airbus A380 planes worldwide. The airline, which has been operating in Ethiopia for the past 17 years, offers daily flights both to and from Addis Ababa. It is one of the biggest competitor of the Ethiopian Airlines in Africa. It offers flights departing from Addis Ababa to a total of 136 locations spread across the continents of Africa, Asia, Europe, North and South America, and the Middle East.
HORN IN BRIEF
Kenya’s electricity capacity crosses 3,000 MW mark
Kenya, Tanzania resolve 23 trade barriers after Samia visit
Kenya added 102.34 MW to its installed capacity for electricity generation
Kenya and Tanzania resolved 23 restrictive regulations that had impeded trade between the two countries following President Samia Suluhu Hassan’s Nairobi visit in May 2021, a government paper shows.
in the 2021–22 financial year, boosting efforts to provide stable power at a time when peak demand hit a fresh high. Energy and Petroleum Regulatory Authority (EPRA) data shows Kenya’s installed capacity stood at 3,074.34 MW as of last June, up from 2,972 MW the previous year. “The installed capacity increased by 102.34 MW from 2,972 MW as of June 2021 to 3,074 MW as of June 2022. Geothermal and solar generation increased by 86 MW and 120 MW, respectively,” says Epra in the report. Installed capacity refers to the maximum amount of electricity that a power plant can generate for onward supply to the national grid. The plants that were added to the grid are: 86 MW from the Olkaria 1 unit 6, 40 MW from the Selenkei and Malindi solar plants, and another 40 MW from the Cedate solar power plant. The increase in installed capacity came at a time when peak demand hit a high of 2,057 MW on June 14 last year, up from 1,993.63 MW a year earlier, as economic activities remained on a steady rise with the easing of the coronavirus-induced curbs. (Business Daily)
A new government paper shows that Kenya had initially targeted to resolve about seven non-tariff barriers (NTBs)—restrictive regulations such as licenses, quotas, embargoes, foreign exchange restrictions, and import deposits—in the financial year 2021–22, but this jumped to 31, reflecting a warm relationship between the two countries. The drop in the number of these trade barriers, which pushed the cumulative number of NTBs resolved and eliminated to 256 by the end of June last year, came moments after the visit to Kenya by Suluhu, who had just replaced the late John Pombe Magufuli. “The over-achievement was as a result of collaborations between Kenya and the United Republic of Tanzania to resolve NTBs to create market access,” reads part of the Report for General Economic and Commercial Affairs Sector, a sector working group for the budget preparation that also includes the Treasury. A year after the visit by Suluhu, trade between Kenya and Tanzania crossed the Sh100 billion mark for the first time, signaling improved ties between the two states. (Business Daily)
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10|IN-DEPTH
The Reporter, January 14 2023 Vol. 26 No. 1375
“The constitution talks about the self-determination of ethnic groups up to secession. This is very bad and hinders nation-building,”
STRIKING A BALANCE BETWEEN ETHNIC DIVERSITY, NATIONAL UNITY By Ashenafi Endale For the past three decades, the topic of ethnicity and land in Ethiopia has gone unaddressed under both the unitarist Derg and the federalist regimes. The conflict between groupidentity politics and citizenship politics has evolved into an armed struggle, exacerbated by a weak power structure and a democratic deficit. War is still raging in western Ethiopia, driving the federal government into another chapter of chaos just two months after successfully ending the war in northern Ethiopia. In contrast to the Tigray war, the fighting in Oromia is both vertical and horizontal. The militants, dubbed “OLF-Shene” and “AmharaShene” by the government, are fighting both the government and each other. Before Prime Minister Abiy Ahmed’s (PhD) coming to power in April 2018, the militant troops were based in Eritrea, fighting with
the Ethiopian People’s Revolutionary Democratic Front (EPRDF). However, after relocating their bases to Ethiopia, the nature of the conflict shifted to controlling the areas constitutionally assigned to ethnic groups. In fact, nonterritorial tribes or other ethnic groups living in areas owned by another regional state have no power under the constitution. Individual rights have lost ground in recent years as ethnic rights have been increasingly deconstructed and echoed. The primary cause of various ethnic battles in the last five years, including the Oromo-Somali conflict, the Guji-Gedeo conflict, the Tigray-Amhara conflict over Wolkait and Raya, and the Oromo-Amhara conflict in Wollega, Shewa, and Wollo, has been territorial ethnicity claims. The conflict in these places was aimed at expelling non-territorial ethnic groups and changing the area’s population. Land and resources remain
central, and various ethnic groups are waiting for referendums to form regional nations. For example, as a result of a dispute and social movement over claims to become a regional state, the Gurage zone is currently managed by command post. Regional states have the right to self-determination under the current constitution and federalism model. However, the majority of the political elite argue that the constitution is the primary source of the unrest shaking the country to its core. The Ethiopian Academy of Science (EAS) is one of the institutions concerned about the country’s escalating ethnic strife. Last week, the academy organized and hosted an indepth conversation on the topic of ethnicity, in which more questions were raised than addressed. The current constitution and Ethiopia’s federalism based on ethnicity, according to the majority of academics there, are pulling the country apart rather than bringing it
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together. “The constitution talks about the self-determination of ethnic groups up to secession. This is very bad and hinders nation-building,” Yacob Arsano (PhD), political science lecturer at Addis Ababa University (AAU), says. This has put Ethiopia’s federalism under significant strain, according to Yacob, who was also one of the government’s experts on the now-defunct Administrative Boundary and Identity Issues Commission. Yacob is also dissatisfied with Article 2 of the constitution, which specifies that the country’s border is also the border of the member states. In this regard, the context is that Ethiopia was founded as a state with the approval of the nine regional states, which now number ten, and other ethnic groups are in the process of establishing regional states. Scholars contend that it is a “holding together” rather than”coming together”
IN-DEPTH|11
The Reporter, January 14 2023 Vol. 26 No. 1375
“No one can teach this nation how to unite, but the so-called politicians who are ruling this country are deploying the ‘divide and rule’ strategy to stay in power,”
“Both camps have the same aim: political dominance over one another. All of this, however, is a narrative created by political elites, not ordinary people. Identity is dynamic. If the people could see a better identity and virtue in Ethiopianism, they could blend into that national identity without a need for war,”
federalism. According to scholars such as Yacob, granting ethnic groups ultimate power is the incorrect assumption for forming a state. “For any state, whether it is a federation or another form, having its own land and its own boundary is the first priority. Attaching the land to ethnic groups alienates the territorial integrity and national sovereignty of the country,” Yacob said, adding, “The constitution is flawed.” He believes that national territorial integrity and sovereignty come before the recognition of member nations. He further contends that, unlike Ethiopia, federalist governments such as Nigeria lack the authority to establish their own police forces. Ethiopia’s federalism format is a “give-away” federalism and has a constitution that allows secession, says Asnake Kefale (PhD), a political science lecturer at the AAU who also led the discussion on federalism at the EAS. “This cannot help with nation-building and maintaining a strong state. A centralized system is needed to ensure good governance and equal development among others.”
While intellectuals advocate for centralized governance and the eradication of ethnic-based constitutions, the elite has no other option for dealing with diversity. In truth, no country has ever been developed by eradicating diversity. However, federal systems such as India maintain both unity and diversity through shared vision, integration, development, and democratization.
uniting in arms to fight external enemies. That is how Ethiopia remained uncolonized,” a political analyst who spoke to The Reporter on condition of anonymity said.
provide a home for all ethnic groups in the country rather than attempt to create a state-nation out of a country like Ethiopia, which has more than 80 separate nations and ethnicities.
“No one can teach this nation how to unite, but the so-called politicians who are ruling this country are deploying the ‘divide and rule’ strategy to stay in power,” the analyst added.
However, the political expert believes that Ethiopia can strike a balance between its diverse ethnic groups and its need to be one country.
According to Yacob, the pursuit of nationalists in Ethiopia is not inherently improper, but the way in which it is carried out is. He claims that Ethiopia’s elites, in particular, have failed the country. “The Ethiopian elite are passionate but lack knowledge.”
The analyst believes political leaders lack ideology to elevate the nation. “That is why the problem of Ethiopia has slipped back from a question of nation-building to one that risks the very formation of a state.”
Several opposition party leaders have also claimed that power struggles inside the ruling party are to blame for Ethiopia’s continued ethnic conflict. “Ethnic diversity has never been a problem in this country. This population has a long history of
The Horn of Africa countries are all the products of a colonial-era drive to control Africa. Because colonists imposed arbitrary borders, most ethnic groups in East Africa are distributed across numerous nations, making state formation problematic. Because it is difficult to remove the impacts of colonialism, it is critical to
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From a development perspective, both the unitarian and federal systems can do more, but only if there is democracy and equity, according to the analyst, who says there is not much difference between the unitarist and federalist political forces in Ethiopia. “Both camps have the same aim: political dominance over one another. All of this, however, is a narrative created by political elites, not ordinary people. Identity is dynamic. If the people could see a better identity and virtue in Ethiopianism, they could blend into that national identity without a need for war,” says the political analyst.
12|INTERVIEW
The Reporter, January 14 2023 Vol. 26 No. 1375
“THE PRIVATE SECTOR NEVER RAN THE ECONOMY” Abdulmenan Mohammed (PhD) LVDÀQDQFLDODQDO\VWEDVHGLQ London, United Kingdom. He is well-known for providing his YLHZVRQWKHÀQDQFLDOLQGXVWU\ across many media channels. Abdulmenan is presently working as an Account Manager at London Portobello Ltd. He has been praised for his analysis of the performance of banks and LQVXUDQFHÀUPV+HLVDPRQJWKH experts who are pleased with the recent adjustment in policy in the banking industry, which has made the sector more open to competition from overseas banks. However, he has certain reservations, including a worry that international banks may be unwilling to enter the Ethiopian PDUNHW$VKHQDÀ(QGDOHRI7KH Reporter sat down with him to discuss the banking sector and the economy as a whole. EXCERPTS:
The Reporter: You live and work permanently in London, and you just arrived in Addis Ababa. What are your observations and impressions of Addis from this trip? Abdulmenan: There is an air of stability in the capital now, compared to my previous trips. Relatively, it is peaceful now, but the traffic and mobility chaos in Addis Ababa remain as they are. You closely follow up on the Ethiopian financial sector and the economy. Recently, the government has been preparing to end protectionism and liberalize the banking sector. Do you see local banks having a copping mechanism in place? Which entry modality do foreign banks prefer out of the four allowed by the National Bank of Ethiopia (NBE)? Local banks are extremely worried that foreign banks will come in mass and force them out of the market. But that will depend on what type of service products the foreign banks will bring to Ethiopia. If foreign banks offer the same service lines as local banks, local banks will face difficulties. The worry is also there with the NBE to some degree. That is why you see a lot of restrictions in the banking open-up policy document and the draft proclamation of the
Banking Business. So the NBE is not going to just open up the sector at once; rather, it will be gradual. Only a certain number of foreign banks will be allowed, and there will be a limit on the number of branches they can open and how much their management can be involved. I do not think there is anything to fear. The opening will take place in controlled scenarios that will not put local banks at risk. But basically, local banks should not be afraid of competition. But I don’t think the big international banks have the appetite to come to Ethiopia as the government expects. They know the Ethiopian market is too small for big financial institutions like Barkley. Most of the banks that will come are African. Apart from that, NBE officials said all the laws and restrictions applied to local banks will apply to foreign banks. This will also highly discourage the foreign banks, which do not want government intervention to this extent. There are a lot of interventions, apart from the 21 percent mandatory investment in government bonds. A number of local banks are already considering merging. Is that the only survival mechanism? If their services and market niches are similar, they can succeed
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by merging. But if a merger is forced upon the local banks by the NBE, the outcome will be bad. A merger should be based on market congruency and the full consent of the banks. The shareholders also must agree. Local banks can also consider specializing in certain business areas. The NBE protects local banks’ interests, and local banks, in turn, protect shareholders’ interests. But from the consumer side and access to finance perspectives, there is a wide gap. Will the market open up under a restricted scenario, improving the low access-tofinance situation in Ethiopia? Will the opening up of the banking system actually spur economic growth? Access to finance is one big challenge in the Ethiopian economy. This is because the economy is largely informal. Lack of access to finance cannot be fully attributed to the banks. A large number of businesses cannot access banking finance because those businesses are engaged in informal economic activities. Of course, the central bank considered the banks’ interests in this open-ended process. This is also largely because the sector has to remain stable. If the economy is to be stable, the banking sector
INTERVIEW |13
The Reporter, January 14 2023 Vol. 26 No. 1375 must remain stable. So, the NBE has to protect the banks’ interests to maintain the stability of the sector. Arbitrary action by the banks can damage a country. There are numerous tasks that must be completed in order to maximize the consumer’s benefit from banks. A well-compiled record and information about each consumer are necessary. If banks have all the information they need about citizens, it will be simple to give loans. But so far, less data is available. Many banks do not know their customers well. People are taking out loans with multiple fake IDs. This has to improve to boost access to finance. Compiling data and information on all citizens is also important for credit rating work. One of the reasons for the restrictions in the Ethiopian financial sector is due to the poor data collection. But Ethiopia cannot protect its banks forever. They have to compete. Do you think the insurance sector should also be opened up? Definitely. The opening up of the financial sector should be holistic. I even expect more foreign investors to come to Ethiopia if it is opened up. The central bank recently established a minimum premium. Insurance companies say they are losing revenue because of stiff competition. One of the aims of competition is to expel unfit competitors. So that is normal. What is the major challenge in the financial sector? The government’s budget deficit is still disrupting the financial sector, and its domestic credit is very large. The government is also forcing banks to invest around 21 percent of their loans in government bonds. During the EPRDF, the government had an ideological reason to engage in economic activity. For example, it said 27 percent of the money from banks was invested in development projects via the Development Bank of Ethiopia. The current government even has no such excuse. The government is doing this just because its revenue and expenditure could not match. The current government is intervening in the financial sector as well as the economy at large. This is the worst type of state intervention in the economy. It even has no ideological base. In reverse to EPRDF’s developmental state approach, in which the state’s investments crowded out the private sector, the Prosperity Party (PP) introduced reforms pledging state withdrawal from economic activities. But we also see the new government asserting itself in the economy. Can we say that the four years of reform have shifted the economy from a state-run
to a private-sector-led economy? Do you think the state’s crowding of the financial sector has diminished and more bank loans are going to the private sector now? The reform had very insignificant changes. The new government pledged to leave the economy to the private sector. But it came back and reasserted itself, even with more depth. The private sector never ran the economy. The government never left the economy to the private sector. The former government, for example, used to force banks to invest 27 percent of their loans in T-bills. The current government also introduced a 20 percent mandatory investment requirement in government bonds. Banks’ hard currency surrendering is currently constrained. The current situation is even worse. The previous administration’s 27 percent bill and overall state participation in economic activities had some ideological support. It was under the developmental state model. But the current government is taking money from the economy, mainly to finance the deficit. This is the worst case. In Ethiopia, most of the factors of production are under government monopoly. The big and key institutions are under state control, land, and finance is also under government control. If an economy is to operate properly, the factors of production must be led by the market. The reason there is a lot of conflict and war in Ethiopia is because all resources are controlled by the state. When every resource is in the government’s hands, the only way to access that resource is by assuming power in the government structure. So, everybody is fighting for power in Ethiopia to get hold of the resources. The main reason everybody is going to the forest, taking up arms, and fighting in this country is to control that resource in the government’s hands. But if the government withdraws from controlling every resource and the resources are left for the citizens to access in the market, the war route cannot be used as an option. The reform is much talked about, but nothing is progressing so far. Many projects, like the sugar factories, could not find buyers. The government initiated some new projects, and it still has a significant hand in the economy.
the current government, land has remained the government’s property. This is the primary cause of Ethiopia’s interminable conflict. The major reason there is displacement and conflict is because land is owned by the government. There is also no land supply for housing, investment, or development. So, land must be returned to its owners, the citizens. You also work on property and mortgages in London. In Ethiopia, a number of new banks were formed in the past year, pledging to work on mortgages. The housing market and property market bubbles, however, remain. The mortgage market in Ethiopia cannot improve in the near future. There are many complicated problems. Those new banks that pledged to specialize in mortgages will soon convert to commercial banking and conventional business. First of all, what we call a “mortgage” in Ethiopia is concentrated only in Addis Ababa. Most of those who can buy houses in Addis are employed professionals. But the average housing price is much higher than the average income of employed professionals in the city. It is incomparable. So housing is unaffordable for the majority. Even if it is a mortgage, they cannot afford the monthly payment. A housing unit’s monthly payment can range between 40,000 and 60,000 birr. How many Ethiopians have such disposable income that it covers all their other expenses as well? Plus, it needs stable employment because the mortgage is paid for up to 25 years. The inflation spike in the country is also disturbing the market. Housing properties also have complications related to documentation problems, making it difficult to transfer title deeds. Starting a good mortgage business in Ethiopia is difficult. Several problems have to be addressed before establishing mortgage banking in Ethiopia. The reason housing prices are highly inflated is because the price of land is highly inflated. Basically, land cannot be sold, but it is being sold indirectly at high prices. The reason land prices are inflated is because land is under the monopoly of the government. So this is distorting everything.
Do you think ethnic politics, which is largely based on the land ownership of ethnic groups, will diminish if land is privatized?
The current government says the economy is market-based. But there is a lot of intervention under the pretext of development. Do you see that the developmental and profit-seeking aspects of the economy are balanced?
Yes. Everybody can work on the land it owns. It was Derg that first enabled farmers and peasants to own land. However, the EPRDF made no progress in terms of land privatization. During the Derg, the EPRDF, and
That is why we see a lot of problems in the economy. There is confusion between capitalism and socialism. In the 1990s, there was massive privatization and a significant shift from a command economy to www.thereporterethiopia.com
a market-based system. But after the 2005 national election, everything reversed, the state’s role in the economy rose, and the government completely controlled the economy. The EPRDF said it emulated the East Asian tigers, but its practice greatly deviated from their principles. In the East Asian model, public institutions and businesses are highly professional. Under the EPRDF, there was no line between party and government institutions. Now, after the PP came to power, there is no clear approach. They talk about market-based systems, and then they talk about developmentalism. In the meantime, some reform efforts are underway. But PP is running everything based on what it inherited from the EPRDF. The entire body inherited remains in place. Some privatization and liberalization work is currently underway. Many criticize the government for doing so, not because it is opting to reduce its hand in the economy but as a result of the foreign currency shortage and the strict preconditions of International Financial Institutions (IFI). Take the sugar projects, for example. The government invested in 10 sugar projects, but they could not find buyers now. MetEC was engaged in embezzlement because of state intervention policies. The state’s intervention has done enough damage to the economy. By the way, without strict principles in place, humans have the tendency to embezzle any resource. So the current government had to learn from the EPRDF and reduce state intervention in the economy. The government’s current privatization and liberalization efforts are largely motivated by western pressure. Currently, the privatization of ethio telecom’s 40 percent stake and sale of a second license are underway. What do you expect? This was in the pipeline for the past two to three years. The government had suspended the sale for a year, but it is now back in action. This is because the foreign currency shortage has reached a very critical stage. And this forex crunch can be solved only by selling some of the public assets, among other options. How much revenue do you expect from ethio telecom’s 40 percent sale and License B sale? My rough estimation for the 40 percent is around USD seven or eight billion. This is considering ethio telecom’s annual revenue, which is growing significantly faster. There will be evaluations by the government, investors, and consultants. Local
banks
are
also
allowed to sell up to 40 percent of their stakes to foreign investors. Do you think that will also generate sufficient hard currency? Yes, but the local banks must have an interest in selling equity first. If there is a capital market, foreign investors can buy shares of a bank bit by bit and eventually control 40 percent of a local bank. But if a single foreign bank came today and asked to buy 40 percent, the shareholders might refuse. The valuation can also be tricky without a capital market. Under the current circumstances, it is highly unlikely that shareholders will allow the sale of equity in their banks. But once the stock market is operational, they cannot do anything. If a local bank offers a large volume of shares at once and wants to generate forex by selling the shares to foreign investors, then it might attract foreign investors. But this too needs shareholders’ consent. Of course, foreign banks want easy access. They do not want a complicated operating environment. Ethiopia’s distressed debt is currently creating huge pressure on the economy, with most of those external debts maturing now. Its annual external debt service will double to USD 4.1 billion in the next couple of years. On the other hand, the national foreign exchange reserve remains below USD 1.6 billion. Yeah, the forex reserve does not cover even one month of import bills. The government in the past has taken external loans without a second thought on how to pay them back. The loans were not used on good investments that could pay back the debt. And now that the maturity date has approached, the government is in hot water. The International Monetary Fund’s (IMF) debt restructuring is our only hope right now. Since the current government is undertaking the reforms and a peace agreement between the federal government and the Tigray People’s Liberation Front (TPLF) has been signed, there is hope. IFIs can also disburse fresh funds now. So, working on the G20 scheme is not optional for Ethiopia. All in all, unless the G20 and IMF schemes succeed, Ethiopia will default on its debts. The political tension between the East and the West can affect Ethiopia. Though China is the major creditor, it is the IMF that does the detailed work of debt restructuring analysis. So, the IMF plays a key role in making decisions, including putting pressure on the creditors. Ethiopia is trapped in a vicious circle of foreign currency crunches, devaluations, and inflation. Do you see any “The private . . . page 24
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The Reporter, JJanuary anuary 144 22023 023 Vol.. 26 2 No. 1375
AL-SHBAAB’S INEVITABLE DEMISE MARKS THE END OF THE IMPOSSIBLE By Staff Writer In the last several months, Somali government soldiers fighting Al-Shabaab have made substantial advancements against the group. Clans sprung up in opposition to the armed organization, and the government intended for them to expand. Although government troops have been successful in their fight against the terrorist group, analysts believe that it will be challenging for them to sustain those victories while still honoring their responsibilities to the local people. Somalia has been ripped apart by the Islamist insurgency of Al-Shabaab for almost 15 years with little prospect of abating. The conflict between Mogadishu and the country's regions, also known as federal member states, has hindered the military operations of Somalia's government and its international allies. AlShabaab, for its part, has shown resilience by adapting to counterinsurgency efforts and consolidating its position within Somali society. Newly elected President Hassan Sheikh Mohamud and his administration are trying to restore faith in the ability of Somali military to confront insurgents. Given the progress that has been accomplished since he assumed office, the new president is not only finding success with the military by using force, but he is also winning success with morale. Arabic name "the young," Al-Shabaab was originally the enforcers for the Islamic Courts Union, a group of clerics that defeated the
warlords who had ruled parts of south-central Somalia since the fall of the central government in 1991. Al-Shabaab has established itself as a tool of armed resistance and a governing player in all regions under its authority since Ethiopia's invasion in December 2006 toppled the Islamic courts in favor of the internationally supported Transitional Federal Government. Al-Shabaab's overarching policy is to avoid direct military conflict at all costs, retain supremacy in rural south-central Somalia, and gradually expand its reach into cities and towns that are ostensibly under the authority of the government. Smaller ambushes at strategic areas allow the group to choose the rhythm of the conflict rather than being at the mercy of larger conflicts. Meanwhile, AMISOM, which Ethiopia is a member of but which is now known as the African Union Transitional Mission in Somalia (ATMIS), has taken a defensive stance and seldom undertakes large offensives for years. First elected in May of this year, President Hassan Sheikh Mohamud has been
on an aggressive campaign against Al Shabaab since taking office. His forces have been supported by clan militias, African Union troops, and the United States. Hundreds of US special operations forces were sent to Somalia in May after US Vice President Joe Biden revoked an order issued by Trump's predecessor. Since its inception in 2007, the African Union operation in Somalia has cost the European Union close to 2.3 billion euro. More than 600 members of Al Shabaab were reportedly slain and 68 towns were taken by the Somali government in the three months leading up to December. Only 20 percent of Somalia is under the group's control, President Mohamud stated last month. On December 16th, he said to Al Jazeera, "We are succeeding." In an era "when the state is not present or is weak," Hassan said, the organization thrived. “During its history, Somalia has had periods with no functioning government. This place was like a womb for these kinds of individuals.” He elaborated by saying that some militants joined for www.thereporterethiopia.com
ideological reasons, some for economic ones, and yet others for other concerns. Hassan's military effort against Al-Shabaab seems effective, and he won widespread public support as a result. Last week, on January 12, 2023, hundreds of Somalis gathered in Mogadishu for a state-organized march to denounce the al-Qaedalinked Al-Shabaab. The gathering was held in a heavily guarded stadium, and President Hassan Sheikh Mohamud, who was there, urged the Somali people to help eliminate members of the Al-Shabaab organization, which he called the "bedbugs. "I’m calling to you, the people of Mogadishu; the Kharijites [renegades] are amongst you … so flush them out. They are in your houses, they are your neighbours, in cars that pass you by,” Mohamud said “I want us to commit today to flushing them out. They are like bedbugs under our clothes,” he added, as demonstrators waved flags and placards with anti-AlShabaab message. It seems that Al-top Shabaab's
officials have realized that fortune is on their side. This week, in a stunning reversal of events, they reportedly indicated their willingness to negotiate with the government of Somalia, which they had previously deemed illegitimate. ““Al-Shabaab requested to open negotiations with the Somali government, but there are two groups within Al-Shabaab,” Deputy Defense Minister Abdifatah Kasim told journalists in Mogadishu. “The first part is foreigners, and the second part is local Somalis. Those locals have a chance to open up negotiations, but those foreigners who invaded our country have no right for talks. The only option is to return to where they are from.” The Somalis who are members of Al-Shabaab were given two options by the minister of defense. “For the Somalis, we are ready to receive them, for they are willing to surrender to the Somali government. They must follow the government’s instructions, reintegrate with their society, or face the Somali National Army in the front lines,” he concluded.
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The Reporter, January 14 2023 Vol. 26 No. 1375
With a new tax on the horizon, UHJLRQVHQYLVLRQÀVFDOLQGHSHQGHQFH By Samuel Bogale Since the relevance of property tax became a public agenda, formally brought to the table by a project office formed under the former Ministry of Urban Development & Housing (now rebranded as Ministry of Urban & Infrastructure Development), authorities responsible with following up on the matter have been exerting efforts to bring it to fruition. Even Prime Minister Abiy Ahmed (PhD) advocated for it. To his delight, it became a reality last week. Citizens will soon be required to pay taxes if they own property. Who should be in charge of collecting property tax was a more contentious question and debatable than whether or not it was necessary to do so in the first place. The debate was finally concluded on Wednesday, October 11, 2023. The power to collect property taxes had been given to the regional and city administrations rather than the federal government, whose officials had advocated taking 25 percent of the entire amount collected. On Wednesday, members of Ethiopia's House of Federation and House of Peoples' Representatives convened for their first special joint meeting since the country's last general election, which took place in 2021, in order to deliberate on the day's agenda, property tax. Resolution proposing that power be given to regional administrations was brought before the houses for debate and voting by the Planning, Budget, and Finance of the HoPR and the Subsidy Budget and Shared Revenues of the HoF. The motion was approved with four votes against and five abstentions. Following the presentation of the resolution by Hailu Ifa, the secretary of the Subsidy Budget and Shared Revenues of the HoF, members of the two houses debated the subject. Hailu described how towns and regions struggle to finance their expenditures, as well as the role that property taxes may play in reducing the budget deficits they face. "They are significantly reliant on federal government subsidies." It is a legitimate concern, considering that federal government subsidies account for more than half of regional state and municipals budgets.
“Cities in Ethiopia cover only 1.8pc of their expenditure with taxation of properties and land, whereas it is 30 percent in cities like Nairobi,” reads Hailu, as he presented the resolution. MPs who voted for the resolution believes that imposing a property tax will help them attain budgetary independence while relieving pressure on the federal government, which allocates 27 percent of its budget to regional subsidies. Tadesse Lencho (PhD), an expert in law and former instructor of tax and bankruptcy law at Addis Abeba University, and presently a managing partner at TBeST Law LLP, describes how property tax was not new to Ethiopia and how it was enforced during the reign of Emperor Haile Selassie. Property tax was levied on immovable assets such as plots of land under imperial rule, based on location, fertility of the soil, and several other factors, he stated. The Derg regime ended the rule in 1974, although the Ethiopian People's Revolutionary Democratic Front (EPRDF) maintained the status quo. “Property tax was one of Ethiopia's oldest forms of taxation, although it was not recognized in the existing tax system and legislation,” he said. He goes on to explain how property taxes relate to the notion of equity. Residents living off their salary become the major backbone of the government tax, whilst citizens owning villas and living off better
with municipality amenities are exempt from property tax, according to him. It is a view shared by MPs. Tadesse, however, cautions the government to be wary of probable increases in rents and surging property prices as a result of the property tax. “Those who are unable to pay will most likely be exempted from the legal frameworks that will take effect as a result of this. It should be thoroughly examined if there are people who own properties but are unable to pay the tax,” Tadesse shares his concern. During the deliberation process, lawmakers expressed concerns about how this form of tax should not be imposed. Desalegn Chanie (PhD), former chairman of the National Movement of Amhara, voiced objections about the concept of a property tax in parliament. Desalegn expressed his worry about immovable assets, which are largely residential dwellings erected by city inhabitants with numerous difficulties like as long time savings and loans.
taxes to the development of the cities from which the funds are derived. After collecting almost a billion Birr in internal taxes in Bahir Dar alone, the city he represents in parliament, the regional government returned a very tiny sum to the city's infrastructure, he added. The Finance Minister, Ahmed Shide, was audacious in asserting that "those who have managed to build properties in Ethiopia already have better income" when explaining the latest effort to widen the tax base to members of both houses. Ahmed told members of both houses that the property tax would ensure equality in tax collection, citing the country's low tax-to-GDP ratio and narrow tax base. According to Shimelis Abdisa, president of Oromia Regional State and head of the House of Federation's Subsidy Budget and Shared Revenues standing committee, one of the key purposes of granting regional governments the right to collect property taxes is fiscal independence.
“Why isn’t government focus on minimizing expenditure, rather than introducing new tax?” he asked. “The government should prioritize projects and work on minimizing expenditures, as the public already has huge tax burdens.”
According to him, the majority of taxes are either collected by the federal government or shared resources by the federal and regional governments. "The regions collect extremely tiny amount of tax, which is imposing strain on the own expenditure. Let alone development activities, most areas aren't even covering their expenditure," he noted.
Desalegn also raised the issue of whether regional governments would effectively use the collected
Should the federal government be granted the power, which the House of Federation would then
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allocate to the regions, Shimelis indicated that the two city administrations, Addis Ababa and Dire Dawa, would be excluded since the HoF would not recognize the two cities. Tadesse, the specialist in tax law, agrees that local governments should handle property taxes, since he feels that local governments primarily contribute to the value of a property. He also believes that property tax is the tax type most closely associated with local government. “It’s the services and infrastructures the local administrations develop that add to the values of the properties. The federal government is very far from property tax,” he said. “Even regional governments shouldn’t claim ownership of the property taxes, it is for municipalities only.” The federal government's objective is for regional governments to delegate functions to their local administrative structures (municipalities), after which the cities would utilize the tax to fund their development plans. “One big problem is that rich cities with larger numbers of property owners will be richer and poor cities will be pooper,” Tadesse said. “The federal government should come up with a solution on how to narrow the gap.” The next step would be to draft a proclamation on how the property tax would be imposed, after which regions would establish legal frameworks in accordance with what the parliament has legislated.
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The Reporter, January 14 2023 Vol. 26 No. 1375
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The Reporter, January 14 2023 Vol. 26 No. 1375
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